Bank Lawyer's Blog

Dancing With The Bear: The Softshoe Shuffle Continues

My posts concerning former bank CEO Patrick Adams and his long, hard, expensive fight to clear his name encouraged one reader to send me a copy of a decision from a couple of months ago that involved another bank officer (actually, the Chairman of a bank) who has been slugging it out with the OCC (and in this case, the Fed) four the last four years over an attempt by the regulators to oust him from his position with the bank. The D.C. Circuit Court of Appeals held in his favor and sent the case back to the banking agencies with some pretty caustic comments.

The entire opinion is an interesting read, but here's a synopsis, paraphrased from one prepared by my correspondent.

Louis DeNaples, was a director and controlling shareholder of a national bank and two bank holding companies.  In 2008, Pennsylvania state prosecutors charged him with perjury.  But the charges were later withdrawn pursuant to an agreement in which Mr. DeNaples agreed, among other things, to release claims against the state based on irregularities in the underlying grand jury proceeding.  Thereafter, the state court expunged the entire prosecution.  The Comptroller of the Currency and the Federal Reserve Board, however, concluded that Mr. DeNaples had violated Section 19 of the Federal Deposit Insurance Act, which prohibits a person from participating in a regulated financial institution after entering into a “pretrial diversion or similar program” with respect to certain criminal offenses, including perjury.  The agencies thus issued cease-and-desist orders directing Mr. DeNaples to resign from his positions, and to divest his shares, in the regulated institutions.

Mr. DeNaples appealed, arguing, among other things, that (1) his agreement for withdrawal of the perjury charges was not a “pretrial diversion or similar program,” and in any event (2) Section 19 does not apply to expunged convictions.  A three-judge panel of the D.C. Circuit unanimously agreed on both counts.

First, the Court held that the banking agencies’ interpretations of Section 19 are not entitled to Chevron deference.  The panel adopted DeNaples' argument that no deference is warranted for any part of the Federal Deposit Insurance Act because multiple agencies enforce it, creating the potential for inconsistent agency interpretations, as occurred in this case.

Next, the Court held that the agencies had applied inconsistent and overbroad definitions of the term “pretrial diversion or similar program,” essentially capturing any situation where a person supplies a “quid pro quo for the prosecutor’s withdrawal of charges.”  The panel explained that pretrial diversion generally refers to a discrete program that seeks some offender- or community-oriented outcome such as treatment, rehabilitation, or restitution.  The Court, moreover, adopted the argument of DeNaples' lawyers that the agencies on remand must consider the meaning of “pretrial diversion” under state law, which they adamantly refused to do in the earlier cease-and-desist proceedings.

Finally, the Court agreed with DeNaples that the OCC’s and the Board’s positions on the impact of expungement were both internally inconsistent and at odds with a published FDIC policy statement.  In a stunning rebuke of the agencies, the panel criticized their positions as “bizarre,” “untenable,” “unpredictable,” and a “scattergun approach,” and said that reconciling their views “is like trying to draw a two-dimensional shape on the surface of a grapefruit.”

Trying to draw a two-dimensional shape on the surface of a grapefruit. For four years. A worthy endeavor, no?

Incidentally, the lead counsel for DeNaples (at leas, the lawyer named in the opinion) is Howard Cayne, a well-known D.C. banking law litigator who, like your trusty bloviator, has "danced with the bear" on previous occasions. The man must have a high tolerance for pain. As must Mr. DeNaples.

 

The Not-So-Secret Facts of Life

The LA Times obtained a bunch of documents from the FDIC pursuant to a FOIA request and uncovered some startling news: the FDIC is settling lawsuits against those it alleges caused banks to fail. Worse than that, the FDIC is agreeing not to issue press releases regarding many of the settlements. This earth-shattering news is labeled a "major policy shift" from the way the FDIC handled failed bank litigation that arose out of the last big bank meltdown, "when the FDIC trumpeted punitive actions against banks as a deterrent to others."

Before I address that last point, let's listen to some more suspicious minds support the Times theme that all of this "secret settlement" skulduggery smacks of some kind of plot to let evil-doers escape the lynch mobs that surely would have strung them up if only the FDIC had set public outrage en fuego by  trumpeting these settlements from the top of the Rocky Mountains.

