The lead article in the November 17, 2010 Wall Street Journal reported that the FDIC is conducting 50 criminal investigations of directors, officers and employees of failed banks. Given that (as of November 19, 2010) 314 banks have failed since January 1, 2008, this report suggests that the FDIC is investigating possible criminal charges in connection with a pretty hefty percentage of the bank failures — about 16%, if each of the 50 investigations relates to a separate bank.
These reports of as many as 50 criminal investigations are all the more striking because up to this point, the FDIC has not conspicuously pursued criminal charges. The most prominent criminal charges filed as part of the current wave of bank failures related to the May 2010 indictment of two former officials from Integrity Bank in Alpharetta, Georgia. Integrity Bank failed in August 2008, which was fairly early in the current failed bank wave. Many more banks have failed since then, and so the FDIC may just now be completing its investigations of many of the later bank failures.
In the meantime, banks are continuing to fail. Just this last Friday night, the FDIC closed three more banks, bringing the 2010 YTD total number of bank failures to 149. (The Journal article does note that FDIC officials "expect the failure wave to peak this year.")
Obviously, the FDIC has not even had an opportunity to investigate the most recent bank failures, which suggests that the figure of investigations could grow.
The Journal article quotes one FDIC official, speaking of possible civil actions to be brought against former officials of failed banks, "these numbers will continue to grow as time goes on." (The Journal article repeats the information, now widely circulated, that the FDIC has authorized civil actions against more than 80 directors and officers of failed banks.) The Journal article also reports that it takes up to 18 months for the FDIC to determine whether to bring an action, meaning that "the surge in scrutiny is likely to continue for years."
One particularly noteworthy step the FDIC has taken as it readies itself to pursue actions in connection with the failed banks is that it has begun to try to recover documents from outside law firms that were advising the directors and officers of failed institutions before they were closed.
As detailed in a November 20, 2010 Bloomberg story (here) the FDIC has sued one law firm and threatened to sue another in order to recover documents bank executives gave the lawyers before the institutions failed.
A copy of the November 9, 2010 complaint filed against the Bryan Cave law firm can be found here; a copy of the November 10, 2010 consent order attempting to resolve the matter can be found here. A November 12, 2010 Am Law Daily article about the dispute can be found here. .
In the dispute involving the second law firm, the law firm itself initiated an action, in the form of a November 17, 2010 declaratory judgment action. The law firm had received a letter from the FDIC demanding the immediate return of the documents their clients had supplied them.
It may be, as suggested in the Journal article, that the wave of bank failures will peak this year. But the FDIC’s recent actions seem to be preliminary to an onslaught of litigation activity (both civil and criminal) and suggest that the FDIC claims-related activities have only just begun but will be accelerating for some time to come.
Special thanks to a loyal reader for copies of the pleadings in the FDIC’s law firm related litigation.
Meanwhile, Investors Pursue Securities Suits Against Banks: While the FDIC’s moves toward litigation involving failed banks has been a long time coming, investors in failed and troubled banks have much more assertive. As I have previously observed, a noteworthy feature of the current round of bank failures has been the significant numbers of investor suits involving failed and troubled banks.
The numbers of investor related suits involving failed or troubled banks continues to mount. Just in the last week, investors filed two more securities class action lawsuits involving failed banks.
First, as reflected in their November 18, 2010 press release (here), plaintiffs’ lawyers have initiated a securities class action lawsuit in the District of Delaware against Wilmington Trust Corporation and certain of its directors and officers. A copy of the complaint can be found here.
Second, in a separate November 18, 2010 press release (here), another plaintiffs’ firm announced that they had filed a securities class action lawsuit in the Eastern District of Tennessee against Green Bankshares and certain of its directors and officers. A copy of the complaint can be found here.
With the addition of these two latest lawsuits, as many as thirteen of the approximately 154 new securities class action lawsuit filed during 2010 have involved commercial banks, or roughly 8.5% of all 2010 securities class action lawsuits. The banking related securities suit activity has been one of the most significant factors in 2010 securities filing activity (not even taking into account the claims that have arisen involving banking companies that were not publicly traded).
Perhaps the only other group of companies that has been so specifically targeted in lawsuits this year is the for-profit education sector, which has been hit with nine separate securities class action lawsuits this year, or about 6 percent of all 2010 securities suits.
Schwab YieldPlus Settlement Back On?: As I reported in an earlier post, the Charles Schwab Corporation had announced its decision to withdraw from the $235 Schwab YieldPlus Fund subprime-related securities class action settlement, due to a dispute about whether or not the settlement stipulation released the California state law claims of non-California class members.
However, according to November 18, 2010 news reports (here), the parties to the YieldPlus case have reached a revised settlement The revised settlement is intended to make it clear that all of the claims of the class are released, including the California state law claims of non-California residents.
A copy of the parties’ November 17, 2010 amendment to their settlement stipulation, reflecting the revised understanding, can be found here. A copy of the parties’ joint motion regarding the revised settlement stipulation can be found here. The parties’ amended settlement stipulation is subject to the approval of Northern District of California Judge William Alsup.
QE II: Here at The D&O Diary we have followed with interest the debate about the Federal Reserve’s latest round of "quantitative easing." Because we feel unqualified to comment on the Fed’s actions, we express no views of our own here about the wisdom of the Fed’s approach.
Others have not been as restrained.
In that vein, a video critical of the Fed’s actions has been making the rounds and I have attached it below. I want to stress that this video does not necessarily reflect my views, and I am linking to it here only because I think it is pretty amusing and because it has been a while since I have had occasion to link to a video on this site. Special thanks to a loyal reader for the link to the video.