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Banking Law Keyed to Carnell, 7th Ed.
O’Melveny & Myers v. Federal Deposit Insurance Corporation
Citation:
512 U.S. 79 (1994)Facts
American Diversified Savings Bank (ADSB) was a California-chartered, federally insured savings and loan acquired in 1983 by Ranbir Sahni and Lester Day, who served as chairman/CEO and president respectively. Under their leadership, ADSB engaged in risky real estate transactions and fraudulent practices, including overvaluing assets and engaging in sham sales to disguise the bank’s negative net worth. In September 1985, O’Melveny & Myers represented ADSB in two real estate syndications, without contacting previous accounting firms or regulatory authorities to inquire about ADSB’s financial status. In February 1986, federal regulators determined ADSB was insolvent, and the FDIC stepped in as receiver. The FDIC then sued O’Melveny for professional negligence and breach of fiduciary duty, alleging the law firm should have discovered the bank’s fraudulent activities. O’Melveny defended by arguing that the knowledge of ADSB’s officers should be imputed to the bank and thus to the FDIC as receiver.
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