Critics fault the government for going easy on banks in the aftermath of the financial crisis. At a Feb. 14 hearing, Sen. Elizabeth Warren (D-Mass.), founder of the Consumer Financial Protection Bureau, criticized FDIC Chairman Martin J. Gruenberg along with other bank regulators for their reluctance to make examples of Wall Street firms by taking them to trial.

Quoting "The Founder" is a go-to proposition for the Times, and one that lacks the punch that soundbites from other less usual suspects bring to the table. In addition, the Times' accusations range far beyond Wall Street banks. It's mostly (if not entirely) the little guys that are being pursued. God forbid they should get a break today from anyone other than MacDonalds.

Attorneys who have represented bank officials and the FDIC said regulators are now far likelier to settle cases before filing lawsuits than after the last spate of failures, when more than 2,300 institutions collapsed in the 1980s and early 1990s, bankrupting a fund that insured savings and loan deposits. That crisis grew out of Reagan-era deregulation, which allowed thrifts already hurting from 1970s inflation to make riskier investments, including commercial real estate deals that soured en masse during the second half of the 1980s.

Critics describe the FDIC's current practice of low-profile deal-making as a major departure from the S&L crisis.

"In the old days, the regulators made it a point to embarrass everyone, to call attention to their role in bank failures," said former bank examiner Richard Newsom, who specialized in insider-abuse cases for the FDIC in the aftermath of the S&L debacle. The goal was simple: "to make other bankers scared."

Newsom said he couldn't understand the shift, unless the agency doesn't "want people to know how little they are settling for."

The FDIC should disclose as much as it can, said Lauren Saunders, managing attorney at the National Consumer Law Center in Washington. "Transparency is always better, and serves as a deterrent to future misconduct."

Yes, let's deter the future conduct of owning, managing, and directing a community bank that concentrates on loan products that the regulators find are being originated and managed within the parameters of safety and soundness guidelines until, within a few months, the world falls apart in the greatest economic collapse since the Great Depression. Thereafter, although we feel compelled to go after many failed bank officials, directors, and third parties because we've got an obligation to recover whatever losses to the fund we are able whenever we can do so without being laughed out of court, we understand, in our heart-of-hearts, notwithstanding the posturing we might do for political or litigation purposes, that these times are different than late 1980s.

This is what neither the Times nor its talking heads understand (or, if they do understand, will admit): the facts are different this time. In the 1980s, there were a number of outright crooks involved in the banking and, especially, the thrift business in certain parts of the country, some wearing stetsons and cowboy boots, others clad in three-piece Armani suits. There were fraudulent appraisals, my-dead-cow-for-your-dead-horse swaps, 100 percent loan-to-value ADC loans on raw dirt, rapid multiple flips that would have taxed Shawn Johnson, and similar shenanigans. The damages were also limited to certain regions of the country where real estate bubbles were exploited (or partially created) by financial institutions who engaged in outright speculation until those bubbles burst. Also, many of the worst players were (relatively) smaller players.

In the latest debacle, the causes of losses are more complicated and the resulting economic consequences much more devastating and widespread. Many of the hundreds of banks that failed collapsed because they were steamrolled by the swiftness of the onset, and the depth, of the economic collapse triggered, in large part, by subprime residential mortgage loans, the complex web of securities they spawned, and the resulting residential real estate inflation. Commercial real estate wasn't the primary cause of the collapse this time, it was a casualty of the collapse. You can argue until you're blue in the face about the nuances of fiduciary duties and CRE concentrations, but in all but the low hanging fruit cases, the FDIC doesn't have smoking guns laying in plain sight to use to extract huge settlements or litigation awards out of either defendants or, more importantly, their insurance companies, who are fighting back.

As to the lack of a "deterrent" to future potential wrongdoers that allegedly results from not making settlements public, I wouldn't be concerned that "silent settlements" are encouraging prospective bank officers and directors to do anything. Those who haven't said "screw it" and opted to sip mai-tais in Cabo until they need their livers "Rolfed," or are seriously considering an alternative exit strategy, aren't chomping at the bit to jump feet-first back into subprime anything or to make CRE or any other product or service their concentration-of-choice, and their primary regulatory supervisors wouldn't let them go there even if they yearned to do so. "Other bankers" are plenty scared Mr. Newsome, without the need to read about FDIC settlements. At least, that's the story with the vast number of smaller banks in this country.

