The suit, filed in federal court in California, charged that the bank was incurring heavy mortgage losses tied to the subprime mortgage industry meltdown and, by keeping the company stock, FirstFed breached its Employee Retirement Income Security Act (ERISA) fiduciary duties.
Plaintiffs also charged that it was imprudent to keep a heavy concentration of FirstFed stock because the company’s real estate loan portfolio was heavily concentrated in the volatile Southern California market. They also claim the bank had adopted less stringent underwriting standards and accepted loan applications with little or no income or asset verification
“As a result of defendants’ breaches of fiduciary duty, the Plan suffered devastating losses, losing essentially all of its assets,” the suit declared. “A prudent fiduciary facing similar circumstances would not have stood idly by as the Plan lost the near entirety of its value.”
First Federal Bank of California was closed December 18, 2009, by the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation became receiver of the bank, according to the complaint.
The case is Young v. Heimbuch, C.D. Cal., No. 2:10-cv-08914-ODW-MAN.