Former First Republic workers sue FDIC over withheld retirement pay (updated)

First Republic Bank

18/12/2023 21:44

(Adds reaction from JPMorgan in 11th paragraph)
    By Douglas Gillison
       Dec 18 (Reuters) - Nearly 170 former employees of
California's failed First Republic Bank have sued the U.S.
Federal Deposit Insurance Corporation (FDIC), alleging that the
regulator is improperly blocking their access to at least $150
million in retirement funds, a plaintiffs' attorney said on
Monday.
    The lawsuit marks the latest fallout for the FDIC from three
bank failures earlier this year that cost the agency's deposit
insurance fund about $32 billion and have drawn scrutiny from
lawmakers.
    The lawsuit was filed on Dec. 5 in the U.S. District Court
for the Northern District of California but has not been
previously reported.
    With assets of more than $200 billion, First Republic in May
became the largest bank to fail since the 2007-2009 global
financial crisis, despite efforts by major banks including
JPMorgan Chase & Co  JPM.N  to right the ship, including a $30
billion infusion of deposits in March of this year.
    As receiver, the FDIC in May sold virtually all the bank's
assets to JP Morgan, which assumed all deposits as well.
    In their complaint, the former employees allege that in
mid-May the FDIC stopped payments intended for them under a
deferred compensation plan that First Republic had earlier
established for them in a trust. They say the FDIC instead began
treating them as unsecured creditors, meaning they could be left
with nothing.
    "It's really inequitable. The employees are the ones that
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.
    "They should not be penalized in this process."
    Walsh said the FDIC's resolution of First Republic 
protected the Wall Street banks that injected deposits, while
the former employees' retirement funds were much smaller. First
Republic's failure cost the FDIC about $15 billion, according to
a recent estimate.
    The FDIC is also facing litigation from the former parent
company of Silicon Valley Bank, which is seeking the return of
about $2 billion the agency seized after the bank's collapse.
    Representatives for the FDIC  and JPMorgan declined to
comment.

 (Reporting by Douglas Gillison; Editing by Bill Berkrot and
Cynthia Osterman)
 ((douglas.gillison@thomsonreuters.com; Reuters Messaging:
@douglasgillison))