Bank Directors and Officers targeted in 2011

Bank Directors and Officers targeted in 2011

The final numbers are in for 2011, and it was a record year for Director and Officer (D&O) lawsuits by the FDIC.  In 2011 alone, 264 defendants were named in FDIC lawsuits.  To put that in perspective, that’s more than twice the number sued in the previous 2 years combined.  Some of the most frequently repeated charges were:

  • “Negligence”
  • “Simple negligence”
  • “Gross negligence”
  • “Engaged in corporate waste”
  • “Recklessness and willful misconduct”
  • “Breach of fiduciary duty”

According to the policy adopted by the FDIC in 1992, (Statement Concerning the Responsibilities of Bank Directors and Officers,) the FDIC may sue professionals who played a role in the failure of the institution. These individuals can include officers and directors, as well as attorneys, accountants, appraisers, brokers, or others.  Recent lawsuits have even extended to the D&O insurer.

How can your officers and directors (and others) avoid liability claims?  The FDIC spells it out, and it isn’t really that difficult:

“The FDIC will not bring civil suits against directors and officers who fulfill their responsibilities, including the duties of loyalty and care, and who make reasonable business judgments on a fully informed basis and after proper deliberation.”

So the key is that financial institutions should take steps to ensure that officers and directors have the information necessary to carry out their responsibilities and that the rationale for their actions is appropriately documented.  I’ve written before (Using Technology to Drive Compliance) about how technology (specifically automation) can enable and/or enhance your compliance efforts, particularly in the effort to extract useful information from mountains of data, and then present that information in an easy to understand format.  I’ve also discussed how management committees like the IT committee and the audit committee can provide both a forum for the exchange of information, and documentation that the exchange took place.  And don’t underestimate the value of having outside expertise on those committees.  Not only can it add a different perspective, it can also help document that you are making an effort to be “fully informed” and that you are “properly deliberating”.

And one more thing…listen to your auditors.  Although I was not able to identify a single case in which the auditor was named as a defendant in an FDIC lawsuit, many of the complaints do allege that institutions “failed to heed” or “ignored” auditor warnings.  Consider your auditor as a partner in the compliance process instead of a combatant.

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Tom Hinkel
As author of the Compliance Guru website, Hinkel shares easy to digest information security tidbits with financial institutions across the country. With almost twenty years’ experience, Hinkel’s areas of expertise spans the entire spectrum of information technology. He is also the VP of Compliance Services at Safe Systems, a community banking tech company, where he ensures that their services incorporate the appropriate financial industry regulations and best practices.

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