The FDIC has filed 76 lawsuits against 574 former bank executives since 2008. Thirty-two of those cases were filed in the first eight months of 2013, nearly triple the number filed during the first eight months of last year, according to the agency. The surge in filings correlates with the peak of bank failures rooted in the crisis, which reached 157 in 2010.
Cleaning up the financial wreckage of 483 shuttered banks, many small community banks, has depleted the insurance fund by $89 billion over the past five years, according to the FDIC. In that time, the agency has recovered $727 million from individuals associated with the failed banks.
Officials at the FDIC anticipate the number of new lawsuits will crest after this year, but there is no clear end in sight for putting the cases to rest. Only one of the agency’s lawsuits has reached a jury, while 10 have been settled out of court.
There have been repeated delays as defendants seek to have cases thrown out and argue that their bank was the victim of a bad economy — not negligence.
Critics say the FDIC should have moved faster to bring cases to the courts.
But agency officials argue that a thorough examination of misconduct is not quickly, or easily, achieved.
“We generally don’t have people come in saying, ‘We’re really sorry we caused the bank to fail, here’s a check,’ ” said Richard Osterman Jr., acting general counsel at the FDIC. “We have to investigate, uncover information, subpoena records, do depositions and often file actions.”
It usually takes the FDIC about 18 months to investigate a bank failure. If investigators identify misconduct by officers or directors, they must receive approval from the FDIC board before taking action. Osterman said the agency tries to settle with executives, which can take time, rather than go through expensive litigation. But many cases end up in court.
“Federal litigation is inherently a slow process,” said Mary Gill, a partner at Alston & Bird, who specializes in director and officer, or D&O, litigation. “There have been discovery disputes that have arisen in many of the cases, which has somewhat slowed the pace of the litigation.”
Cases that were filed at the height of the financial crisis are now at the stage where attorneys are presenting expert reports or filing motions for summary judgement, Gill said. That means, she said, “in the next year, we can expect a number of cases coming to trial and key decisions from the courts.”
The longer it takes some of these cases to move through the courts, however, the less likely the FDIC will get all it’s asking for. Many claims are covered by liability insurance that banks take out for their directors and officers, but ongoing legal expenses will eat away at those policies.