THE PAPER CHASE: EFFECTS OF FDIC DOCUMENT RETENTION POLICIES ON D&O SUITS

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As the Federal Deposit Insurance Corporation continues

to pursue professional liability suits against directors

and officers of failed banks, the agency’s recent regulatory

guidance addressing the removal or copying of internal

bank documents for both failed and troubled banks

has further tilted the playing field in favor of the FDIC.

By severely limiting the instances in which bank directors

and officers may remove or copy documents for

their own personal defense, the FDIC has significantly

impeded their ability to defend themselves against potential

administrative, civil, and criminal proceedings.

These disadvantages are most pronounced at troubled

community banks, where directors and officers generally

lack the background and resources to navigate FDIC investigations

and litigation.

Interpreted in light of both the FDIC’s recent litigation

on this issue and the historical patterns of FDIC

lawsuits, the new FDIC guidance allows the FDIC to

build a robust case without having to turn to discovery

or other traditional investigative or litigation techniques.

The FDIC’s new guidance gives the agency more documentary

information than a potential defendant, and as

a result, not only stacks the litigation deck against defendants

but also significantly impairs their ability to negotiate

fair and reasonable settlements.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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