Monday, April 26, 2010

Downey Savings' Missing Loan Data: FDIC v. SK Hart

In some of the professional liability cases filed by the FDIC in connection with failed banks, the records available to the FDIC's attorneys have seemed incomplete. This case may explain part of the reason why.

On April 2, the FDIC sued a Utah-based real estate investment company named SK Hart Bayview LLC. In the lawsuit, the FDIC demands that SK Hart be ordered to return thousands of pieces of computer equipment that the FDIC sold to SK Hart in 2009. The equipment and data on it formerly belonged to Downey Savings. After the FDIC seized Downey
Savings in November 2008, the FDIC sold the bank's headquarters and call center to SK Hart for $56 million -- the sale included all of the personal property in the building, lock, stock and barrel. The FDIC apparently forgot that tens of thousands of borrower loan files resided on 1400-1600 servers and hard drives
in the facility.   As the FDIC alleges in its lawsuit, the data includes "confidential, nonpublic personal and financial information of the many customers and borrowers of Downey Savings."  Now, the FDIC is suing SK Hart to try to get the property and data back. The basis given by FDIC in the lawsuit for demanding return of the property is to protect borrower confidentiality and privacy.  To support arguments in favor of a court order requiring return of the property, the FDIC argues that if such an order is not granted, the FDIC and SK Hart will be "in potential violation of federal and state law" and "subject to legal claims for compensatory and punitive damages by said consumers."  Aside from that, however, I suspect the FDIC also wants the servers back for easier access to data supporting its own professional liability claims.