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FDIC Enforcement Decisions and Orders

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   [11,944] In the Matter of Connecticut Bank of Commerce, Stamford, Connecticut, Docket No. 02-101PCAD (6-25-02).

   FDIC issues Prompt Corrective Action directive ordering dismissal.

   [.1] Prompt Corrective Action—Order of Dismissal

In the Matter of
CONNECTICUT BANK OF COMMERCE
STAMFORD, CONNECTICUT
(Insured State Nonmember Bank)
PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL

FDIC-02-101PCAD

   Connecticut Bank of Commerce, Stamford, Connecticut ("Bank"), is a "critically undercapitalized" insured depository institution as that term is defined in section 38(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1831o(b)(1), and section 325.103 of the Federal Deposit Insurance Corporation ("FDIC") Rules and Regulations, 12 C.F.R. §325.103. Capital levels reflected in the Bank's Reports of Condition and Income as of March 31, 2002, which represented the Bank as "adequately capitalized," when adjusted by preliminary results of a joint examination of the Bank conducted by the FDIC and the State of Connecticut as of April 1, 2002, result in a ratio of tangible equity capital to total assets that equals negative 1.94 percent, thus rendering the Bank "critically undercapitalized" for purposes of the prompt corrective action provisions of the Act.

   1. The FDIC has determined that the continued employment of Randolph W. Lenz ("Respondent Lenz"), would not materially strengthen the Bank's ability to become adequately capitalized. This is based upon the finding that:

   (a) Since 1992, Respondent Lenz has been Chairman of the Bank's Board, the majority shareholder of the Bank, and is currently a member of the Bank's Board Compensation and Credit Committees. He has been previously criticized by the FDIC in its 2001 Report of Examination ("2001 Exam Report") for causing or permitting the Bank to engage in lax, preferential and hazardous lending activities, and it is evident that the volume of loans with undue risk he has referred and continues to refer to the Bank has resulted in severe asset quality problems that have ultimately resulted in the Bank's insolvency.

   (b) The 2001 Exam Report cited loan administration weaknesses, credit underwriting deficiencies and a lack of adherence to prudent credit policy guidelines and other weaknesses in controls and procedures necessary to guard against an elevated level of loan risk. These weaknesses resulted in the Bank stipulating to the issuance by the FDIC of a Cease-and-Desist Order dated November 30, 2001, to correct such practices including addressing credit administration weaknesses, revising the Bank's Credit Policy, reducing concentrations of credit, and reducing the volume of adversely classified and criticized loans.

   (c) Management of the Bank under the control of Chairman Lenz is poor. Weak risk management practices in many areas of Bank supervision are evident. Despite being warned of loan administration weaknesses, Respondent Lenz has continued to cause or permit the Bank to approve or allow renewal of loans despite the fact that prudent underwriting, effective administration, or adequate oversight appears absent. The findings of the 2002 examination of the Bank indicate that the Bank is in noncompliance with numerous provisions of the November 30, 2001 Cease and Desist Order. The amount of adversely classified loans as of the 2002 examination is $97,584,000.

   (d) An example of such hazardous lending is a credit relationship to finance gaming operations in Latin American countries
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   which was referred to the Bank by Mr. Lenz. This relationship originated on November 8, 2000 as a line-of-credit in the amount of $250,000, but was amended and restated eleven times. Another line-of-credit was added on December 1, 2001, for $1,125,000 for a sale-leaseback arrangement where the Bank purchased gaming equipment (slot machines) located in Panama. Since origination this credit relationship has grown to $3,795,000. Origination and administration of the loan has been accomplished in a manner contrary to the Bank's Credit Policy. Among other things, repayment of these loans is solely dependent on the successful operation of gambling facilities in Latin America, which have yet to show a profit; the working capital line has been continually renewed with additional advances to fund accrued interest, expenses, and cover operating losses; at each renewal/extension and advance of funds Bank management has capitalized the accrued interest; collateral coverage is weak and since the activities are outside the jurisdiction of the US, collecting or liquidating this loan would be difficult.

   (e) The FDIC has discovered evidence that during the period beginning the first quarter of 2000, Respondent Lenz engaged in a apparently fraudulent scheme of unlawful and unsound lending whereby he caused or permitted the Bank to purchase another financial institution, MTB Bank, New York, New York ("MTB"), with $20 million of the Bank's own existing funds instead of through the infusion of $20 million in new Tier 1 capital, including not less than $10 million in common stock, as was required by the FDIC as a condition to the acquisition. Respondent Lenz represented to the FDIC that he would contribute of $20 million of his own outside funds to purchase common and noncumulative perpetual preferred stock. This scheme was accomplished through more than $20 million in loans that Respondent caused or permitted the Bank to make to nominee borrowers and others, including related interests of Respondent Lenz. That same money was later transferred to Respondent Lenz or his related interests, who transferred it to the Bank in the form of capital purportedly to satisfy the condition to purchase MTB. The result was that the Bank's capital was inflated by $20 million more than it actually was. Respondent Lenz subsequently concealed the scheme from FDIC examiners.

