Picking up where it left off at the end of the year, the FDIC has filed its first failed bank D&O lawsuit of 2013. The lawsuit, which the agency filed on January 17, 2013 in the District of New Mexico, names as defendants ten former directors and officers of the failed Charter Bank, New Mexico. The complaint, which the FDIC filed in its capacity as receiver for the failed bank, alleges claims for negligence, gross negligence and breach of fiduciary duty, can be found here.
Charter Bank failed on January 22, 2010, so the FDIC filed the complaint just before the third anniversary of the bank’s closure (and just before a long holiday weekend as well.) The complaint alleges that prior to its failure the bank committed 72% of the bank’s core capital to a “highly speculative and risky” subprime lending operation in Denver, Colorado in late 2006, when the defendants “knew or should have known” there was no secondary market for subprime mortgage loans. The operation made loans that “no reasonable institution” would have made at the time, and relaxed underwriting standards to do so. Unable to sell the mortgages into the secondary market, the bank had to take the loans onto its own balance sheet, which cause the bank to suffer financial losses.
The lawsuit, the first that the FDIC has filed in 2013, is also the first that the agency has filed in New Mexico as part of the current failed bank litigation wave. This latest lawsuit is the 45th that the agency has filed as during the current banking crisis, 26 of which were filed in 2012. (These figures, both overall and for 2012, include the lawsuit filed just before the holidays in the Central District of California in connection with the failed Alliance Bank of Culver City, California. The FDIC’s complaint, filed on December 21, 2012, in its capacity as receiver for the failed bank against X former directors and officer of the bank can be found here.)
There undoubtedly are more lawsuits to come. On January 22, 2013, the FDIC updated the page on its website on which the agency indicates the current number of lawsuits that the agency has authorized. According to the latest update, as of January 15, 2013, the FDIC has authorized suits in connection with 95 failed institutions against 788 individuals for D&O liability. This includes 45 filed D&O lawsuits naming 355 former directors and officers. The 45 lawsuits filed involve 44 failed institutions, so the implication is that there are lawsuits involving some 51 failed institutions yet to come – based on the number of lawsuits that have been authorized so far. Since the FDIC has increased the number of authorized lawsuits each month for several months in a row now, the likelihood seems to be that there are at least 51 more lawsuits – and possibly many more – to come in the months ahead.