FDIC Playing Hardball

In a recent article in the  American_Banker the FDIC is reported as turning up the heat on officers and directors of failed financial institutions. In this case the FDIC is going after 8 former officers and directors of  Integrity Bank (oxymoron?). The suit was filed after two former bank executives pled guilty to charges that included conspiracy to commit bank fraud and securities fraud. Now certainly this takes no one by surprise. In our area of North Texas (Frisco) alone, we saw an explosion of new banks over the years and the pressure to grow at unreasonable rates, despite the population and business expansions, was enormous. While we predicted the failure of a lot of these banks simply on a competition basis, we should have also foreseen the potential for fraud and malfeasance in the mix. Nevertheless, this article begs visitation of certain events of the early 90’s (Sorry I have to go there since that downturn is still indelibly burned into so many of our respective noggins.) As many of you may recall, when the S&L’s bit the dust in the late 80’s and early 90’s, directors of the S&L’s were sued right and left for the dereliction of the fiduciary duties. However, many of these directors were mere nominal appointments of local doctors and businessmen who did not have the vaguest idea of the difference between  an S&L and a Taco Bell and essentially went to board meetings for the fellowship and the food. I represented many of these men and women and happened to be very successful with the “ignorance” (literally) defense (which there is none) but only after these folks suffered extreme emotional and financial distress. The moral of the story is DO NOT serve on any board whatsoever unless you confirm, at a minimum, (a)that you are protected by D&O insurance (clear with your lawyer) and (b)the exact duties, fiduciary and legal, that you have to the entity you intend to serve.

Keeping with the baseball theme, on this day (give or take a week or two) in 1865 an extremely important part of America was about to change. Newspapers picked up on a “big” story that had actually occurred the year before. Apparently a guy named Al Reach had left Brooklyn to earn money in Philadelphia. Reach’s problem had nothing to do with interstate commerce; rather, his problem was that he was a second baseman. In the summer of 1864, Reach had left the Brooklyn Atlantics to go to the Philadelphia Athletics for a paycheck of $25 a week! This was blasphemy to baseball purists as baseball was still a gentlemen’s game and money would do nothing but soil its reputation. Well, all the fuss did nothing but bring to light that other players were already being paid in some form or fashion and now other players were now demanding to be paid. So, baseball went professional, and in a matter of years, baseball players were making more than doctors. Then something familiar happened. The government came in and “offered their help”. As a result, in an effort to keep the game pure, Congress gave baseball anti-trust protection. Management used the tool to keep some exceptionally gifted people at a compensation level that equaled indentured servitude. That lasted for decades until the advent of free agency, which naturally swung the pendulum all the way back. After that there was no further trouble about salaries in baseball that we know of. (Thanks to art Cashin for this gem from history)

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Posted in Uncategorized
Tags: banking, banks, boards, director liability, fiduciary duty, officers