I suppose there might be some deterrent effect if the FDIC announced settlements against the officers and directors of the large Wall Street banks that helped create the mess we're in and which then failed, so that future Wall Street bankers would...oops...none of them failed. That's right: they were bailed out. My bad!

Buried in the story is the rationale for keeping mum (until FOIA forces disclosure) about settlements.

Defendants benefit by settling because they can avoid admitting guilt and limit the damages they might face in court. The FDIC benefits by collecting money without the hassle and expense of litigation. The no-press-release arrangements help close those deals.

Those are valid reasons, and they make sense for both parties.

Let's hope the Times drills a little deeper next time and strikes oil instead of gas.

Memories, Like The Corners Of My Mind

Yesterday's post prompted a couple of quick responses from regular readers. One asked me if I had noticed who applauded Senator Chingachgook's question about taking big banks to trial. I had not noticed. My correspondent alleged that they were wearing NACA logos on their shirts. That explained much.

NACA is one of the non-profit organizations that was a prime player in the DAP debacle, which cost HUD a bundle of loot due to the fact that the percentage of borrowers under that program who defaulted on their loans far exceeded the percentage of borrowers who did not participate in the program. NACA also tried to convince various legislatures to enact foreclosure moratoriums, alleging that they were aghast that mortgage servicers were handling foreclosures in-house (The horror! The horror!). Finally, NACA was also one of the pre-Occupy-This-Or-That activist organizations that staged mock foreclosures at the homes of bank executives, prompting me to suggest that the way to combat those non-legal foreclosures might be with extra-legal firepower. As usual, cooler heads prevailed.

Of course the applause came from NACAites. Liz is their kind of pol.

Another reader reminded me that Senator Magua's habit of dramatic overstatement and misdirection was highlighted by me before the CFPB was even a gleam in the eye of either Dodd or Frank. That post featured the fevered dream of then-blogger Lie-awatha that national banks who were loan servicers were trying to preempt all state foreclosure laws. I think she might have thought that what national banks wanted more than life itself was to be able to move a battalion of dozers through poor neighborhoods with impunity, crushing homes like piles of matchsticks, just because they're all evil and that's what evildoers do. I'd forgotten about that post, but my elephant-minded reader had filed it away in his mental chest of fond memories.

I'm pleased that some readers pay more attention to what I write than I do. It saves time and effort to be resupplied in a timely fashion by others when the snark train needs another shovel-full of coal to keep steam in the boiler.

Full speed ahead.

Missing The Mark

In her attempt to grandstand at a Senate Banking Committee hearing last Thursday, Liz Warren screwed up the chance to make a valid point. The freshman Senator and veteran ideologue tried to beat up the federal banking regulators who were arrayed before the committee over their supposed reluctance "to take Wall Street banks to trial." You can watch her performance in the linked video, starting at approximately the 1 hour, 34 minute mark.

Although her opening question as to how tough the regulators were was never actually answered, I'm surprised that not one of the regulators answered "Tough enough to take anything a punk like you can throw at me without blinking, Running Joke." Instead, when she followed up by asking when was the last time any of the regulatory agencies took a Wall Street bank to trial, the least likely of all contenders stepped into the ring and counterpunched with a deft lesson in basic administrative law that sailed over the head of She Will Sioux (and over the heads of those droolers who applauded her).

Curry's point was that the OCC doesn't need to sue because it twists arms effectively enough in almost all cases to achieve its supervisory goals through consent orders, without commencing litigation. Warren's follow up, to the effect that she knows that the OCC doesn't have to bring banks to trial but when was the last time it brought a bank to (an unnecessary?) trial, caused Curry to again state that it doesn't have to sue banks (actually, commence an administrative enforcement action) to achieve its supervisory goals. Liz moved on to her next victim, who needed to check her facts and get back to the Senator at a later date.

