Banking Law

FDIC Sues Officers of Another Failed Bank; Critics Say Agency Goes Easy on Ex-Executives

The Federal Deposit Insurance Corp. has sued 12 former directors and officers at the failed Freedom Bank in Georgia, part of an ongoing effort to recover losses to its insurance fund.

The suit filed last week claims the bank made 21 loans without adequate documentation to borrowers who had no apparent ability to repay or service the loans, the Atlanta Journal-Constitution reports.

The suit is in addition to 22 lawsuits filed by the FDIC in an 18-month period. Reuters had the tally in an article published last month. The actions seek to partially offset $87 billion in insurance fund losses with damages from bank executives’ assets, from their insurance policies and even from their spouses, the story says. So far, no cases have reached trial, though three have settled.

Critics say the settlements aren’t high enough and don’t carry stiff-enough repercussions for executives. In one case involving the First National Bank of Nevada, the FDIC settled with two former executives for $40 million, but “they didn’t pay a dime,” the Reuters article says. Instead, the agency is battling to get the money from an insurer that provided coverage to the executives.

In the Freedom Bank case, its lawyer from Alston & Bird criticized the FDIC suit, according to the Atlanta Journal-Constitution account. “Our view is that this is the latest example [of] the FDIC trying to blame small-town community bankers for the financial crisis,” Theodore Sawicki said. He added that his clients “acted reasonably and in good faith.”

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