The Federal Deposit Insurance Corp. has filed more lawsuits against the directors and officers of failed financial institutions in 2013 than in any year since the recession, according to a
The FDIC had filed 32 such lawsuits as of Aug. 8, compared to annual totals of 26 in 2012, 16 in 2011 and just two in 2010.
The flurry of litigious activity was spurred by the three-year statute of limitations for tort lawsuits, according to the report. Since bank failures were most common between the third quarter of 2009 and the third quarter of 2010, the report said, many cases pending legal action have now come due.
"Of the institutions that failed in 2009 and 2010 the directors and officers of nearly one third have been sued or negotiated settlements with the FDIC prior to the filing of a lawsuit," Cornerstone senior vice president and report co-author Catherine Galley said in the release. "We expect this [number] will increase as the year progresses."
Chief executives were the most frequently named defendants this year, appearing in 88% of filed complaints. Inside and outside directors, named in 75% of lawsuits, came in at a close second.
But just because regulators filed a record number of complaints against failed-bank officials in 2013 doesn't mean the cases will go to court. "Out of the 76 lawsuits brought against officers and directors since the crisis," Galley told American Banker, "only one
IndyMac of Pasadena, Calif., failed in 2008 and last year a jury found three of the thrift's former executives culpable for about $168 million of losses.
Galley says she expects most cases will be settled out of court.
"It's expensive to take cases to trial, so there's obviously an incentive to settle," Galley said. "Perhaps the IndyMac victory will inspire the FDIC to go to court, but I would expect to see a fair number of settlements in the next year or so."
Looking ahead, Galley predicts that the pace of FDIC litigation against failed-bank leaders will slow in 2014. "The backlog of lawsuits is declining," she said. The FDIC had authorized but not yet filed 46 lawsuits as of Aug. 8, compared to 55 such lawsuits in April. The dwindling number suggests that the FDIC is either identifying fewer cases to pursue or doing a better job of negotiating settlements before filing complaints, according to Galley. "Or," she said, "it could be a little of both."
