The number of lawsuits filed by the Federal Deposit Insurance Corporation against directors and officers of failed financial institutions increased markedly in 2012, after a lull during the second and third quarters of the year. Expect this pace to increase.

The report published by Cornerstone Research shows that the FDIC filed 23 lawsuits in 2012 against directors and officers of failed financial institutions, as of Dec. 7,  2012. In comparison, 16 such lawsuits were filed in all of 2011, and two in all of 2010.

Defendants named in the first 41 lawsuits filed since 2010 have included 324 former directors and officers. The FDIC has authorized litigation against 700 individuals involving 84 institutions. Another 392 former directors and officers await a decision on whether the FDIC will file lawsuits against them, the report stated.

“This backlog of authorized lawsuits suggests that the FDIC is seeking to increase pressure on directors, officers, and their insurance carriers,” said Katie Galley, a senior vice president of Cornerstone Research and one of the report's authors.

According to the report, the FDIC filed nine lawsuits in the fourth quarter of 2012, up from three and two lawsuits filed in the second and third quarters, respectively. The FDIC filed nine lawsuits in the first quarter of 2012.

The nine lawsuits filed in the last quarter of 2012 have included allegations of negligence and gross negligence, and three included allegations of breach of fiduciary duty.

Nine percent of financial institutions that have failed since 2007 have been the subject of FDIC lawsuits. These lawsuits generally have targeted larger failed institutions and those with a higher estimated cost of failure, although the lawsuits filed in the second half of 2012 have been against smaller institutions.

The pace of failures and the pattern of litigation activity suggest that lawsuits related to the 2008 financial crisis will continue to be filed into 2013, according to Cornerstone Research.

IndyMac Case

On Dec. 7, 2012, a California federal court jury found three former Indymac officers liable for $169 million in damages for negligence and breach of fiduciary duty in connection with 23 loans. The case marked the first D&O lawsuit filed by the FDIC after the 2008 financial crisis, and the first to go to trial. A fourth former IndyMac officer involved in the case settled with the FDIC in October 2012 for $4.75 million.

On Dec. 14, 2012, in a separate case the FDIC settled with the former CEO of IndyMac. The agreement called for the CEO to pay $1 million from his personal funds, and for D&O insurance to pay $11 million.

The FDIC estimates that IndyMac's failure cost the federal insurance fund a whopping $13 billion—the highest among the 467 banks that have failed since 2007.