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FDIC Intervenes in Coverage Dispute to Assert Claims Against Former D&Os of Westernbank

February 16, 2012

Authors

Bard Brockman

FDIC Intervenes in Coverage Dispute to Assert Claims Against Former D&Os of Westernbank

February 16, 2012

by: Bard Brockman

In a unusual procedural maneuver, the FDIC has intervened in a pending insurance coverage dispute to assert claims against the former directors and officers of Westernbank of Mayaguez, Puerto Rico.  Westernbank was closed on April 30, 2010.  At the time of its failure, Westernbank was the second largest bank in Puerto Rico.  The FDIC alleges that Westernbank’s failure will result in a loss to the Deposit Insurance Fund of approximately $4.25 billion.

The case was originally a coverage dispute filed by some of the former directors of Westernbank against their D&O carrier Chartis.  The FDIC intervened in the case and asserted claims against a much broader set of defendants, including all of the former bank directors, several former bank officers, and three additional D&O carriers.  The claims against Chartis and the other D&O carriers were brought pursuant to a Puerto Rico statute that grants a right of direct action against

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FDIC Brings Suit Against Former Officers of Failed California Bank

February 6, 2012

Authors

Jake Bielema

FDIC Brings Suit Against Former Officers of Failed California Bank

February 6, 2012

by: Jake Bielema

In its most recent lawsuit relating to a bank failure, the FDIC, in its capacity as receiver of the failed County Bank of Merced, California has filed a complaint against former officers of the bank.  The complaint was filed on January 27, 2012, in the Eastern District of California.  Interestingly, County Bank had failed on February 6, 2009, so the FDIC ultimately filed its complaint just short of the expiration of the three (3) year period from the date of receivership within which it can file claims. A copy of the FDIC’s complaint is available here.

The complaint names five (5) former officers of the bank all of whom served on the bank’s Executive Loan Committee.  It essentially alleges that the defendants allowed the bank to make what it characterizes as “imprudent” real estate loans, especially loans for the construction and development of residences.  The complaint alleges that

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FDIC Sues Former Directors and Officers of R-G Premier Bank

January 26, 2012

Authors

Bard Brockman

FDIC Sues Former Directors and Officers of R-G Premier Bank

January 26, 2012

by: Bard Brockman

On January 18, 2012, the FDIC filed a complaint against former directors and officers of R-G Premier Bank of Puerto Rico, which was closed and put into receivership on April 30, 2010.  A copy of the FDIC’s complaint is available here.

The roots of R-G Premier’s failure, the FDIC contends, can be traced to the 2001 strategic decision to increase its commercial real estate lending.  According to the complaint, the board of directors appointed a new Chief Lending Officer, Victor Irizarry, and it structured the Bank to give Irizarry “free rein” to make commercial real estate loans.  Among the board’s alleged failings was its decision to give Irizarry supervisory control of the Bank’s credit risk management department.  This reporting structure, the FDIC alleges, effectively squelched the credit risk personnel from voicing any concerns about the underwriting of loans or creditworthiness of borrowers.  Internal audits and banking regulators both warned that the credit risk management function should be segregated from

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FDIC Files Suit Against Former Directors of The Bank of Asheville

January 25, 2012

Authors

Jake Bielema

FDIC Files Suit Against Former Directors of The Bank of Asheville

January 25, 2012

by: Jake Bielema

On December 29, 2011, the FDIC filed suit against seven former directors of the Bank of Asheville in the Western District of North Carolina seeking to recover over $6.8 million in losses suffered by the bank prior to receivership.  All of the directors named as defendants were members of the bank’s Loan Committee, the committee responsible “for the amplification, implementation and administration of the loan policy” and “management of the lending function”.  The Complaint cites 30 specific commercial real estate and business loans approved by the defendants between June 26, 2007 and December 24, 2009 as causing loss to the bank and those loans form the subject matter of the Complaint. A copy of the FDIC’s complaint is available here.

In the Complaint, the FDIC as Receiver essentially cites the Bank’s rapid growth strategy concentrated in what it characterizes as “higher risk, speculative commercial real estate loans”.  The

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FDIC Sues Former Directors and Officers of Westsound Bank

January 24, 2012

Authors

Bard Brockman

FDIC Sues Former Directors and Officers of Westsound Bank

January 24, 2012

by: Bard Brockman

In mid-November 2011, the FDIC filed a complaint against eleven former directors and officers of Westsound Bank (Bremerton, WA), which was closed in May 2009.  The lawsuit is the FDIC’s seventeenth action against former D&Os of failed banking institutions since the advent of the Great Recession. A copy of the FDIC’s complaint is available here.

