The State of Georgia is leading in one financial category in which it would rather not lead -- it has seen one of the highest incidents of failed banks in the Country. Now, it may also be at the leading edge of litigation against directors and officers following the bank failures. As reported yesterday in the Atlanta Journal Constitution (here), investors in the failed Georgia bank, Alpha Bank, have filed a suit against its former officers and directors alleging that they failed to disclose that the bank had deviated from its original business plan by engaging more aggressively in subprime mortgage lending. Investors also allege that management hid details of a review by bank regulators that raised issues with the bank's lending practices and programs.
Thus far, there has been relatively few suits against directors and officers, but the storm clouds have been gathering. The FDIC has been gathering information about D&O insurance from failed banks as a precursor to litigation or issuing demands prior to litigation. This lawsuit, by investors in a bank rather than the FDIC as receiver for a failed bank, may be just the tip of the iceberg.
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