Liz then got to the impetus for her initial inquiry, and it turns out to be a valid point that was made, unfortunately, before the wrong audience. She claimed that US attorneys throughout the country were taking "ordinary citizens" to trial all the time and "squeezing them" (and not like your main squeeze squeezes you, either), but were not taking Wall Street banks to trial. There's a case to be made that she's right about that. If there had been an actual US Attorney on the panel before her, that point would have been telling. Instead, those testifying were FEDERAL BANKING REGULATORS. THEY CAN'T BRING CRIMINAL CHARGES AGAINST ANYONE, LIZZIE. ONLY A US ATTORNEY CAN DO THAT AT THE FEDERAL LEVEL!

Sorry to monetarily channel the spirit of the late Sam Kinison, but Liz was a celebrated (for her "diversity") member of the Harvard Law School faculty, who made her bones by taking shots at banks, and who also birthed the concept of the CFPB. God forbid she should actually understand that when you're chapped at federal officials for not bringing big banks and bankers to trial on criminal charges, the federal officials you want in the room are those who have the power to bring people to trial on criminal charges.

If Liz actually knew something about the subject matter at hand (which would have made her unique among her compatriots in the US Senate), she might have realized that Comptroller Curry's agency could be criticized for persecuting the little guys, while being strangely passive with respect to some Masters of the Universe. At least, you seldom, if ever, hear about the "hot pursuit" by the OCC of executives at Chase, Bank of America, or Wells Fargo. 

Some of you may remember Patrick Adams, the former bank president who fought the OCC to clear his name and who was backed by a federal administrative law judge, who recommended that all charges against him be dismissed by the Comptroller of the Currency. Instead of dropping the case, rumor has it that the OCC has objected to the ALJ's decision and has urged the Comptroller not to follow the recommendation of the ALJ. Had she been aware of what is actually what, Ms. Warren might have asked the Comptroller why the OCC fights to the bitter end to pursue charges against folks like Mr. Adams, and whether it also aggressively pursues Wall Street bankers with the same zeal. She might have asked Curry to name the last time the OCC tried to overturn an ALJ's recommendation to drop charges against a Wall Street banker. Curry would have suffered instant aphasia, but it would have been a useful line of questioning to those of us who understand the difference between a criminal trial and a civil administrative enforcement proceeding.

But, no, Liz played to the cheap seats, including her acolytes in the trade press, and got her round of cheap applause from her targeted audience.

Updating

While it's been a hectic week, I wanted to resume blogging long enough to update a couple of recent posts with comments made by readers via email. The first concerned last week's post on Liz Warren's rabid rapid ascent into the stratosphere of the Senate. I closed that post by expressing the hope that Barney Frank's push to fill John Carey's vacant Senate seat would be successful so that, albeit for a short time, we could have both Lizzie Borden Warren and Barney ("Thufferin Thuccotash") Frank going hog wild in tandem on pro-consumer, BIG GOVERNMENT EXPANSION proposals that would have absolutely no chance of surviving a Senate filibuster, much less making it through a Republican-dominated House, but would contain as much moon battery and tom foolery as any blogger might wish for in his or her fondest blog-fodder dreams. Not being glued to Bay State political nuances, I had failed to notice that Massachusetts Governor Deval Patrick had spurned Barney's advances and instead chosen Patrick's very own former chief of staff to fill the interim Senate seat. Out of power, out of mind. I guess we'll have to make do with playing Wack-a-Wack-Job with Liz for the foreseeable future.

As a consolation prize, Barney gets to say "I'm not a real Senator, but I play one on stage."

Another reader, an experienced bank lawyer who has taken on the OTS and OCC from time-to-time, gave me a couple of intriguing comments about my most recent post, which discussed the FDIC's lawsuit against former officers and directors of the failed Charter Bank of New Mexico. I wondered why, after all the writedowns of CRE loans by the OTS and all of the resultant losses tied to those loans that could have been alleged by the FDIC, the FDIC focused instead on a smaller amount of losses caused by a subprime mortgage lending unit.

In the wake of the NLRB holding, and the simple fact that the OTS was running without a properly appointed director for several years, from March 2009 until the 2011 handover and in violation of the Vacancies Reform Act, wouldn’t you limit your case to the non-OTS determined issues too?

