The Treasury Department has investigated nine banks that failed since 2007 for possible criminal conduct that contributed to their failures.
Most of the cases appear to have been closed without litigation, but an outside lawyer believes other agencies could bring civil charges or levy fines against former officers and directors.
Silverton Bank in Atlanta is the only known defendant in a case filed by a regulator; the FDIC filed a lawsuit against former bank directors in August 2011 in the U.S. District Court for the Northern District of Georgia.
The Treasury opted not to pursue cases due to a lack of evidence or other factors. But that doesn't mean that the officers of the failed banks are off the hook, says Larry Kaplan, a lawyer at Paul Hastings. "Just because there isn't an immediate lawsuit doesn't mean there won't be a civil lawsuit later," says Kaplan, who has represented other failed bank directors. "The [FDIC] can still sue them a few years after they fail."
The Treasury looked at banks that were regulated by the Office of the Comptroller of the Currency, which is part of the agency, or the now-defunct Office of Thrift Supervision, says Richard Delmar, counsel to the Treasury's inspector general. The Treasury "investigates allegations relating to efforts to impede Treasury programs, for example bank regulators' ability to do safety and soundness assurance and other bank oversight," he says.
All of the failed banks may still be under investigation by other regulators, Kaplan says. The OCC does not confirm or deny the existence of ongoing investigations, says spokesman Bryan Hubbard. The FDIC does not make reviews of failed banks public and does not confirm if a probe is closed, says spokesman David Barr.
The Treasury investigated Century Bank in Sarasota, Fla., for "improper loan accounting, missing or destroyed documents and questionable decisions by management to override and approve loans that were rejected by underwriters," according to a Aug. 26, 2010, Treasury report.
Beth Ardoin, a spokeswoman at Iberiabank (IBKC), which bought Century in November 2009, declined to comment.
Another Treasury probe involved First Bank of Idaho. It looked at a "practice of establishing or replenishing interest reserves … [to mask] the true portfolio delinquency of the bank's loans," according to a November 2011 report. The allegations "were substantiated," but prosecutors decided that those actions alone did not cause the failure. "The issues …predated our acquisition," says Tom Joyce, a spokesman for U.S. Bancorp (USB), which bought the bank.
Valley Capital Bank in Mesa, Ariz., was investigated for "potential insider abuses" in a probe that closed in late 2010. "Prior management was gone when we took it over and we don't have any knowledge of anything that went on with that prior group," says Steve Marsh, the chairman and CEO of Enterprise Bank, which bought the bank.
The Treasury also probed BankFirst in South Dakota, which was sold to Alerus Financial. "The limited scope of our transaction did not result in access to information that would enable to comment on BankFirst's past operations," says Randy Newman, Alerus' chairman and chief executive.
Calls were not returned to two banks that bought failed banks probed by the Treasury: RCB Bank in Claremore, Okla., which bought Home National Bank, and First Federal Bank of Lake City, Fla., which bought Flagship National Bank. The FDIC did not find a buyer for Ideal Federal Savings Bank; one bank has not been identified.