In the wake of the global financial crisis, the FDIC has commenced a wave of lawsuits against and criminal investigations of the officers and directors of failed banks, and those who did business with them. What can senior executives, companies, and their counsel expect?
In addition to the increased general activity, they will have to be aware of how FDIC matters differ from more traditional areas. This is because the FDIC has powers that are broad in scope and reach, which it is now signaling it will use. In civil litigation, the FDIC has the power to hold officers and directors of failed banks personally liable for bank losses caused by their negligence or other misfeasance. The standard of care can vary by jurisdiction and, in New York, bank directors are not protected by the business judgment rule.
The FDIC also benefits from extended statutes of limitations in tort and fraud actions. On the criminal side, investigations and prosecutions stemming from bank failures involve a broad range of charged offenses and a wide variety of underlying conduct.
Senior bank executives, directors, companies, and their counsel must monitor developments over the coming months and years. As the various investigations develop, there will likely be systemwide effects caused by the FDIC’s expanded enforcement activities.