Presenting a live 90 ‐ minute webinar with interactive Q&A FDIC Lawsuits Against Failed Banks' Law Firms g and Other Outside Professionals Protecting Borrowers' and Lenders' Interests Under UCC Article 9 WEDNES DAY, MAY 18, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f Dianne S . Wainwright, Partner, Margolis Edelstein , Pittsburgh Linda D. Kornfeld, Partner, Jenner & Block , Los Angeles Michael L. Zigelman, Partner, Kaufman Dolowich Voluck & Gonzo , Woodbury, N.Y . The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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The FDIC and Current The FDIC and Current Banking Crisis: Banking Crisis: Anticipating Effects on Third Party Anticipating Effects on Third Party Professionals Professionals f Michael L. Zigelman, Esq. Partner mzigelman@kdvglaw.com 135 Crossways Park Drive, Suite 201 y , Woodbury, New York 11797 www.kdvglaw.com
Introduction Introduction Introduction Introduction FDIC Role FDIC Role Current Crisis S&L S&L v. Current Crisis C t C i i Claim Environment Professional Liability Exposures 6
FDIC’s Role in the FDIC’s Role in the U.S. Banking System U S B U.S. Banking System U S B ki ki S S t t Currently Primary Regulator for 4,715 State Non-Member y y g Banks Dodd-Frank Act Also Establishes FDIC as Primary Regulator for All State Chartered Thrifts Regulator for All State-Chartered Thrifts Provides Deposit Insurance for 7,723 Banks (as of November 18, 2010) Each depositor is insured for at least $250,000 per E h d it i i d f t l t $250 000 insured bank Funded by its insured financial institutions y Backed by Full Faith & Credit of U.S. Acts as Receiver for Failed Banks and Thrifts to Liquidate Assets and Pay Claims Assets and Pay Claims 7
Failed Banks Failed Banks 2007 2007 T d 2007 2007-Today T d Today 2007: 3 banks failed 2007: 3 banks failed 2008: 25 banks failed 2009 140 b 2009: 140 banks failed k f il d 2010: 157 banks failed 2011: 25 banks have failed to date (as of March 18, 2011) , ) 8
Top States for Bank and Thrift F il Failures, 2007 – 2010 2007 2010 California 34 fail res assets totaling $102 5 B California: 34 failures, assets totaling $102.5 B Illinois: 38 failures, assets totaling $30.5 B o s 38 a u es, assets tota g $30 5 Florida: 45 failures, assets totaling $32.8 B Georgia: 52 failures, assets totaling $26.9 B 9
Current Crisis: Current Crisis: N N Number of Failed Banks Number of Failed Banks b b f F il d B f F il d B k k From 2007 through Sept. 10, 2010, 293 commercial banks with FDIC deposit insurance failed (only 18 bank failures from 2002-07) deposit insurance failed (only 18 bank failures from 2002 07). 10
FDIC Problem Institutions FDIC Problem Institutions FDIC Problem Institutions FDIC Problem Institutions 11
Savings & Loan Savings & Loan v. v. v. v. Current Crisis Current Crisis Refers to the crisis of the 1980s and 1990s during which hundreds of savings and loan associations in the U.S. failed Contributed to the large budget deficits of the early 1990s 12
Savings & Loan Savings & Loan v. v. Current Crisis Current Crisis 2 744 failed banks as result of S&L Crisis 2,744 failed banks as result of S&L Crisis Annual Failures and Losses Until 2009 not more than 50 bank failures in single year Until 2009, not more than 50 bank failures in single year since 1992. Current annual failures lower than each year of S&L Crisis but 2009 losses larger than most years of S&L Crisis, but 2009 losses larger than most years of S&L Crisis. Aggregate Losses gg g Aggregate nominal losses in S&L were $103 Billion, compared with $75 Billion from 2008 through June 2010. Recent per bank failures 3x larger than in S&L Crisis Recent per-bank failures 3x larger than in S&L Crisis. 13
