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   [11,861] In the Matter of Liberty Bank of New York, New York, New York, Docket No. 01-147b (10-29-01).

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices. (This order was terminated by order of the FDIC dated 12-7-04; see ¶16,403.)

   [.1] Management—Qualifications Specified

   [.2] Management—Management Report Required

   [.3] Ethics—Ethics Program Required

   [.4] Bank Operations—Transactions—Restricted

   [.5] Concentration of Credit—Reduce

   [.6] Loan Policy—Preparation or Revision of Policy Required

   [.7] Violations of Law—Correction of Violations Required

   [.8] Bank Operations—Internal Routine and Control Procedures—Written Plan Required

   [.9] Audit—Independent Auditors Required

   [.10] Board of Directors—Committee to Review Compliance with Cease and Desist Order Required

In the Matter of
LIBERTY BANK OF NEW YORK
NEW YORK, NEW YORK
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-01-147b

   LIBERTY BANK OF NEW YORK, New York, New York ("Insured Institution"), having been advised of its right to a Notice of Charges and of Hearing detailing unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by the Insured Institution and of its right of a hearing on the 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 for the Federal Deposit Insurance Corporation ("FDIC") dated October 29, 2001, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations of law and/or regulations, the Insured Institution 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 Insured Institution had engaged in unsafe or unsound banking practices and had committed violations of law and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Insured Institution, its directors, officers, employees, agents, and other institution-affiliated parties (as that term is defined in
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   Section 3(u) of the Act, 12 U.S.C. §1813(u)), and its successors and assigns, cease and desist from the following unsafe or unsound banking practices and violations:

   (a) operating with management whose policies and practices are detrimental to the Insured Institution and jeopardize the safety of its deposits;

   (b) operating with a board of directors that has failed to provide adequate supervision over and direction to the active management of the Insured Institution;

   (c) engaging in violations of applicable Federal and State laws and regulations;

   (d) engaging in hazardous lending practices;

   (e) operating with inadequate internal routine and controls policies and practices;

   (f) operating the Insured Institution with excessive concentrations of credit.

   IT IS FURTHER ORDERED that the Insured Institution, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1]1. (a) The Insured Institution shall have and retain qualified management. Such management shall include a chief executive officer and an experienced senior lending officer responsible for supervising the Insured Institution's overall lending function. Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Insured Institution.

   (b) Management shall be assessed on its ability to:

       (i) comply with the requirements of this ORDER;

       (ii) operate the Insured Institution in a safe and sound manner; and

       (iii) comply with all applicable State and Federal laws, regulations and FDIC and Federal Financial Institutions Examination Council policy statements.

   (c) (i) During the life of this ORDER, the Insured Institution shall notify the Regional Director of the New York Regional Office of the FDIC ("Regional Director") in writing of any resignations or terminations of any members of its board of directors and/or any of its senior executive officer(s), or any resignations, terminations, reassignments or material changes in responsibility or salary of any of its management within 15 days of the event. For purposes of this paragraph 1(c), a material change in responsibilities or salary shall be any demotion o decrease in salary, a salary increase of greater than 25 percent, or the addition or removal of a significant type of work from an employee's area of responsibility.

   (ii) The Insured Institution shall comply with section 32 of the Act, 12 U.S.C. §1831i, and Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R. §303.100 et seq.

   [.2] (d) To ensure both compliance with this ORDER and qualified management for the Insured Institution, the board of directors, within 60 days from the effective date of this ORDER shall undertake an in-depth analysis and review of the Insured Institution's management and staffing needs and make a written report (the "Management Report") that shall incorporate an analysis of the Insured Institution's management and staffing requirements and shall, at a minimum, provide: (i) a description of both the number and types of positions needed to properly manage the Insured Institution; (ii) a clear and concise description of the qualifications and experience needed for each position; (iii) an evaluation of present management indicating whether present management officials possess the necessary experience and qualifications required to perform present or anticipated duties; (iv) a plan to recruit, hire or replace personnel with requisite ability and experience; (v) for a periodic evaluation of each individual's job performance; (vi) procedures to periodically review the Insured Institution's management and updating of lending policies and procedures; and (vii) procedures to periodically update the Management Report.

   (e) The board of directors of the Insured Institution shall obtain the services of an outside consultant (the "Consultant"), acceptable to the Regional Director, who is knowledgeable in the areas of bank management, lending, collections and personnel evaluation, to assist the board of directors in reviewing the Insured Institution's management and staffing needs and in preparing the Management Report. The acceptability of the Consultant shall be based on the Consultant's ability to advise the Insured Institution in each of the areas identified in paragraph 1(d) of this ORDER.

