It was the second costliest bank failure for the FDIC. The bankruptcy of BankUnited cost them over $6 billion, (That’s right, with a “B”.) but as our friends at Mortgage Implode-O-Meter can tell you, after so many banks have gone bankrupt, Americans have become fatigued with the story. The South Florida Business Journal reported last week:
U.S. Bankruptcy Court Judge Laurel Isicoff approved a settlement over the failing of BankUnited FSB that will release the bank’s former executives from future liability without them paying out of pocket.
Yet, the settlement approved on Tuesday will allow the Federal Deposit Insurance Corp. to collect $2.5 million in insurance proceeds based on its claims against the executives for the 2009 failure of the biggest bank in Florida, which has cost the FDIC $6.19 billion. That’s the second-most costly bank failure ever for the FDIC.
So why not go after the executives? Shouldn’t somebody’s desk have said, “The bad loans stop here?” The problem is, how do you demonstrate criminal intent when so many in the world of real estate finance were merely short-sighted?
Attorney Dennis Nowak, who represents Lopez, (Former CFO) said the FDIC was realistic about its ability to recover funds from the executives based on the cost and risks of litigation. Attorney Kendall Coffey, who represents Camner, (Former financial chairman and CEO) said both parties decided that a settlement was better than protracted litigation that could have exhausted the insurance policy on defense costs.
While Camner is a partner in a law firm, it does not mean he has substantial assets, Coffey said. “Nobody lost nearly as much in the BankUnited collapse as the Camner family.”
Collecting from the officers and directors of failed banks has proven difficult for the FDIC. A federal court in Georgia ruled that the FDIC could not pursue negligence claims against the officers and directors of the failed Integrity Bank, although the FDIC has appealed.
As of last summer, the FDIC had filed 32 lawsuits against banking executives, but prevailing could be a long shot.
Miami-based bank analyst and economist Kenneth H. Thomas said there’s a big difference between bank executives committing misdeeds for personal benefit and executives making businesses decisions that later turn out to be wrong. Many banks were making the same type of risky mortgages as BankUnited did during the real estate boom, and these banks were highly profitable until the downturn, he added.
One thing about the housing bubble, it was the perfect cover for fraud. Many bank executives, real estate agents, mortgage lenders, buyers and sellers, etc. will get away with their crimes because it’s so easy to say, “Who could have known?”
Maybe the BankUnited execs were just clueless. We’ll never know. What we do know is that the FDIC is facing an uphill battle pursuing bank executives , because bubble fraud was nearly the perfect crime.