FDIC bars bad actors from buying back assets of failed firms

The Federal Deposit Insurance Corporation (FDIC) issued draft regulations Tuesday that would block people who profited at the expense of a financial company from later purchasing the firm’s assets during liquidation.

A provision of the Dodd-Frank Wall Street reform law, the proposed rule will be published in Wednesday’s Federal Register, starting the clock on a 60-day public comment period.

The purpose of the rule, according to a notice issued Tuesday, “is to prohibit individuals or entities who profited or engaged in wrongdoing at the expense of a covered financial company, or seriously mismanaged a covered financial company, from buying assets of any covered financial company from the FDIC.”

The draft rules center on assets held by the agency during the course of liquidating a company, and they include sales of equity stakes in the any subsidiaries of the firm.

Specifically, the draft rules would bar purchases, via FDIC financing, to anyone who has defaulted on obligations to the company exceeding a million dollars and has been found to have engaged in fraudulent activity in connection with the obligation.

That includes the any member of a partnership, officer or director of a corporation that defaulted, according to the rules.

The prohibition would also extend to company officials who “in a material way” participated in a transaction that resulted in a substantial loss to the company, and individuals with a history of defaulting on obligations.

The FDIC will consider comments from interested parties and members of the public before issuing a final rule.