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2 Banks Fall as Lawsuits Filed, Criminal Actions Lose Steam

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Two banks failed this week, though related losses are expected to be under $200 million. Meanwhile, as more than $6 billion in civil lawsuits have been filed against officers and directors of previously failed institutions, criminal cases are getting nowhere.

The Illinois Department of Financial and Professional Regulation — Division of Banking closed down Bank of Shorewood. The Federal Deposit Insurance Corp. was named receiver of the entity.

The bank was hit with an FDIC prompt corrective action in March and an FDIC cease-and-desist order in November 2009.

All of the Shorewood, Ill.-based bank’s $104 million in deposits were assumed by Heartland Bank and Trust Co. In addition, Heartland purchased all of 33-year-old Bank of Shorewood’s $111 in assets — including $16 million in home loans, $46 million commercial mortgages and $4 million in construction-and-development loans.

The FDIC projects the cost to its Deposit Insurance Fund to come in around $26 million as a result of the 31-employee company’s demise.

The Washington State Department of Financial Institutions cited “critically insufficient capital to allow the bank to continue operations” in Friday’s seizure of Bank of Whitman.

“Large loan losses made it impossible for Bank of Whitman to continue,” Richard M. Riccobono, the state’s division of banks director, said in an announcement. “Bank management was unable to raise sufficient capital to remain viable. It hurts to lose an institution like the Bank of Whitman because they extended services to our state’s smaller communities.”

The FDIC, which was appointed as receiver of the 34-year old institution, awarded the winning bid for the Colfax, Wash.-based bank to Columbia State Bank, which will shut down 12 of the 158-employee bank’s 20 branches.

Bank of Whitman had $516 million in deposits and $549 million in assets — including $24 million in one- to four-family residential loans, $265 million in commercial real estate loans and $29 million in C&D assets. While Columbia State Bank assumed all of the deposits, only $314 million of the assets were acquired.

The Federal Reserve Board hit the failed bank with a prompt corrective action in January. The bank, along with parent Whitman Bancorporation Inc. and the Bank of Whitman Employee Stock Ownership Plan, entered a formal agreement with the Federal Reserve Bank of San Francisco in July 2010.

After all is said and done, the FDIC expects to take a $135 million hit as a result of Bank of Whitman’s failure.

Including Friday’s closings, 63 FDIC-insured banks have failed so far this year. Factoring in credit unions and non-banks, 90 mortgage-related failures and closings have been tracked this year by Mortgage Daily.

The FDIC reported that as of Aug. 4, it has authorized lawsuits in connection with 30 failed institutions against 266 individuals for director and officer liability with damage claims of at least $6.8 billion. The cases include nine lawsuits that name 68 former directors and officers as defendants.

One of the cases has already been settled.

In addition, 16 fidelity bond, attorney malpractice and appraiser malpractice lawsuits have been authorized by the agency, while another residential malpractice and mortgage fraud lawsuits are pending.

The FDIC, which has three years after a bank failure to file tort claims and six years to file breach-of-contract lawsuits, said it usually completes an investigation within 18 months of a bank failure. Litigation is only filed if potential defendants don’t agree to a settlement first.

Between 1986 and 2009, $6.2 billion was collected by the FDIC and the Resolution Trust Corp. from professional liability claims, though the cost of the investigations and claims was $1.5 billion.

But little progress has been made in criminal cases against leaders of failed banks. The Department of Justice said Friday that it has closed an investigation that was launched in October 2008 by a federal task force into the September 2008 failure of Washington Mutual Bank.

After hundreds of interviews and the review of millions of documents, the Justice Department said there wasn’t enough evidence to file criminal charges.

Citing people familiar with investigations into the failure of IndyMac Bancorp and New Century Financial Corp., the Wall Street Journal reported that no criminal charges are likely in either of those cases. But the investigations remain open, and the U.S. Attorney’s Office in Brooklyn, N.Y., recently opened its own criminal investigation into IndyMac.

FDIC as Receiver of IndyMac Bank, F.S.B. v. Van Dellen, et al.

Case No. 2:10-cv-04915-DSF-SH, July 2, 2010 (U.S. District Court for the Central District of California).

FDIC as Receiver of Heritage Community Bank v. Saphir, et al.
Case No. 1:10-cv-07009, Nov. 1, 2010 (U.S. District Court for the Northern District of Illinois).

FDIC as Receiver of 1st Centennial Bank v. Appleton, et al.
Case No. 2:11-cv-00476-DDP-PLA, Jan. 14, 2011 (U.S. District Court for the Central District of California).

FDIC as Receiver of Integrity Bank of Alpharetta, GA v. Skow, et al.
Case No. 1:11-cv-0111, Jan. 14, 2011 (U.S. District Court for the Northern District of Georgia).

FDIC as Receiver of Corn Belt Bank and Trust Company v. Stark, et al.
Case Number 3:11-cv-03060-JBM–BGC, Mar. 1, 2011 (U.S. District Court for the Central District of Illinois).

FDIC as Receiver for Washington Mutual Bank v. Killinger, et al.
Case No. 2:11-cv-000459, Mar. 16, 2011 (U.S. District Court for the Western District of Washington).

FDIC as Receiver for Wheatland Bank v. Spangler, et al.
Case No. 10-cv-4288, May 5, 2011 (U.S. District Court for the Northern District of Illinois).

FDIC as Receiver of IndyMac Bank, F.S.B. v. Perry.
Case No. 11-cv-5561-ODW-MRWx, Jul. 6, 2011 (U.S. District Court for the Central District of California).

FDIC as Receiver of Haven Trust Bank v. Briscoe.
Case No. 1:11-mi-99999-UNA, Jul. 14, 2011 (U.S. District Court for the Northern District of Georgia).

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