Failed Banks: Will the FDIC's Next Steps Include Litigation?

Failed Banks: Will the FDIC's Next Steps Include Litigation?

The FDIC has picked up where it left off at the end of 2009, with its first bank closure of the New Year. On Friday, January 8, 2010, the FDIC took control of Horizon Bank of Bellingham, Washington, for the first bank closure of 2010. While the FDIC’s continuation of its regulatory actions regarding troubled banks seems likely in the near term, what remains to be seen is whether the FDIC’s actions will include litigation against the former directors and officers of the failed banks.
 
Though the FDIC has yet to launch D&O litigation, the lawsuits may be just ahead. The FDIC is taking a series of steps clearly designed to prepare for litigation.
 
First, as reported in a January 10, 2010 article in FinCri Advisor (here), the FDIC is "subpoenaing bank officials and workers, hoping to gather evidence to use in potential litigation." By way of illustration, a recent motion filed by bank officials in connection with the bankruptcy proceedings involving Haven Trust Bancorp, the holding company for a Duluth, Georgia bank that failed in December 2008, states that certain of the officials "received subpoenas…issued by counsel to the [FDIC] regarding the FDIC’s investigation of certain matters relating to the failure of Haven Trust Bank." (The former officials’ motion sought access to the D&O insurance policy proceeds in order for the officials to be able to defend themselves.)
 
Second, as I noted in a prior post, the FDIC is sending civil demand letters to former directors and officers of failed banks. According to the FinCri Advisor article, former directors in Florida, California, Illinois, Texas and Georgia have received FDIC claims letters. According to a commentator in the article, one obvious trigger for a demand letter is the approaching expiration date of the D&O insurance policy.
 
Read the entire article at D&O Diary, “a periodic journal containing items of interest from the world of directors’ and officers’ liability, with occasional commentary,” authored by Kevin LaCroix, a Partner in OakBridge Insurance Services, Beachwood, Ohio. OakBridge is an insurance intermediary focused exclusively on management liability issues. Kevin has been involved in directors’ and officers’ liability insurance issues for over 25 years. He began his career as a coverage attorney and partner at the Washington, D.C law firm of Ross, Dixon and Bell.  Contact Kevin LaCroix at OakBridge Insurance Services, 2000 Auburn Drive, Suite 200, Beachwood, OH 44122, (216) 378-7817 or klacroix@oakbridgeins.com.