Nearly 170 former employees of California’s failed First Republic Bank have sued the US Federal Deposit Insurance Corporation (FDIC), claiming the regulator wrongly denied them access to pension funds valued at at least $150 million, a lawyer for the plaintiffs said on Monday.
The lawsuit is the latest fallout for the FDIC after three bank failures this year that cost the agency’s deposit insurance fund about $32 billion and drew the attention of lawmakers.
The lawsuit was filed Dec. 5 in the U.S. District Court for the Northern District of California but has not yet been disclosed.
With total assets of more than $200 billion, First Republic in May became the largest bank to fail since the 2007-2009 global financial crisis, even as major banks such as JPMorgan Chase & Co JPM scrambled to save the ship, including through a $30 billion infusion of deposits (link) in March this year.
In May, as receiver, the FDIC sold virtually all of the bank’s assets (link) to JP Morgan, which also took over all of its deposits.
In their lawsuit, the former employees allege that in mid-May the FDIC stopped making payments intended for them under a deferred compensation plan that First Republic had previously set up for them in a trust fund. Instead, the FDIC has begun treating them as unsecured creditors, meaning they could walk away empty-handed.
“This is truly unfair. The employees are the ones who have kept the bank healthy and profitable,” said attorney Timothy Walsh of Winston & Strawn. His clients did not include any of the top executives whose alleged mismanagement contributed to First Republic’s demise, Walsh added.
“You should not be punished in this process”
Walsh said the FDIC’s resolution of First Republic protected Wall Street banks, which brought in deposits, while former employees’ pension funds were much smaller. First Republic’s collapse cost the FDIC about $15 billion, according to a recent estimate.
The FDIC also faces a legal battle with Silicon Valley Bank’s former parent company, which is demanding the return (link) of about $2 billion that the agency seized after the bank’s collapse.
Representatives for the FDIC and JPMorgan declined to comment.
2023-12-18 22:18:55
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