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 the bank’s real estate lending policies were not safe and sound banking practices, that the bank disregarded its own credit policies and approved loans to non-credit worthy borrowers. It also alleges that the bank’s management continued to invest in risky commercial real estate lending even after the marker had begun to decline.
The complaint focuses on twelve (12) specific loans, and alleges claims against each of the defendants for negligence and breach of fiduciary duty. The loans were made between December 2005 and June 2008, and FDIC contends they caused the bank losses in excess of $42 million.
As noted, this complaint was filed very near the expiration of the three (3) year period from the date of the bank’s failure within which the FDIC is authorized to bring claims. As the number of bank failures dramatically escalated in 2009, and that three (3) year period is drawing nigh with respect to a number of other bank failures, we can expect to see more lawsuits filed against officers and/or directors of failed banks over the course of 2012 and beyond.