Enforcement Actions and Professional Liability Claims Against Institution-Affiliated Parties and Individuals Associated with Failed Institutions

Appendix 1: Objectives, Scope, and Methodology

Objectives

Our objectives were to:

1. Describe the Regulators' processes for investigating and pursuing EAs against IAPs associated with failed institutions;
2. Describe the FDIC's process for investigating and pursuing PLCs against individuals and entities associated with failed institutions and its coordination with the FRB and OCC;
3. Determine the results of the Regulators' efforts in investigating and pursuing EAs and the FDIC's efforts in pursuing PLCs; and
4. Assess key factors that may impact the pursuit of EAs and PLCs.

Scope and Methodology

The evaluation was performed jointly by the OIGs for the FDIC, the FRB, and the Treasury.Our review covered the 465 institutions that failed during the 5-year period spanning January 1, 2008 through December 31, 2012, that were regulated by the FDIC, FRB, OCC, or OTS. The EAs and PLCs discussed in this report covered the time period from January 1, 2008 through September 30, 2013. The data in this report is as of September 30, 2013, unless otherwise noted.

The information in this report is primarily limited to formal EAs imposed on IAPs and PLCs brought against individuals and entities. The Regulators have also imposed formal and informal EAs and other sanctions against institutions, and have shared information with or referred criminal matters to the DOJ.

Portions of our testing focused on a judgmental sample²⁹ of institutions regulated by the FDIC, FRB, and OCC, that failed between 2008 and 2012, where an MLR was conducted. Of the 465 institutions included in this evaluation, 145 fit these criteria.Our sample consisted of 63 of the 145 institutions, where the:

• FDIC was the PFR for 96 of the 145 institutions. We selected the 20 institutions with the highest percentage of losses to total assets.
• FRB was the PFR for 23 of the 145 institutions. We selected all 23 institutions.
• OCC was the PFR for 26 of the 145 institutions. We selected the 20 institutions with the highest percentage of losses to total assets.

We obtained data from the Regulators' information systems and public Web sites to gather statistics on the number and status of EAs and PLCs. We traced data from these systems to source documents and reviewed the data for consistency and reliability. We did not assess the information system controls associated with the systems because this was not part of our objectives.

We performed this evaluation from April 2013 through January 2014 in accordance with the Council of the Inspectors General on Integrity and Efficiency's Quality Standards for Inspection and Evaluation.

Objective 1. To describe the Regulators' processes for investigating and pursuing EAs against IAPs associated with failed institutions, the OIGs:

• Reviewed Section 8 of the FDI Act and identified the authority granted and statutory elements required to issue the different types of EAs against IAPs.

• Gained an understanding of the policies, procedures, and criteria pertaining to EAs, including those pertaining to delegations of authority and SOLs.

• Reviewed EA information contained in reports provided to Congress, the FDIC's Board, the FRB, and the Comptroller of the Currency.

• Interviewed Headquarters and regional office staff in the FDIC's Legal Division, RMS, and DRR; in the FRB's Legal Division and Division of Banking Supervision and Regulation (BS&R); and the OCC's Enforcement and Compliance Division.

• Interviewed the FDIC's Chairman and the ALJ for the FDIC, FRB, OCC, and NCUA.

• Assessed coordination efforts within each regulatory agency.

• Documented the FDIC's use of back-up enforcement authority pertaining to Downey and IndyMac.

• Reviewed FDIC's expectations and success pertaining to the timely handling and disposition of EA cases. The FRB and OCC did not have commensurate metrics.

• Documented the FDIC's, FRB's and OCC's issuance and use of formal letters.

• Reviewed the Regulators' processes for publicizing EAs and concluded that the Regulators publicized EAs in accordance with statutory requirements.

• For the judgmental sample of 63 failed institutions, we:
  • Reviewed documentation in support of pursued, pending and closed-out EAs.
  • Determined whether EA decisions were properly approved.
  • Determined the timeliness of EA close-outs.

Objective 2. To describe the FDIC's process for investigating and pursuing PLCs against individuals and entities associated with failed institutions and its coordination with the FRB and OCC, the FDIC OIG:

• Reviewed FDIC guidance and key reports, including
  • Applicable DRR and Legal Division directives,
  • The Joint Delegations of Authority issued by DRR and the Legal Division,
  • The FDIC's Annual Report to Congress,
  • Documents provided to the FDIC's Board, and
  • Policies and procedures related to interagency coordination efforts pertaining to PLCs.
• Determined DRR Investigations' and the Legal Division's PLU staffing levels.

• Interviewed DRR and Legal Division officials in the FDIC's Regional, Temporary Satellite, and Headquarters' offices.

• Assessed the FDIC's success in meeting performance goals pertaining to PLCs.

• Reviewed the FDIC's process for publicizing completed PLCs and tested the process for compliance.

• For the judgmental sample of 63 failed institutions, the FDIC OIG:
  • Reviewed documentation on the PLC investigations process and tolling agreements executed between the FDIC and potential defendants.
  • Reviewed documentation supporting FDIC decisions to close or pursue PLCs, including close-out memoranda and authorizations to file suit or settle.
  • Determined whether PLC decisions were properly approved.
  • Determined which PLCs were closed out due to lack of merit and cost-effectiveness.
  • Determined the timeliness of PLC close-outs.
  • Reviewed coordination efforts among the FDIC's PLU and Enforcement sections, and other PFRs.

The Treasury OIG:

• Reviewed policies and procedures related to interagency coordination efforts between the FDIC and other Regulators, pertaining to PLCs.

• Selected a sample of PLCs that were pursued by the FDIC where the OCC was the PFR, reviewed supporting documentation, and interviewed OCC officials to assess OCC coordination efforts with the FDIC.

• Coordinated with the FDIC regarding PLC information pertaining to the 20 OCC failed institutions that were sampled in this evaluation.

Objective 3. To determine the results of the Regulators' efforts in investigating and pursuing EAs and the FDIC's efforts in pursuing PLCs, the OIGs:

• Gathered statistics showing the number and types of EAs and PLCs pertaining to the 465 FDIC-insured institutions that failed during the five year period from 2008-2012.

• For the judgmental sample of 63 failed institutions:
  • Analyzed the number of related EAs and PLCs,
  • Determined the reasons why EAs and PLCs were pursued or closed, and whether cases were timely closed.
  • Analyzed MLR data pertaining to the institutions' management.
• Verified EA and PLC data to source documents and information on the Regulators' public Web sites.

• Determined the number of EAs and PLCs against directors and officers compared to other IAPs and individuals.

• Compared the number of EAs adjudicated by the ALJ to the number of EAs consented to by the IAPs.

• Analyzed the number of failed institutions with convictions against IAPs that resulted from the FDIC, FRB, and Treasury OIG Office of Investigations' efforts.

Objective 4. To assess key factors that may impact the Regulators' pursuit of EAs and PLCs, the OIGs:

• For the judgmental sample of 63 institutions:
  • Reviewed EA and PLC documentation and determined the extent that key factors impacted decisions to close EA cases and PLCs.
  • Assessed the need for and use of tolling agreements for EAs and PLCs when a SOL was as a factor.
  • Compared the timing of EA and PLC decisions to performance goal deadlines.
• Conducted interviews to understand the reasons EA cases and PLCs were closed, including whether legal requirements, staffing and monetary resources, or risk appetite, among other things, impacted decisions to pursue or close these cases.

• 29. The results of a judgmental sample cannot be projected to the intended population by standard statistical methods. Return to text