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

2008 Financial Crisis

The 2008 financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.  It resulted in the threat of total collapse of large financial institutions, national government assistance to financial institutions, and downturns in stock markets around the world.  Also associated with the crisis were large declines in employment, household wealth, and other economic indicators.  Studies suggest that losses associated with this crisis based on lost output (value of goods and services not produced) could range from a few trillion dollars to over $10 trillion. 

Authority-to-Sue Memorandum

An official document used by the FDIC for communicating the findings of a PLC investigation and recommending approval to file a lawsuit.  This document is reviewed by the FDIC Board as part of the approval process for initiating litigation.  The document contains information on the defendant(s), case facts, the reasons for pursuing the claim, damages, anticipated defenses, likelihood of success in litigation, and cost estimates.

Breach of Contract Claim

A claim made against an individual or entity whose duty is defined by the terms of a contract.

Covered Offense

Any criminal offense involving dishonesty, breach of trust, or money laundering.

Deposit Insurance Fund (DIF)

The DIF was created in 2006, when the Federal Deposit Insurance Report Act of 2005 provided for the merging of the Bank Insurance Fund and the Savings Association Insurance Fund.  The FDIC administers the DIF, the goal of which is to (1) insure deposits and protect depositors of DIF-insured institutions, and (2) resolve failed DIF-insured institutions at the least possible cost to the DIF (unless a systemic risk determination is made).  The DIF is primarily funded from deposit insurance assessments.

Edge Act

A 1919 amendment to the Federal Reserve Act, which was sponsored by Senator Walter E. Edge of New Jersey, that authorized the FRB to charter corporations for the purpose of engaging in certain international or foreign banking and financial operations either directly or through the agency, ownership, or control of local institutions in foreign countries.

FDIC as Receiver

The FDIC as Receiver succeeds to the rights, powers, and privileges of a failed institution and its stockholders, officers, and directors.  The FDIC as Receiver may collect all obligations and money due to an institution, preserve or liquidate its assets and property, and perform any other function of the institution consistent with its appointment.  The FDIC as Receiver is functionally and legally separate from the FDIC acting in its corporate capacity as regulator and deposit insurer.

Federal Deposit Insurance Act (FDI Act)

A statute enacted on September 21, 1950 (12 U.S.C § 1811 et. seq.) that governs the FDIC.

Formal Enforcement Action

An action taken pursuant to the powers granted to Regulators under Section 8 of the FDI Act.  Each situation and circumstance determines the most appropriate action to be taken.

Informal Enforcement Action

A voluntary commitment made by an institution's Board.  These actions are designed to correct identified deficiencies or ensure compliance with federal and state banking laws and regulations.  Informal actions are neither publicly disclosed nor legally enforceable.

Institution-Affiliated Party (IAP)

As defined in Section 3(u) of the FDIC Act, an IAP is:

1. Any director, officer, employee, or controlling stockholder (other than a bank holding company or savings and loan holding company) of, or agent for, an insured depository institution;
2. Any other person who has filed or is required to file a change-in-control notice with the appropriate Federal banking agency under section 7(j);
3. Any shareholder (other than a bank holding company or savings and loan holding company), consultant, joint venture partner, and any other person as determined by the appropriate Federal banking agency (by regulation or case-by-case) who participates in the conduct of the affairs of an insured depository institution; and
4. Any independent contractor (including any attorney, appraiser, or accountant) who knowingly or recklessly participates in
   1. any violation of any law or regulation;
   2. any breach of fiduciary duty; or
   3. any unsafe or unsound practice, which caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect on, the insured depository institution.

Insured Depository Institution

Includes all institutions insured by the FDIC, including national banks, state institutions, thrifts, and saving and loans.

Material Loss Review (MLR)

When an institution failure results in a material loss to the DIF, the FDI Act requires the appropriate Inspector General to conduct an MLR to report the causes of the failure and the PFR's supervision of the institution.  Before July 21, 2010, a material loss was defined as a loss to the DIF that was in excess of the greater of $25 million or two percent of an institution's total assets at the time the FDIC was appointed receiver.  Amended by the Dodd‑Frank Act, effective July 21, 2010, section 38(k) defines a loss as material if it exceeds $200 million for calendar years 2010 and 2011, $150 million for calendar years 2012 and 2013, and $50 million for calendar years 2014 and thereafter (with a provision that the threshold can be raised temporarily to $75 million if certain conditions are met).

Notice of Charges

A formal document stating the charges against an IAP, individual, or entity; the facts surrounding a case; and a time and place for a hearing.

Office of Financial Institution Adjudication

The executive body charged with overseeing administrative enforcement proceedings of the FDIC, FRB, OCC, and NCUA.

Restitution

A remedial action to compensate an institution for a loss that it suffered as a result of a wrongdoer's misconduct.  Restitution may be result from an administrative action or a criminal proceeding.  Administrative restitution may be imposed by the Regulators under Section 8(b)(6) of the FDI Act if an IAP was unjustly enriched by a violation or practice that involved a reckless disregard of a law, regulation, or prior order issued by the Regulators.  Criminal restitution may be imposed by a court when a person is convicted of a criminal offense.

Regulatory Exclusion

An insurance policy endorsement, term, or rider that excludes the FDIC as Receiver from recovering damages based on its PLCs from insurance policy proceeds.

Suspicious Activity Report (SAR)

A report made by an institution to the Financial Crimes Enforcement Network (FinCEN), an agency of the Department of the Treasury, regarding suspicious or potentially suspicious activity.  An institution is required to file a SAR when it detects a known or suspected criminal violation of federal law or a suspicious transaction related to money laundering or a violation of the Bank Secrecy Act.

Tolling Agreement

An agreement between the Regulators and potential defendants that extends the SOL.  This agreement has been used when the parties are attempting to negotiate a settlement without litigation.

Tort

A breach of duty that the law imposes on persons who stand in a particular relation to one another.

Tort Claim

A civil legal claim, other than a breach of contract, for which a remedy may be obtained, usually in the form of damages.

Uniform Bank Performance Report

A multi-page financial analysis that compares the performance of a given bank against itself and its peer banks, over time.

Written Agreement

An enforceable agreement executed between institutions and regulators in lieu of an EA pursuant to An enforceabsection 8(a) or 8(b) of the FDI Act.