On March 7, 2012, the FDIC filed an action against the former directors and two former officers of Broadway Bank (“Broadway”) of Chicago, Illinois.  For a copy of the FDIC’s complaint, click here.  Broadway was placed into receivership on April 23, 2010.  The FDIC estimates that the losses to the Federal Deposit Insurance Fund due to Broadway’s failure will approach $400 million.

The lawsuit alleges that the D&O defendants embarked on “reckless” strategy of rapidly growing the bank’s assets by approving high-risk ADC and CRE loans without regard for appropriate underwriting and credit administration practices, the bank’s own loan policies, and federal lending regulations.  The risks to the bank was exacerbated, the FDIC alleges, because many of the loans were for projects located outside of Illinois, and Broadway did not have sufficient staff to monitor those projects.

The FDIC is particularly galled by the D&O defendants’ approval of two “grossly imprudent” loans immediately following a meeting at which federal and state regulators warned the board about the risks of CRE lending.  Those loans resulted in losses to the bank of approximately $12 million.

Through its lawsuit, the FDIC is seeking to recover more than $104 million in losses from 17 CRE and ADC loans.  Consistent with its prior D&O suits, the FDIC asserts state law claims for negligence and breach of fiduciary duty, and a gross negligence claim under FIRREA.

The timing of this lawsuit is interesting.  Most of the FDIC’s lawsuits have been filed closer to the expiration of the three-year limitations period under FIRREA.  Here, the FDIC filed its lawsuit less than two years after Broadway’s failure.  This could signal that the FDIC has become more efficient in investigating possible D&O claims.  If so, we can probably expect to see a flood of new lawsuits over the next two years.