Editor’s Note: When I began corresponding with a self-described conservative who reads this blog, I had no idea he was cohabitating as a “domestic partner” with another individual to whom he was not married. Though I’m staunchly against such unconventional living arrangements, that’s not my focus here. Instead, I chose to pursue this story based upon my vehement opposition to the kind of government interference in personal financial matters that stands to cost this man more than $52,000 from what he had understood to be FDIC-insured accounts.
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Eight days before Christmas, David Cohn happened by my blog, Bob McCarty Writes, and read a post I had written about the July 11 failure of IndyMac Bank. Afterward, he left a comment that came across to me as either a warning to his fellow Americans or the words of a kook. After deleting the comment because he had included his home phone number in it, I was intrigued enough to send Cohn an e-mail Dec. 17 at 2:02 p.m. In it, I asked him one question:
So what do you want to share with me about your IndyMac experience?
In his reply, Cohn shared a copy of a letter he had sent two days earlier to FDIC Chair Sheila C. Bair. In addition, he detailed his so-far-unsuccessful efforts to obtain help from his congressman, Rep. Connie Mack (R-Fla.), and from his two U.S. senators, Bill Nelson (D-Fla.) and Mel Martinez (R-Fla.).
After moving him out of the “kook” category, I told him I would take a look and see what I could do, adding, “No promises, but I’ll try my best to help.” Thus began a three-day exchange of e-mails and phone calls during which I learned the details of his four-month-long battle against to have his insured deposits returned to him by the Federal Deposit Insurance Corporation, a regulatory agency Congress created in 1933 to “restore public confidence in the nation’s banking system.”
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A 44-year-old business owner and real estate investor in Port Charlotte, Fla., Cohn had $305,798.17 — $300,000 of which he believed was insured by the FDIC — on deposit with the Pasadena, Calif.-based IndyMac Bank. Twenty days after the July 11 failure of the bank, the FDIC debited a total of $105,798.17 from his accounts without his consent and without prior warning. Cohn found himself in a state of disbelief.
Upon seeing the $300,000 figure above, one might be inclined to jump to the conclusion that Cohn should have known his accounts were vulnerable because they exceeded the FDIC limit of $100,000 per account. But Cohn would argue they were wrong. After all, people at IndyMac Bank had outlined the deposit insurance guidelines for him at the time he opened his accounts. Surely, they knew what they were talking about. Or did they?
Eight days and several phone calls after the FDIC seizure of his funds, Cohn reached Michael D. Geske, an FDIC financial institution specialist based in the agency’s Dallas Field Office.
During a phone conversation with Geske, Cohn learned that FDIC rules regarding beneficiaries — in place at the time of the IndyMac Bank failure — excluded “domestic partners” from the list of people who qualified as beneficiaries. For Cohn, a man who has been involved in a 15-year domestic-partner relationship with a person whom he named as one of the beneficiaries of his trust account, advance knowledge of that rule would have changed the way he handled his money at the time he deposited it at IndyMac Bank.
Much to his surprise, Cohn said he was told by Geske during the same phone call that he would be getting back $100,000 of the funds that had been seized. According to Cohn, Geske said that the FDIC would not have insured domestic partners under normal circumstances. Because IndyMac was such a massive public bank failure, according to Geske, the FDIC was taking extraordinary measures and would, as he stated in the above-mentioned e-mail, insure his losses up to $300,000.
Excited but still cautious, Cohn wanted something to serve as proof of his conversation with Geske, so he asked the FDIC official to recap their conversation in the form of an e-mail. The e-mail Geske sent to Cohn Aug. 8 at 2:26 p.m. contained the following details that served to confirm their phone conversation:
From: Geske, Michael D. <MGeske@FDIC.gov>
Subject: Indy Mac Bank
To: David Cohn
Date: Friday, August 8, 2008, 2:36 PM
I am emailing you to let you know your deposit insurance determination. You have account number (deleted) listed as solely in your name. This makes it a single ownership account and qualifies for up to $100,000 in deposit insurance. Since the balance was $102,010.42, it is uninsured $2,010.42. Your other account is number (deleted). It is listed as an in trust for account with 2 beneficiaries. These types of accounts qualify for deposit insurance up to $100,000 per qualifying beneficiary. Since there are two beneficiaries, it would qualify for up to $200,000 in deposit insurance coverage. This account had a balance of $203,787.75 and is therefore uninsured $3,787.75. The grand total of deposit insurance is $300,000 and the total of uninsured funds is $5,798.17. You will receive a corrected receivership certificate in the mail.
The FDIC has issued a 50% dividend for all uninsured depositors. You will receive a check in the mail for $2,899.08 from the FDIC. Some of the remaining 50% of uninsured funds may still get collected. As the FDIC liquidates the assets of the failed bank, if we collect more than the 50% already paid, we will issue additional dividends. It is impossible to say how much an asset will sell for or how fast it will sell. So there is no way to let you know when, how much, or if you will collect additional funds.
If you have additional questions, feel free to email me directly.
Federal Deposit Insurance Corporation
Financial Institution Specialist
Dallas, TX Field Office
PS, I gave you the wrong extension over the phone. The correct extension for the office I am working in is (972) 761-2389. I will be in this office until mid September.
In reply, Cohn sent this e-mail to Geske less than three hours later:
From: David Cohn
Sent: Friday, August 08, 2008 5:11 PM
To: Geske, Michael D.
Subject: Re: Indy Mac Bank
Thank you once again for the e-mail confirming our conversation. In your email you stated that I should receive a check in the mail for $2,899.08 which is 50% advanced dividend of my uninsured deposits. I understand this. When will I receive a check for the remaining balance of my insured funds?
Thank you once again, David.
Nearly 12 hours passed before Geske replied to Cohn via e-mail as follows:
On Sat, 8/9/08, Geske, Michael D. <MGeske@FDIC.gov> wrote:
From: Geske, Michael D. <MGeske@FDIC.gov>
Subject: RE: Indy Mac Bank
To: David Cohn
Date: Saturday, August 9, 2008, 5:49 AM
That should be handled electronically through the bank.
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Unfortunately for Cohn, Geske and his supervisor appear to have provided him erroneous information in much the same manner as the people at IndyMac Bank failed to provide him complete information at the time he made his deposits and selected beneficiaries for his funds.
Adding salt to the “wound” that is Cohn’s frustration, the FDIC changed its rules within 90 days of IndyMac Bank’s failure. In a Sept. 26 news release, the FDIC announced a “simplification” of the beneficiary rules which includes no mention of limits being placed upon people who qualify as beneficiaries.
When deciding upon distribution of funds in a trust, the rightful owner of those funds should be able to designate whomever he chooses — family member, friend or domestic partner — as a beneficiary. Whether or not one chooses to live with someone with whom he or she is not married should have nothing to do with it, and government should have no say in the matter.
In future posts, I will share the perspectives of the FDIC and elected officials on this matter.