Professional liability lawsuits filed by the Federal Deposit Insurance Corporation increased in 2011 as seizures of banks and thrifts by regulatory authorities began to subside. Throughout the year, 92 institutions were seized compared with 157 in 2010 and 140 in 2009. In contrast, FDIC professional liability lawsuits targeting failed financial institutions began to increase in 2011. These are lawsuits in which the FDIC, as receiver for failed financial institutions, brings professional liability claims against directors and officers of those institutions and against other related parties, such as accounting firms, law firms, appraisal firms, or mortgage brokers. From July 2, 2010, through January 27, 2012, the FDIC filed 21 lawsuits related to 20 failed institutions. Of the 21 lawsuits, two were filed in 2010, 16 in 2011, and three in January 2012. Aggregate damages claimed in the 21 complaints totaled $1.98 billion.
Major findings regarding FDIC professional liability lawsuits include the following.
- Only 4.7 percent of financial institutions that failed since 2007 have been the subject of FDIC lawsuits (20 out of a total of 424 bank failures). These lawsuits have tended to target larger failed institutions.
- Lawsuits to date include those related to the two largest failed institutions (Washington Mutual and IndyMac). However, there are many other large or costly failures that have not yet been the target of FDIC lawsuits.
- The geographic mix of lawsuits has paralleled the location of failed institutions, with the largest concentrations in Georgia, Illinois, and California. One exception is Florida, where a large percentage of failed financial institutions were located but where no FDIC lawsuits have yet been filed.
- Defendants named in the 21 filed lawsuits included 178 former directors and officers. In six of these cases, only inside directors and officers were named as defendants. Outside directors were named as defendants in addition to inside directors and officers in the remaining 15 lawsuits.
- In 19 of the 21 complaints, the FDIC explicitly claimed damages amounts ranging from $20,000 to over $600 million. The average and median damages claims were $104 million and $40 million, respectively. In the remaining two, no damage amounts were specified in the complaints.
Our full analysis can be found here.