   (f) Within 90 days from the effective date of this ORDER, the board of directors, with
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   the assistance of the Consultant, shall prepare a written plan of implementation (the "Board Implementation Plan") addressing the findings of the Management Report. The Board Implementation Plan shall specify the actions to be taken by the board of directors and the related timeframes for each action.

   (g) Within 90 days from the effective date of this ORDER, the board of directors of the Insured Institution shall prepare a written report (the "Board Report") which shall contain (i) a recitation identifying which recommendations made by the Consultant have been incorporated in the Management Report and the Board Implementation Plan, (ii) a recitation identifying the recommendations made by the Consultant which were not incorporated in the Management Report and Board Implementation Plan and the reasons for not including such recommendations, and (iii) a copy of any report, whether in final or draft form, prepared by the Consultant.

   (h) Promptly after preparation of the Management Report, Board Implementation Plan and Board Report, but in any event no later than 95 days from the effective date of this ORDER, a copy of the Management Report, Board Implementation Plan and Board Report shall be submitted to the Regional Director for review and comment. Within 30 days of receipt of any comment(s) from the Regional Director, and after consideration of such comment(s), the board of directors shall approve in writing the Management Report and Board Implementation Plan, which approval shall be recorded in the official minute books of the board of directors. It shall remain the responsibility of the board of directors to fully implement the Board Implementation Plan within its specified timeframes. In the event the Board Implementation Plan, or any portion thereof, is not implemented, the board of directors immediately shall advise in writing the Regional Director of the specific reasons for deviating from the Board Implementation Plan.

   [.3] 2. Within 60 days from the effective date of this ORDER, the Insured Institution shall develop, adopt and implement a written ethics policy and procedure (the "Ethics Program") with regard to the ethical conduct and other standards of conduct and responsibilities of its directors, officers, employees, agents and other persons participating in the conduct of the affairs of the Insured Institution. At a minimum the Ethics Program shall address the following:

   (a) Ethical and other conduct and responsibilities of individuals in the acceptance of gifts, entertainment, favors and loans; the use of official information; employment of relatives; use of Insured Institution property; travel expenses; and indebtedness to the Insured Institution or any other financial institution;

   (b) The financial interests and obligations of individuals that appear to conflict with that individual's duties and responsibilities such as:

       (i) Participating in any manner in any transaction or loan in which the individual, the individual's spouse, child, partner, or organization is involved; or in which the individual serves as an officer, director, trustee, partner, or employee, or has a financial interest, either directly or indirectly;

       (ii) Purchasing of Insured Institution property;

       (iii) Providing goods or services to the Insured Institution; and

       (iv) Outside employment and other activities; and

   (c) An annual written method of reporting each individual's compliance with the Ethics Program to an Ethics Counselor and/or committee who shall review compliance with the Ethics Program and report its findings to the board of directors.

   [.4] 3. Immediately upon the effective date of this Order:

   (a) Other than extensions of credit or loan agreements previously approved, the Insured Institution shall not make or agree to make any payment, directly or indirectly, or transfer any asset to, or for the benefit of, Mr. Ki Young Lee or his related interests without the prior written approval of the Regional Director. For purposes of this ORDER, the term "related interests" shall have the meaning ascribed to it in section 215.2(n) of Regulation O of the Board of Governors of the Federal Review System, 12 C.F.R. §215.2(n)

   (b) Other than extensions of credit or loan agreements previously approved, the Insured Institution shall not make or extend, either directly or indirectly, any new or additional credit (which, for purposes of this Order, shall include the granting of renewals or extensions, or the capitalizing of accrued
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   interest) to, or for the benefit of, any director or senior executive officer of the Insured Institution without the prior written approval of the Regional Director.

   [.5] 4. (a) Within 180 days from the effective date of this ORDER, the Insured Institution shall reduce its concentration of credit to the wig and hair industry to less than 25 percent of the Insured Institution's Tier I capital.

   (b) Immediately upon the effective date of this ORDER, the Insured Institution shall not make or extend, either directly or indirectly, any new or additional credit (which for purposes of this ORDER, shall include the granting of renewals or extensions, or the capitalizing of accrued interest) to, or for the benefit of any borrower where such extension of credit constitutes 10 percent or more of the Insured Institution's Tier I capital.

   (c) Immediately upon the effective date of this ORDER, the Insured Institution shall not make or extend, either directly or indirectly, any new or additional credit (which for purposes of this ORDER, shall include the granting of renewals or extensions, or the capitalizing of accrued interest) to, or for the benefit of Ki Young Lee (which shall include any affiliate or related interest of, or other person or entity associated with Ki Young Lee).

