Sixty-three banks have failed in Florida from April 2008 through March 2012.  But until recently, the FDIC had not filed any lawsuits against former D&Os of those failed Florida banks.  That all changed on March 13, 2012, when the FDIC filed a complaint against the former directors of Florida Community Bank (“FCB”) of Immokalee, Florida.  For a copy of the FDIC’s complaint, click here.

FCB was placed into FDIC receivership on January 29, 2010.  The losses to the Federal Deposit Insurance Fund arising from FCB’s failure are estimated to be $349.1 million.

According to the FDIC’s complaint, FCB strayed from its long-time agriculture-based strategy, and it embarked on a risky growth strategy by focusing on CRE and ADC loans outside of its local market.  FCB took on “extreme” concentrations in CRE and ADC loans that were several times the concentrations of the average bank in its peer group.  The FDIC contends that FCB’s board approved high-risk loans that were in violation of the bank’s own loan policy and that were based on grossly deficient underwriting and questionable appraisals.  The board continued to approve high-risk loans, the FDIC alleges, even after it had actual knowledge that the real estate market was failing.  The FDIC is seeking damages in excess of $62 million arising from eight bad credits — seven  ADC and CRE loans and one personal loan (for nearly $6 million) that the FDIC contends was approved by the bank’s president in violation of his lending authority.

Recently Cornerstone Research published a comprehensive white paper on the trends in the FDIC’s D&O litigation, and it highlighted the fact that the FDIC had not filed any D&O suits in Florida.  Too much was read into that apparent trend.  We have been aware for several months that the FDIC has initiated negotiations with several D&O groups in Florida over the past year, and that it has settled at least a few of those claims.  There is no reason to expect that the FDIC will treat failed banks in Florida any differently, and every reason to expect more lawsuits will be filed in Florida in the coming months.