When a bank goes into receivership, bank executives should not assume that any losses the bank itself — or its shareholders — sustains will be the sole losses. The Federal Deposit Insurance Corporation (FDIC), acting as the receiver of the First Community Bank, sued former officers of the Bank for close to $15 million in federal court. Known for decades as the First State Bank of Taos, the failing First Community Bank entered receivership on January 28, 2011; the FDIC was appointed as receiver.
The FDIC is alleging that eight of these officers, including the bank’s CEO/president, regional bank officers and loan officers, failed to comply with its own internal policies in underwriting and approving loans, allowed the bank to become dangerously over-leveraged and flagrantly ignored regulations intended to prohibit or discourage the extension of risky credit. It extended credit to borrowers without demanding reliable proof of their capacity to pay back loans. While the lawsuit identifies several real estate and business transactions which illustrate the case, the damages the FDIC is seeking are not compensation for these loans under contract law. Rather the FDIC claims these officers acted negligently, grossly negligent and breached their fiduciary duties to the bank.
The FDIC’s move comes less than a year after it sued 11 former officers and directors of the failed Charter Bank for $8 million, alleging they also committed gross negligence for operating a subprime lending business in Denver. The recurrence of these types of suits puts bank directors on notice that they cannot expect to run a bank into insolvency by ignoring lending standards and then walk away without any consequences after the FDIC takes over the institution in a receivership.
Mr. Giddens and the other attorneys at the Law Office of George “Dave”Giddens, P.C. have experience with both civil and commercial litigation, as well as representing both creditors and debtors in bankruptcies. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com for more information.