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FDIC Enforcement Decisions and Orders

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{{10-31-94 p.C-3290}}
   [10,839] In the Matter of Pepperell Trust Company and Mary K. Shaw, Biddeford, Maine, Docket No. FDIC-93-138b (7-13-93).

   Bank and individual respondent to cease and desist from such unsafe or unsound practices as granting loans to specific borrowers without evaluating creditworthiness; accepting guaranty of bank officer without evaluating her capacity to honor her guaranty; failing to call officer on a guaranty; and establishing compensation for officers in excess of what is reasonable. (This order was terminated as to Pepperell Trust Company by order of the FDIC dated 8-11-94; see ¶ 15,904.)

   [.1] Compensation—Specific Officer/Director—Limit
   [.2] Compensation—Benefits—Increase—FDIC Approval Required
   [.3] Loan Guaranty—Restructuring Required
   [.4] Loans—Specific Notes—Restructuring Required
   [.5] Loans—Specific Borrowers—Prohibited
   [.6] Directors and Officers—Specific Individual—Personal Debt Reduction Plan

In the Matter of

PEPPERELL TRUST COMPANY
BIDDEFORD, MAINE
(Insured State Nonmember Bank)
AND
MARY K. SHAW, individually and as
{{1-31-97 p.C-3291}}an institution-affiliated party of
Pepperell Trust Company,
Biddeford, Maine
ORDER TO CEASE
AND DESIST

FDIC-93-138b

   Pepperell Trust Company, Biddeford, Maine, ("Bank") and Mary K. Shaw ("Shaw"), having been advised of the right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices alleged to have been committed by the Bank and Shaw and of the right to a hearing on such alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel of the Federal Deposit Insurance Corporation ("FDIC"), dated July 9, 1993, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices, the Bank and Shaw consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank and Shaw had engaged in unsafe or unsound banking practices. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Bank, Shaw, and the bank's institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), cease and desist from the following unsafe or unsound banking practices:

       (a) granting loans and overdrafts to International Marketing Council, Inc. and Constantine Karvonides without properly evaluating the creditworthiness of the borrower(s);
       (b) accepting the guaranty of Mary K. Shaw on loans to International Marketing Council, Inc. and Constantine Karvonides without properly evaluating her financial capacity to honor her guaranty;
       (c) failing to call Mary K. Shaw on her guaranty on loan #6098 to International Marketing Council, Inc.; and
       (d) establishing compensation levels for Chairman, President, and CEO Shaw in excess of what is reasonable given the size of and financial condition of the Bank.
   IT IS FURTHER ORDERED that the Bank, Shaw, and the bank's institution-affiliated parties, take affirmative action as follows:

   [.1] 1. The Board of Directors shall limit Mary K. Shaw's compensation for performing her duties as Chairman, President, and Chief Executive Officer to no more than $125,000 per year unless prior approval of the Regional Director of the FDIC's Boston Regional Office ("Regional Director") and the Superintendent of the State of Maine Bureau of Banking ("Superintendent") for a higher level of compensation is obtained. Compensation is defined as salary, bonus, and board/committee fees.

   [.2] 2. The Board of Directors shall not provide Mary K. Shaw with any additional employee benefits, other than what she currently receives, without the prior approval of the Regional Director and the Superintendent.

   [.3] 3. The Board of Directors and Mary K. Shaw shall use best efforts to reach an agreement with International Marketing Council, Inc., and Constantine Karvonides to restructure note #6098 and Mary K. Shaw's guaranty subject to the following terms:

       (a) The amortization period of the note/ guaranty shall be no more than 30 years with a balloon payment of the full amount of principal due in no more than three (3) years;
       (b) The interest rate will be bifurcated into a "pay rate" and "accrual rate". The "pay rate" will be variable at no less than Prime + 1%, and will be used in calculating the monthly payment assuming 30-year amortization as above. The "accrual rate" will be variable at no less than Prime + 3%. The difference between "pay rate" and "accrual rate" will be due at the balloon payment date as described above;
       (c) Mary K. Shaw shall execute mortgages and/or assignments of interest on her home at South Street, Biddeford, Maine, her land at South Street, Biddeford, Maine, and any other real estate she may own jointly or in partnership with others, including land held jointly with her children at Pomerleau Street, Biddeford, Maine to secure this indebtedness;
    {{1-31-97 p.C-3292}}
       (d) Mary K. Shaw shall pledge term life insurance with a death benefit of $500,000 to Pepperell Trust Company. If her two children are willing to assign their interests in the policy to Pepperell Trust Company, Mary K. Shaw may grant the policy in 1/2 shares to her children for estate tax planning purposes.

   [.4] 4. The Board of Directors and Mary K. Shaw shall restructure loan # 5544 subject to the following terms:
       (a) The amortization period of the note shall be no more than 30 years with a balloon payment of the full amount of principal due in no more than three (3) years and the collateral granted above will also secure this note.

   [.5] 5. The Board of Directors shall not extend, restructure, or otherwise exercise forbearance on the above obligations without the prior approval of the Regional Director and the Superintendent.
   6. The Board of Directors will cause the bank not to provide Constantine Karvonides, International Marketing Council, Inc., or any other related entities with any banking services from Pepperell Trust Company.

   [.6] 7. Mary K. Shaw shall file a plan with the Board of Directors to reduce her personal debts within thirty (30) days of the effective date of this ORDER. The plan shall include detailed actions, which can reasonably be completed in two (2) years or less to reduce her personal debt to a level which can be serviced at the salary level discussed in paragraph 1 of this ORDER and any other income sources. The negotiating window for the Board of Directors and Mary K. Shaw to agree on an acceptable plan will be no greater than thirty (30) days from the date of initial filing, unless the Regional Director and the Superintendent agree to an extension.
   8. Once the Board of Directors and Mary K. Shaw have agreed to a debt reduction plan, it shall be forwarded to the Regional Director and the Superintendent for approval. Such approval shall not be unreasonably withheld.
   9. Mary K. Shaw shall file quarterly progress reports regarding her debt reduction plan with the Board of Directors, the Regional Director, and the Superintendent. Progress reports and supporting documentation should be sufficiently detailed to show that she is using her "best efforts" to execute the debt reduction plan. Failure to use her best efforts to execute the debt reduction plan will constitute a breach of this ORDER. This ORDER shall become effective ten (10) days from the date of its issuance.
   The provisions of this ORDER shall be binding upon the Bank, Shaw, and the bank's institution-affiliated parties.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Dated at Westwood, Massachusetts this 13th day of July, 1993.
   Pursuant to delegated authority.

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