There Seems To Be An Uptick In FDIC Lawsuits Against Directors And Officers

2013 is shaping up to be a bad year for former directors and officers of seized financial institutions.

Cornerstone Research, a consulting firm, has issued a report entitled "Characteristics of FDIC Lawsuits against Directors and Officers of Failed Financial Institutions" indicating that FDIC litigation activity in 2013 relating to failed institutions could outpace the prior three years. As of April 22, the FDIC has seized eight institutions and filed at least twelve lawsuits. If this pace continues until the end of the year, the number of suits will total 39, more than any year since the start of the crisis.
Salient conclusions include the following:

  • The FDIC has extracted a total of $601 million—mostly from the pockets of directors, officers and their insurers.
  • Of the 44 settlement agreements involving directors and officers, 39%, required out-of-pocket payments by the directors and officers in addition to amounts to be paid by insurance carriers.
  • FDIC lawsuits against directors and officers of failed institutions have been filed in 12 percent of all failures so far.
  • After the crisis began in 2007, the FDIC began filing lawsuits in 2010. Accordingly, there seems to be a backlog of filings, with more to come.
  • CEOs are the most commonly named defendants (88% of cases).
  • Outside directors have been sued in 75% of the complaints in 2013.
  • All 2013 lawsuits included allegations of gross negligence and breach of fiduciary duty. Seventy-five percent included allegations of simple negligence.

You can read the full report here

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