Regulators Improperly Shut 12 MCorp Banks, Judge Rules

A federal judge ruled Friday that federal regulators improperly seized several banks in the 1989 failure of MCorp, then the second-largest banking company in Texas.

U.S. District Judge Robert Porter ruled without trial that MCorp was right in its contention that the Federal Deposit Insurance Corp. and Office of Comptroller of the Currency illegally closed 12 of the 20 banks.

MCorp accused regulators of manufacturing the additional failures by refusing to repay loans that they had made to the company’s lead bank in Dallas. The suit said the regulators’ action was discriminatory against MCorp and violated federal banking laws.

“MCorp has argued all along that 12 out of those 20 were actually solvent but for the illegal action by the FDIC and the OCC,” MCorp attorney David Luther said.

Regulators sold the 20 failed banks to Banc One Corp. of Columbus, Ohio.

MCorp now has 30 days to petition for damages. In its lawsuit, the company sought $70 million, based on the combined net worth of the 12 banks. But MCorp officials now believe the “damage amount to be substantially in excess of $70 million,” Luther said.

The judge could consider the damage claim as soon as one month later, after regulators respond.

MCorp, which still owns three banks, is operating under bankruptcy protection. Any damages recovered from the government would be used to pay creditors, Luther said. The company sold two banks in December.