The Appointment of the Receiver in January 2010 was, perhaps, an illegal act in itself.

Fun food for thought.

Fun food for thought, indeed, although I haven't had the time--and no one is paying me--to think about it. Perhaps legal counsel for the former officers and directors of Charter Bank will have both the time and the financial incentive.

The Curious Case Of Charter Bank

The FDIC's first lawsuit of 2013 against former officers and directors of a failed FDIC-insured financial institution involved a former thrift that was the subject of a number of blog posts over the past several years, Charter Bank of Santa Fe, New Mexico. In one post, I recounted how I was taken behind the woodshed by OTS personnel and supporters for questioning the severity of that agency's writedown of the value of collateral securing commercial real estate loans in the bank's portfolio. Most of the discussions at that time (and since that time) that I have had with folks on all sides of that bank's failure and subsequent "resolution" have focused on the commercial real estate loans, especially acquisition and developments loans.

Given that focus, I was surprised to read that the claims against the former board and certain executive officers of Charter involved not commercial real estate loans, but a subprime residential mortgage operation that the bank established in Denver at perhaps, with hindsight, was one of the worst possible times to do so: 2006. It's been more common during the latest wave of lawsuits that involve a failed community bank that concentrated on commercial real estate lending, for the FDIC's complaint to allege negligence, gross negligence, and breach of fiduciary duty arising out of excessive growth, concentrated in CRE, funded by "hot money," without adequate capital in light of the risk, and without proper risk management policies, procedures, and/or practices for that type of lending concentration. Usually, the FDIC selects a portfolio of CRE loans where they think they can prove the allegedly wrongful acts and omissions caused identifiable monetary losses, totals the aggregate amount of losses on those loans, and sues for that amount.

In this case, I guess the FDIC chose what it thought was the "lower hanging fruit": losses related to the bank's subprime lending unit. The three-year statute of limitations has expired, and the FDIC's lawsuit made it under the wire, so unless there was a tolling agreement signed by potential defendants (unlikely), this is likely to be the only claim against the former officers and directors of the bank that the FDIC pursues. I simply find it unusual that, after all the allegations and "controversy" concerning CRE loan losses at that institution, it was subprime lending that caught the FDIC's eye.

Curious.

A Deal Is A Deal

AIG's moment of temporary insanity has passed. It's decided not to join a shareholder lawsuit filed by a company controlled by former AIG CEO Hank Greenberg against the US Government for bailing AIG out in 2008. Actually, Hank's company didn't allege that fact of the bailout was itself wrongful, just that the bailout terms set by the government were wrongful. Everyone understands that when you're going down like a torpedoed garbage scow, you always sue the guys who threw you a life preserver because they didn't reel you in quickly enough and you caught a nasty cold.

AIG's board of directors was apparently worried about reputational risk. Given the bad taste left in the collective mouth of the American public by the Wall Street bailouts, that's probably a justified worry. Politicians of all stripes were publicly uttering variations on the theme of "WTF?" on a daily basis. On the other hand, David Boies (yes, THAT David Boies), the attorney for Greenberg's company (which is the plaintiff in the litigation), thinks that the board's decision was not in the best interests of the shareholders. I assume that's a vague threat of a lawsuit against the directors of AIG. It seems to me that if Greenberg goes that route, he'll first have to win the lawsuit against the government in order to prevail against the directors. I'd think he'd have his hands full on with the suit against the government, without taking on the additional defendants. Then again, I don't swim in that specific shark tank, so I assume my rube-like perceptions and opinions are of little interest to the masters of the universe.

There were some other interesting, and even amusing, observations on AIG's board's decision. The Cato Institute's Mark Calabria astutely observed that big financial institutions rarely sue the federal government "because if they did, the government might not bail them out next time." Rim Shot!

On the other hand, AIG's CEO Robert Benmosche told CNCB that AIG believed that "a deal is a deal." Really, Bob? You danced with the bear and you still said that to a reporter without cracking yourself up? "A deal is a deal" as long as you're not the US government, which believes in honoring its deals unless it's politically expedient to renege on them, in which case it just litigates the resulting lawsuits for a decade or more until the public's interest in the outcome has been long since diverted to one or more other shiny baubles.