   (f) While he has provided capital contributions in the past, the apparent fraudulent activities described above that resulted in at least $20,000,000 of such contributions being obtained through loans by the Bank itself, rather than independently from Respondent Lenz, draws into serious question his ability to provide future capital contributions in a quantity sufficient to assure the future viability of the Bank.

   2. The FDIC has also determined that the continued employment of J. Donald Weand, Jr. ("Respondent Weand") would not materially strengthen the Bank's ability to become adequately capitalized. This is based upon the finding that:

   (a) Respondent Weand has been President and Chief Executive Officer of the Bank since May 1999. He also served at various times as Senior Vice President, Chief Lending Officer and Chief Operating Officer at the Bank since 1996, and currently serves as a member of the Bank's Management, Risk Management, and Asset and Liability Committees. Respondent Weand has demonstrated no ability to restore a troubled institution to a safe and sound condition and the financial condition of the Bank has deteriorated under Mr. Weand's management, falling from a "3" rated composite bank to a currently insolvent "5" rated institution.

   (b) Respondent Weand was responsible for and was the originating officer for many of the loans that were involved in the scheme described in paragraph 1(e) above, the proceeds of which were used to purchase MTB. He has caused or permitted the Bank to engage in lax underwriting and preferential and hazardous lending activities described in paragraph 1(b) through (d), above. As President and Chief Executive Officer, Mr. Weand has also been responsible for allowing poor underwriting practices to continue.

   (c) Respondent Weand's direction of the Bank has also strongly contributed to weak risk management practices in many areas of Bank supervision which will result in noncompliance with numerous provisions of the November 30, 2001 Cease and Desist
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   Order, as determined in the FDIC/State 2002 Joint examination.

   Furthermore, the FDIC has reason to believe that at present, Respondents Lenz and Weand continue to cause the Bank to originate risky loans and that, unless Respondents are dismissed, such transaction could be similarly repeated, and could further weaken the condition of the Bank, and/or otherwise prejudice the interests of the depositors. The FDIC also has reason to believe that based upon Respondents' participation in apparent fraudulent and hazardous lending described above, and their previous concealment to examiners, there is a strong potential asset dissipation and the possibility of document destruction.

   Therefore, the FDIC finds it necessary, in order to carry out the purposes of section 38 of the Act, to issue this PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL without providing notice as set forth in section 308.201(a)(1) of the FDIC's Rules of Practice and Procedure, 12 C.F.R. §308.201(a)(1), and hereby issues the PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL pursuant to section 38 of the Act, 12 U.S.C. §1831o, and section 308.201(a)(2) of the FDIC's Rules of Practice and Procedure.

PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL

   [.1] IT IS HEREBY DIRECTED that the Bank shall dismiss from office Randolph W. Lenz, Chairman of the Board and J. Donald Weand, Jr., President and Chief Executive Officer of the Bank. IT IS FURTHER DIRECTED that this PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL shall become effective and enforceable immediately upon its receipt by the Bank.

   Each provision of this PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other institution-affiliated parties of the Bank.

   The Bank may file a written appeal of this PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL within fourteen (14) calendar days from the date of issuance of this directive as provided in section 308.201(a)(2) of the FDIC's Rules of Practice and Procedure, 12 C.F.R. §308.201(a)(2).

   Within ten (10) calendar days from the receipt of a copy of this PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL as required by section 38(n) of the Act, 12 U.S.C. §1831o(n), and 308.203(a) of the FDIC's Rules of Practice and Procedures, 12 C.F.R. §308.203(a), Respondents Lenz and Weand may each file a written request for reinstatement pursuant to section 308.203(b) of the FDIC's Rules of Practice and Procedure, 12 C.F.R. §308.203(b). Within such written response each Respondent may request an informal hearing before the FDIC under section 308.203(b)(2) of the FDIC's Rules of Practice and Procedure, 12 C.F.R. §308.203(b)(2). If either Respondent desires to present oral testimony or witnesses at the hearing, he shall include a request to do so with the request for an informal hearing, and such request shall specify the names of the witnesses and the general nature of their expected testimony.

   The appeal and any request for reinstatement shall be filed with Patrick J. Rohan, Regional Director, or his successor, Federal Deposit Insurance Corporation, 15 Braintree Hill Office Park, Suite 100 Braintree, Massachusetts 02184. Copies of all papers filed in this proceeding shall be served upon the Office of the Executive Secretary, Federal Deposit Insurance Corporation, 550 17th Street, N.W., Washington, D.C. 20429, Michael J. Zamorski, Director, Division of Supervision, Federal Deposit Insurance Corporation, 550 17th Street, N.W., Washington, D.C. 20429, A.T. Dill, III, Senior Counsel, Legal Division, Compliance and Enforcement Section, Federal Deposit Insurance Corporation, 550 17th Street, N.W., Washington, D.C. 20429, and upon David Schecker, Regional Counsel (Supervision), Federal Deposit Insurance Corporation, 15 Braintree Hill Office Park, Suite 100 Braintree, Massachusetts 02184.

   Each provision of this PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL shall remain effective and enforceable except to the extent that, and until such time as, any provision shall be modified, terminated, suspended, or set aside by the FDIC.

   Pursuant to delegated authority.

   Dated at Washington, D.C., this 25th day of June, 2002.

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Last Updated 6/6/2003 legal@fdic.gov