Question

Great Bank, a C-Corporation incorporated in Delaware, paid $50Million in penalties and fines to federal bank regulators for violations of federal banking laws that protect depositors against fraud. Great Bank's directors and officers had a compliance program in place to monitor fraud but the program was not adequate to prevent the violations that lead to the fines and penalties. Shareholders of Great Bank filed a law suit against the Corporation's Directors and officers.

(1) What wrongdoing would the shareholders allege in their lawsuit that would be attributable to the directors and officers? AND
(2)what would the directors assert as their defense?

Answer 1

1. The shareholders would allege that the corporate governance of the Great Bank was not effective. It is the duty of the corporate governance of the company to keep a check on compliance adherence and any kind of illegal activities or violations. In this case, the corporate governance of Great Bank had a compliance program but it was not effective enough. Hence the shareholders can allege negligence on the part of the corporate governance of the Bank.

2. Directors will assert that they had a compliance program which was developed with an objective to keep a check on frauds. However the overall adherence and implementation of the program was the responsibility of middle level managers as the directors were busy in taking strategic decisions. Hence they must not be blamed for the same.