As we reported earlier in the week, the Federal Deposit Insurance Corporation ("FDIC") has begun filing lawsuits against the directors and officers of banks that it now holds in receivership . The lawsuits are consistent with previous public statements in which the FDIC committed to try to recover, from the directors and officers of these failed banks, some of the $2.5 billion lost to bad loans in recent years. It seems likely that that the D&O policies issued to those directors and officers will be called upon to respond to these lawsuits.
Details of another recently-filed lawsuit, filed in federal court in California, are now available. Fourteen directors and officers of the failed First Centennial Bank were named as defendants in the action, which seeks at least $26.2 million in damages relating to 16 specific commercial real estate loans that were made between February 2006 and February 2008 and that resulted in losses for the bank. The complaint alleges that First Centennial lacked internal controls and that its managers were incompetent in approving these loans. Similar to what happened to Georgia's Integrity Bank, subject of another FDIC lawsuit, the FDIC warned First Centennial that its loans posed serious serious risks, but the bank failed to heed these warnings.
We will continue to monitor similar cases that are filed by the FDIC in the future.