The FDIC’s core allegations resemble those asserted in its prior D&O lawsuits.  Specifically, it alleges that the Westsound board embarked on a “reckless” business strategy focused on high-risk ADC and CRE lending.  The FDIC further contends that the board and the Directors Loan Committee (“DLC”): (i) failed to properly manage and supervise the bank’s lending function; (ii) approved loans in violation of and without regard to the bank’s loan policy; (iii) ignored regulators’ warnings about excessive loan concentrations and lax oversight of the lending function; and (iv) approved additional loans and loan renewals

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FDIC Sues Former Directors, Officers and Outside Counsel of Mutual Bank

November 11, 2011

Authors

Bard Brockman

FDIC Sues Former Directors, Officers and Outside Counsel of Mutual Bank

November 11, 2011

by: Bard Brockman

The FDIC sued the former directors and two former officers of Mutual Bank (Homewood, Illinois), along with Mutual Bank’s outside law firm, on October 25, 2011.  Mutual Bank was placed into FDIC receivership in July 2009, and its failure currently is estimated to cost the Deposit Insurance Fund $775 million.  A copy of the FDIC’s complaint is available here.

One of the unique aspects of this lawsuit is the FDIC’s allegations of corporate waste.  For example, the FDIC alleges that the directors approved a $250,000 payment for sponsorship of a “bank function.”  The bank function was actually the wedding of one of the directors, who was also the chairman’s and principal shareholder’s son.  In another example, the FDIC alleges that the directors allowed $495,000 of Bank funds to be used to make payments to another director for his wife’s defense of a Medicare fraud case.  In yet another

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FDIC Sues Former Directors and Officers of Alpha Bank & Trust

October 12, 2011

Authors

Bard Brockman

FDIC Sues Former Directors and Officers of Alpha Bank & Trust

October 12, 2011

by: Bard Brockman

On October 7, 2011, the FDIC filed a complaint against the former directors and senior officers of Alpha Bank & Trust (Alpharetta, Ga.), which was put into receivership on October 24, 2008. A copy of the FDIC’s complaint is available here. Alpha Bank & Trust (“Alpha” or the “Bank”) opened in May 2006 and operated for only thirty (30) months. Nevertheless, the FDIC estimates that the failure of Alpha will cause the Deposit Insurance Fund to lose $214.5 million.

According to the complaint, Alpha embarked on an aggressive growth strategy that focused on making risky loans in the acquisition, development and construction (“ADC”) and commercial real estate (“CRE”) sectors. The complaint also alleges that the Bank incentivized loans officers to generate loans, regardless of credit quality or loan performance, and that the Bank either disregarded or rejected warnings from regulators and third-party loan review consultants.

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FDIC Sues Former Directors and Officers of Cooperative Bank

October 12, 2011

Authors

Bard Brockman

FDIC Sues Former Directors and Officers of Cooperative Bank

October 12, 2011

by: Bard Brockman

On August 10, 2011, the FDIC sued nine former directors and officers of Cooperative Bank (Wilmington, NC), which was placed into receivership in June 2009. A copy of the FDIC’s complaint is available here.

In its complaint, the FDIC alleges that the board and senior management of Cooperative Bank instituted a strategy in 2001 to grow from the Bank’s assets from $443 million to $1 billion by the end of 2005. The Bank did not meet that goal, but the board and senior management reaffirmed the goal to become a $1 billion bank, and pursued an aggressive growth plan in furtherance of that goal. That aggressive growth plan, the FDIC alleges, caused the Bank to become over-concentrated in acquisition, development and construction (“ADC”) loans. Furthermore, the FDIC contends, the defendants “failed to manage the inherent risks associated” with the aggressive growth strategy. Specifically, the director defendants permitted a

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FDIC Sues Directors of Columbian Bank and Trust

October 11, 2011

Authors

Bard Brockman

FDIC Sues Directors of Columbian Bank and Trust

October 11, 2011

by: Bard Brockman

In the second of three D&O lawsuits filed on successive days in August, the FDIC sued six former directors of Columbian Bank and Trust (Topeka, KS), which was placed into receivership in August 2008.  A copy of the FDIC’s complaint is available here.

The FDIC’s complaint alleges that Columbian embarked on an aggressive commercial and CRE lending program in 2003 to drive up the Bank’s revenues.  In furtherance of this lending program, the FDIC contends, Columbian incentivized its loan officers to generate loans, at the expense of credit quality.  The FDIC further alleges that this “uncontrolled” lending campaign, combined with the defendants’ several other failures — most notably, the failure to heed regulators’ warnings and to follow the Bank’s own loan policies – caused the 40-year-old Columbian Bank to collapse in just five years.

The complaint focuses on losses resulting from loans to twelve sets of borrowers.  The

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Recent Settlement Indicates FDIC’s Focus on D&O Insurance

October 10, 2011

Authors

Jake Bielema

Recent Settlement Indicates FDIC’s Focus on D&O Insurance

October 10, 2011

by: Jake Bielema

A recent negotiated settlement in an FDIC failed bank lawsuit, which has as its sole focus potentially available funds under a D&O policy, and in fact assigns claims under that policy to the FDIC, further suggests that the FDIC’s real focus in failed bank litigation is on proceeds that may be available under D&O policies, as opposed to the personal assets of former directors and former officers.

The First National Bank of Nevada (“FNB Nevada”) failed on July 25, 2008, less than thirty days after First National Bank of Arizona (“FNB Arizona”) was merged with an into FNB Nevada.  On August 23, 2011, the FDIC filed an action in the District of Arizona against the former CEO and Vice Chairman of the Bank’s holding company as well as of both FNB Nevada and FNB Arizona and additionally against the holding company’s Executive Vice President (“EVP”), who was also the

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