Savings & Loan Savings & Loan v. v. Current Crisis Current Crisis Comparing Assets of Failed Banks Comparing Assets of Failed Banks 79% of recent failed banks had less than $1 Billion, but accounted for 20% of Deposit Insurance Fund losses. 91% of S&L failed banks had less than $1 Billion (in 2010 dollars) and accounted for 37% of losses 2010 dollars) and accounted for 37% of losses. Striking Similarities in Practices High-risk business strategies, concentrations in high- g g g risk sectors, overreliance on “hot money” funding sources, weakness in staffing, and poor oversight. Poor underwriting policies credit administration risk Poor underwriting policies, credit administration, risk management, and monitoring. 14
Claim Environment Claim Environment Bank failures concentrated in Georgia and Florida g Due to depressed commercial values from overbuilding and weak economic g fundamentals. Most matters are potential claims FDIC retaining private counsel to pursue claims E-Discovery E Discovery More evidence than during S&L Crisis. 15
Claim Environment: Claim Environment: FDIC I FDIC I FDIC Immunity FDIC Immunity it it FDIC protected from its own post-closing p p g negligence and/or failure to mitigate. Many courts deemed FDIC immune or Many courts deemed FDIC immune or subject to no duty of care (although courts not uniform on issue). Potential sovereign immunity under Federal Tort Claims Act for FDIC’s own actions as receiver. ti i 16
Claim Environment: Claim Environment: FDIC’ Liti FDIC’ Liti FDIC’s Litigation Tactics FDIC’s Litigation Tactics ti ti T T ti ti As receiver, FDIC has access to bank’s internal , documents. FDIC can also subpoena individuals from banks FDIC can also subpoena individuals from banks for evidence. FDIC may collaborate w/ DOJ to develop criminal FDIC may collaborate w/ DOJ to develop criminal charges against D&O’s. E g E.g. , Two Integrity Bank officers sued by FDIC also Two Integrity Bank officers sued by FDIC also indicted. FDIC, as Receiver of Integrity Bank of Alpharetta, Georgia v. Steven M. Skow et al. , U.S. District Court N D Ga District Court, N.D. Ga., Case No. 1:2011-cv-00111. Case No 1:2011 cv 00111 17
FDIC’s Claims Against D&O’s FDIC’s Claims Against D&O’s FDIC authorized suits against 130 D&O’s with claimed damages of $2.6 Billion. During S&L Crisis, FDIC recovered $1.3 Billion from banks’ D&O’ D&O’s. Most FDIC investigations completed within 18 months of bank closure. To date, FDIC filed suits against 4 banks’ D&O’s (naming T d t FDIC fil d it i t 4 b k ’ D&O’ ( i 35 individuals). IndyMac. FDIC v. Van Dellen, et al. , U.S. District Court, C.D. Cal., Case No SA cv 10 004915 Case No. SA-cv 10-004915. Heritage Community Bank. FDIC, as receiver of Heritage Community Bank, v. John M. Saphir et al. , U.S. District Court, N.D. Ill., Case No. 1:10-cv-07009. Integrity Bank. FDIC, as Receiver of Integrity Bank of Alpharetta, Georgia v. Steven M. Skow et al. , U.S. District Court, N.D. Ga., Case No. 1:2011-cv-00111. 1st Centennial Bank FDIC as receiver of 1 st Centennial Bank v 1st Centennial Bank. FDIC, as receiver of 1 s Centennial Bank, v. James R. Appleton et al. , U.S. District Court, C.D. Cal., Case No. cv-11-00476. 18
FDIC’s Causes of Actions Against D&O’s Negligence and/or Gross Negligence Negligence and/or Gross Negligence Gross Negligence under Financial I Institutions Reform, Recovery and tit ti R f R d Enforcement Act Breach of Fiduciary Duty Breach of Duty to Supervise Breach of Duty to Supervise 19
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