FDIC with Civil Demand Letters: preparing for them
(WARNING: Do not "tune this one out" simply because you're NOT at a bank. Every lender or servicer should have this same concern . . . .)
From one of my all-time favorite movies, and an all-time favorite scene:
[about the trackers following them]
Butch Cassidy: "I couldn't do that. Could you do that? Why can they do it?
Who are those guys"?
Borrowers and guarantors are NOT the only people stopping on the next hill, and then looking over their shoulder. Our friends at FinCriAdvisor today focus on a seldom discussed topic [link]:
"The FDIC actively is investigating dozens of former bank directors and officers at failed banks across the country, sending out more and more civil demand letters in recent months, banking lawyers report. In many cases, FDIC investigators first are subpoenaing bank officials and workers, hoping to gather evidence to use in potential litigation."
If you were around in the late 80s\early 90s, then this action on the part of the FDIC does not surprise you.
My bottom line is that yes, I expect the Feds to do their work. I just don't expect shocking news on regulatory wrong-doing.
So, I do NOT see much coming from this. Why? Because this commercial real estate wreck is very, very different than the brazen scandals and thievery of the old days.
I'm sure that books will be written about the differences—so I won't launch off on the list, except to note several glaring differences:
- This time we have complicated debt, equity, co-lender AND investment structures (this point alone gives me a headache) (Did I say "complicated?").
- Our problems are systemic —this is not a "Texas" thing, nor an "S&L Crisis."
- Does the FDIC really have money to follow through on a large number of law suits? (Recall that the FDIC is so short on funds that it has collected in advance premiums from its members).
However, just to be careful, take a look at FinCriAdvisor's preparation guidelines, which they label as "6 Ways Directors and Officers Can Get Ready for Potential FDIC Litigation." Here's the short version of their list:
-
Understand your D&O insurance policies before the bank closes.
- Be aware that the terms of D&O insurance policies vary widely.
- Inquire about "tail coverage" for claims brought after (but based on events before) the policy's expiration.
- Get copies of bank records that can document your role at the bank before it failed.
- Think twice before giving a free-wheeling deposition to FDIC investigators after the bank closes,
- Hire new legal counsel after the bank closes.
If you want to comment with your perspective or add to the list, please do so below.
