FDIC lawsuits against directors and officers of failed US financial institutions

Joseph T, Schertler, senior consultant, Cornerstone Research, Menlo Park

As the US banking system continued to recover in 2012 from the financial crisis that began in 2007, the Federal Deposit Insurance Corporation (FDIC) intensified its litigation activity associated with the failures of FDIC-insured institutions (banks). Nevertheless, the number of former bank directors and officers (D&Os) against whom the FDIC has brought professional liability claims in connection with bank failures still lags behind the number against which the FDIC has authorised lawsuits. This backlog of authorised lawsuits suggests that the FDIC is seeking to increase pressure on directors, officers, and their insurance carriers. In addition, in December 2012, the first FDIC lawsuit filed after the onset of the crisis – which was also the first to go to trial – resulted in a $169m jury verdict against former officers of IndyMac Bancorp Inc. (IndyMac). Unless the disputes are resolved during negotiations and mediations, the FDIC’s success in the IndyMac trial and the approaching end of the three-year statute of limitations for making tort claims in connection with the numerous bank failures that occurred in 2010, suggest that substantially more cases may be filed in 2013. Issues related to the foreseeability of the crisis and its effect on the US banking system are likely to play a central role in these cases.