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Former First Republic workers sue FDIC over withheld retirement pay

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Former First Republic workers sue FDIC over withheld retirement pay © Reuters. FILE PHOTO: A branch of First Republic Bank is seen after Jamie Dimon’s JPMorgan Chase & Co emerged as the winner of a weekend auction of the bank in San Franciso, California, U.S. May 1, 2023. REUTERS/Hyun Joo Jin

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By Douglas Gillison

(Reuters) -Nearly 170 former employees of California’s failed First Republic Bank (OTC:) 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 (NYSE:) 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.

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