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Cornerstone Research: Pace of FDIC Lawsuit Filings Increases in Q4 2012


Dec 19 - FDIC litigation activity associated with failed financial institutions has increased markedly in the fourth quarter of 2012, after a lull during the second and third quarters of the year, according to Characteristics of FDIC Lawsuits against Directors and Officers of Failed Financial Institutions—December 2012, a report authored by Abe Chernin, Catherine J. Galley, Yesim C. Richardson, and Joseph T. Schertler of Cornerstone Research. The report is the fourth in a series analyzing the characteristics of professional liability lawsuits filed by the FDIC against directors and officers of failed financial institutions. As of Dec. 7, the FDIC has filed 23 lawsuits this year — compared with 16 in 2011 and two in 2010.

Nine percent of financial institutions that have failed since 2007 have been the subject of FDIC lawsuits. These lawsuits generally have targeted larger failed institutions and those with a higher estimated cost of failure, although the lawsuits filed in the second half of 2012 have been against smaller institutions.

Defendants named in the first 41 lawsuits filed since 2010 have included 324 former directors and officers. The FDIC has authorized litigation against 700 individuals and involving 84 institutions, with up to 392 former directors and officers awaiting a decision whether the FDIC will file a lawsuit against them.

“This backlog of authorized lawsuits suggests that the FDIC is seeking to increase pressure on directors, officers and their insurance carriers,” said one of the report’s authors, Katie Galley, a senior vice president of Cornerstone Research. “Unless the disputes are resolved during negotiations and mediations, this backlog of authorized lawsuits, the FDIC’s recent success in the IndyMac trial, and the approaching end of the statute of limitations for making a claim against the numerous institutions that failed in 2009 and 2010 suggest that substantially more FDIC cases may be filed in upcoming months.”

The pace of failures and the pattern of litigation activity suggest that lawsuits related to the 2008 financial crisis will continue to be filed into 2013. The nine lawsuits filed this quarter have included allegations of negligence and gross negligence, and three included allegations of breach of fiduciary duty.