I understand the public relations downside as a reason to back off suing the US government. However, the "a deal's a deal" rationale simply doesn't hold water, based upon the nature of the devil with whom the deal was made.

Oh Georgia, No Peace, No Peace I Find

It was bad enough when Georgia reached the top of the heap (or bottom, depending on your view) of states in the number of FDIC civil lawsuits against former officers and directors of failed banks. Now, it appears that Georgia may be leading in a race to become the state with the most former bank officers and directors who've been indicted.

The former president and six other officers of First National Bank of Savannah on Friday were indicted by a federal grand jury in Savannah, accused of defrauding First National Bank and other banks out of millions of dollars.

[...]

The indictment comes on the heels of the 2011 prosecution of Savannah real estate developer Richard Guerard for scheming with First National Bank officials and employees to defraud the bank and others to cover loan shortfalls for two of his companies.

He pleaded guilty in May 2011 and was sentenced to 52 months in federal prison in August 2011.

The First National Bank indictments arise out of an alleged scheme by the defendants to hide losses from shareholders, directors, and the regulators that the bank suffered from soured commercial real estate loans through an alleged witches brew of straw borrowers, side deals, "hidden promises," "recruiting other banks to fund non-performing loans based on fraudulent misrepresentations about the quality of the loans," and falsifying and fabricating bank records and other documents. Other than that, everything appears to have been upfront and above-board.

There's a sense of "deja vu" to the allegations, in that other community banks that have failed due to CRE loans that went bad have been alleged by the FDIC to have gone to some lengths to conceal the nature of the losses by the use of similar techniques. Not many of those allegations have resulted in criminal indictments, but these indictments may signal that more of those are on the way.

Of course, indictments present only the government's side of the case. We haven't heard yet from defense counsel. I'm sure their response will paint a different picture.

Nevertheless, lawyers who represent banks that are "in distress" some times find it necessary to point out to bank officers, and occasionally to bank directors, as well, that attempting to mask losses can subject responsible officers and directors to allegations that, among other things, they have filed false financial records, including their quarterly CALL Reports. These types of indictments are a lesson. I hope those who might benefit from such a lesson are paying attention. For some, the time for paying attention has passed. For them, the best approach at this time might be fervent prayer.

If Ignorance Is Bliss, Some Bank Directors Must Be Orgasmic

Former Commissioner of the Texas Department of Savings and Mortgage Lending, Danny Payne, has been advising community bank boards of directors and what he's finding during his educational sessions is disconcerting.

In banks that have been hit with a cease and desist order, memorandum of understanding, or agreed orders involving significant capital depletion or the removal of management, Payne often finds board members listening to what he has to say with an intense focus. "On the other hand, when I give the presentation to a healthy bank, the board seems bored, doesn't ask questions and is not focused," he said. "It is indeed scary that they seem to think they have no worries and things won't ever get that bad for them."

[...]

The community leader and/or local business director simply does not comprehend their role and liability in banking," he said. "That is exactly what I have found."

As Payne points out, this lack of comprehension can have serious adverse consequences for the financial institution and, eventually, the director.

He said directors often fail to realize that the FDIC may sue the board members to recover losses if the bank fails.

The bank's primary federal regualtor can also hit directors with civil money penalties and other enforcement action if they breach their fiduciary duties.

I've been speaking to bank and credit union groups over the past couple of years about the lessons good banks can learn from bad banks, and one of the off-the-cuff basic lessons I try to convey is that for a bank director, espousing the philosophy of "What, Me Worry?" is a great way to embrace a lifetime vow of poverty, which is just fine if you plan to become a Cistercian monk, but simply disastrous if you plan to remain financially solvent. Like Danny, I find too many audience members focused more on daydreams of sexual congress with Tyra Banks than fulfilling their fiduciary duties to community banks.