   (d) For purposes of this ORDER, the term "Tier I capital" shall have meaning ascribed to it in Part 325 of the FDIC Rules and Regulations, subsection 352.2(t), 12 C.F.R. §352.2(t).

   [.6] 5. Within 60 days from the effective date of this ORDER, the Insured Institution shall review its written loan policy (the "Loan Policy") and make such changes as may be necessary to provide for the safe and sound administration of all aspects of the lending function. Specific procedures shall include guidelines for the approval and processing of all overdrafts and require the prior approval of loans to directors, officers and principal shareholders and their related interests in compliance with applicable laws and regulations. Loan documentation, repayment programs, collection and charge-off procedures and internal loan review shall also be included as a part of the review. The Insured Institution shall adopt changes it considers necessary and appropriate and management shall reaffirm its intent to comply with the Loan Policy, as amended. Evidence of management's reaffirmation shall be reduced to writing. The Loan Policy and its implementation shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   [.7] 6. Within 60 days from receipt by the Insured Institution of the joint Report of Examination of the Insured Institution dated as of June 30, 2001 by the FDIC and the State of New York Department of Banking, the Insured Institution shall eliminate and/or correct all violations of law and regulations as set forth therein. In addition, the Insured Institution shall henceforth comply with all applicable laws and regulations.

   [.8] 7. Within 60 days from the effective date of this ORDER, the Insured Institution shall adopt and implement a written policy ("Internal Control Policy") for the operation of the Insured Institution in such a manner as to provide internal routine and controls consistent with safe and sound banking practices. The Internal Control Policy and its implementation shall be satisfactory to the Regional Director as determined at subsequent examination and/or visitations.

   [.9] 8. (a) Within 30 days from the effective date of this ORDER, the board of directors shall engage a qualified independent firm (the "Independent Firm") acceptable to the Regional Director to conduct a comprehensive audit and review of the Insured Institution's financial condition and operations (the "Audit") and to assist in the development of policies and procedures designed to ensure that the Insured Institution conducts its activities in a safe and sound manner and complies with all applicable Federal and State laws and regulations. The Audit, at a minimum, shall address the management structure and oversight of the Insured Institution's operations; internal controls; risk management; internal audit function; policies, procedures, and controls for compliance with all applicable Federal and State laws and regulations; customer due diligence; identification and reporting of suspicious activity; and regulatory reporting.

   (b) Within 10 days of this ORDER, but prior to the retention of the Independent Firm, the Insured Institution shall submit to the Regional Director an engagement letter, acceptable to the Regional Director, that delineates the scope of the Audit. The engagement letter shall provide that the Independent
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   Firm will have complete access to all employees, books, records, and documents (including, but not limited to, all financial and legal documentation and communications) necessary or appropriate to conduct the Audit. The engagement letter also shall provide that (i) the Independent Firm will exercise its best efforts to complete the Audit within 120 days from the date of the engagement letter, (ii) a copy of the Independent Firm's written report of its findings and recommendations will be provided to the Regional Director at the same time it is provided to the Insured Institution, (iii) all information including, but not limited to, work papers, programs and procedures related to the Audit shall be provided to the Regional Director by the Independent Firm upon request, (iv) the audit procedures shall include a positive verification of all investments, placements and customer loan accounts, and, (v) if at any time the Independent Firm believes that information is not being provided by the Insured Institution to enable the Independent Firm to conduct the Audit, the Independent Firm immediately must notify the Regional Director in writing.

   [.10] 9. Within 30 days from the effective date of this ORDER, the board of directors shall establish a committee of the board of directors with the responsibility to ensure that the Insured Institution complies with the provisions of this ORDER. At least two-thirds of the members of such committee shall be independent, outside directors. The committee shall report monthly to the entire board of directors, and a copy of the report and any discussion relating to the report or the ORDER shall be included in the minutes of the board of directors. Nothing contained herein shall diminish the responsibility of the entire board of directors to ensure compliance with the provisions of this ORDER.

   10. On the fifteenth day of the second month following the effective date of this ORDER, and on the fifteenth day of every third month thereafter, the Insured Institution shall furnish written progress reports to the Regional Director detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has released the Insured Institution in writing from making further reports.

   The provisions of this ORDER shall be binding upon the Insured Institution, its directors, officers, employees, agents, successors, assigns, and other institution-affiliated parties of the Insured Institution.

   This ORDER shall be effective immediately upon its issuance.

   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.

   Pursuant to delegated authority.

   Dated: October 29, 2001



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