Reckoning Arrives for Men Behind Bank Failures

By Hielscher, John | Sarasota Herald Tribune, March 4, 2013 | Go to article overview

Reckoning Arrives for Men Behind Bank Failures


Hielscher, John, Sarasota Herald Tribune


The pace of bank failures has slowed, but federal lawsuits targeting the bankers who ran those faded institutions are speeding up. The Federal Deposit Insurance Corp. has filed seven lawsuits so far this year against officers and directors of failed banks. Those actions are part of 51 negligence complaints filed since mid-2010 that seek hundreds of millions of dollars from bank executives and board members.

One of the most recent FDIC filings seeks at least $53 million from four directors of the failed Orion Bank of Naples, which was a major lender in Sarasota and Manatee counties during the real estate boom of the mid-2000s.

The suit alleges the four committed "a pattern of unconsidered acquiescence" -- basically serving as rubber stamp -- to the whims of now-imprisoned Orion chief executive Jerry J. Williams.

"Their unwillingness to inform themselves about, or exercise meaningful oversight over, Williams' performance was so apparent that Williams eventually began boasting to other bank employees that the defendants would never reverse his decisions," attorney Aviva L. Wernick wrote in the suit.

A total of 66 banks in Florida failed during the Great Recession and its aftermath. The FDIC so far has gone after officers and directors of four of those institutions, including the former Century Bank of Sarasota.

The agency also reached a pre-suit settlement with eight former executives and directors of the defunct First Priority Bank of Bradenton. They, and their liability insurer, agreed last year to pay $1.75 million to resolve any FDIC claims.

FDIC spokesman David Barr said the agency has authorized, but has yet to file, another 50 lawsuits against directors and officers of failed institutions. As of Feb. 28, a total of 468 U.S. banks have failed since 2008.

"We will most likely be seeing more lawsuits filed down the road," Barr said.

The FDIC begins investigations immediately after a bank failure to determine its cause, and tries to complete that work within 18 months.

It typically has three years from the failure date to file a lawsuit, though that can be extended. As in the First Priority case, settlements are sometimes reached to avoid litigation.

"If those talks end up not going anywhere, then we file a complaint in U.S. District Court," Barr said.

During the savings-and-loan crisis of the late 1980s and early 1990s, the agency filed "D&O" -- directors and officers" lawsuits in about 25 percent of the nearly 750 failures.

The FDIC and the former Resolution Trust Corp. collected $6.46 billion from professional liability claims from 1986 through 2011.

It is impossible to say at this juncture if the ratio or dollar amounts collected will be similar in this cycle of failures.

Not all bank failures are caused by negligence or inappropriate actions by executives and directors, of course, in which case the FDIC does not take any action.

There also are instances in which neither the individuals nor their insurer would generate enough money to justify a lawsuit.

But in many cases, the agency determines there is sufficient evidence to take the matter to court.

Since 2009, the FDIC has authorized suits against 836 individuals for liability. That includes actions against 369 officials last year and 94 in the first two months of 2013.

Many of the more recent lawsuits, however, involve bank failures dating back several years. Both Century and Orion, for example, failed on Nov. 13, 2009. None of the cases involving local lenders, however, have trial dates attached to them as yet, records show.

While some have criticized the FDIC for not aggressively suing more bankers, Barr said the FDIC is meticulous about making good cases.

"A lot of people were thinking we weren't taking action and moving fast enough," he said. "But if we sue people, we want to make sure we have cause to do so. That takes time. When it comes time to file lawsuits, we don't want them thrown out of court. …

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