Payne, and other experts quoted in the linked article from SNL's "Community Pulse, make some additional important points, among them:

• Because of increasing regulatory demands placed on bank directors, it is "advantageous to have board members who have strong backgrounds in audit, executive compensation, and risk management." (David Baris, executive director of the American Association of Bank Directors).
• It is important to have the support of a diverse group of successful and engaged leaders, each of whom brings unique strengths to the bank's governance, and it is also critically important that they all have a strong grasp of financial statements while coming from diverse backgrounds (G. Kent Cleaver, president and COO of Avenue Bank, Nashville, Tennessee).
• New and increased regulation is not only significantly affecting community banks' bottom lines but is causing confusion and fear simply because of the complexities. The lack of management experience with this heightened regulatory oversight and numerous new mandates are causing serious concerns at the senior management level as well (Payne).

The bottom line, Payne said, is that management teams and boards need to solicit outside expertise and advice before acting. "The traps are too numerous and deep not to," he said.

I'm not certain how many more lawsuits and enforcement actions it's going to take to get the point across that being the director of a community bank is no longer simply an honor, it's a serious, full-time occupation. It's also not necessarily any less less dangerous than than being an IED disposal expert in Kandahar Province, although instead of blowing up your physical body, it's your net worth, reputation, and emotional well being that are at risk.

I hope Danny has success in getting through to his audience. However, I won't hold my breath.

Georgia On My Mind

From the "that was quick" department comes the news (via Kevin LaCroix's D&O Diary) that a mere week after a jury rendered a verdict against a group of former IndyMac officers and in favor of the FDIC on a D&O lawsuit, the former CEO of IndyMac, Michael Perry, settled his FDIC lawsuit for $1 million and an assignment of his claims against IndyMac's D&O insurance carrier. As Kevin astutely observes, "the FDIC’s settlement with Perry also appears in large measure to be about the D&O insurance."

In other words, it appears that the $11 million insurance portion of Perry’s settlement with the FDIC basically represents a claim check for the agency to try to redeem in the interpleader action. Because there are numerous other claimants each attempting to assert their own claims to the insurance proceeds, it will remain to be seen how much of the $11 million insurance portion of its settlement with Perry the FDIC will ultimately collect.

Kevin also noticed another interesting aspect of the settlement agreement.

[T]he FDIC expressly acknowledges that the FDIC’s complaint “does not allege that Mr. Perry caused the Bank to fail or that he caused a loss to the FDIC insurance fund.” Nevertheless, on December 14, 2012, the FDIC entered – apparently with Perry’s consent – an Order of Prohibition from Further Participation (here) reciting that Perry “engaged or participated in unsafe or unsound banking practices” at IndyMac; that these practices "demonstrate [his] unfitness" to serve as a director or officer at any FDIC-insured institution; and prohibiting him from involvement in any financial institution. The Am Law Litigation Daily article quotes Perry’s counsel as saying with respect to this order, to which Perry consented, that “the FDIC extracted this condition at the eleventh hour because they could,” and that “the FDIC knew Perry was out of insurance funds, and they took advantage of the situation."

"Were not alleging that he caused a loss to the insurance fund, but we're alleging that he engaged in unsafe and unsound practices and must be banned from the business until hell freezes over."

Only lawyers could think of getting away with serving up such contradictory baloney with a straight face. Then again, when a large segment of your profession is basically shameless, its not such a stretch.

Kevin's blog post also discusses a recent FDIC lawsuit against former officers and directors of a failed Georgia bank as evidence that the FDIC has it in for the land of peaches. One third of all FDIC lawsuits arising out of the current crop of bank failures have been filed against officers and directors of Georgia banks (even though Georgia bank failures represent 18% of all failures), and the last four lawsuits filed by the FDIC all involve failed Georgia banks. That's good news for Georgia defense lawyers (and FDIC lawyers, for that matter), but a lousy omen for Georgia bankers. When I made the statement in one of my recent speeches that being a bank officer or director was the equivalent to being a featured actor in "The Hurt Locker," I didn't have Georgia on my mind, but I should have.

An in-house counsel for one of my good clients recently said candidly over lunch, "Why would anyone want to be a community bank director, given the FDIC's perfect 20/20 hindsight, exercised years after decisions are made?" I couldn't think of an answer for that one. Certainly, in Georgia, I wouldn't sign on to a directorship without combat pay.