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FDIC Enforcement Decisions and Orders

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{{8-31-97 p.TC-374}}
   [16,173] Docket No. FDIC 91-73e (6-18-97)

In the Matter of
PAUL A. RICHTER,
individually and as an institution-
affiliated party of
FIRST STATE BANK OF REGENT
REGENT, NORTH DAKOTA
(Insured State Nonmember Bank — In
Receivership)
DECISION AND ORDER DENYING
APPLICATION TO MODIFY OR
TERMINATE ORDER OF
PROHIBITION FROM FURTHER
PARTICIPATION

FDIC-91-73E

STATEMENT OF THE CASE

INTRODUCTION

   By undated letter ("Application") addressed to the Regional Director of the Kansas City Regional Office of the Federal Deposit Insurance Corporation ("FDIC"), Paul A Richter ("Respondent"), the former President and a director of First State Bank of Regent, Regent, North Dakota, ("Regent") requested FDIC's consent to allow him to reenter banking as a director of the First State Bank of Goodrich, Goodrich, North Dakota ("Goodrich"), an institution for which the FDIC is the appropriate Federal banking agency. This application arises under section 8(e)(7)(B) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. 1818(e)(7)(B), and section 8(j) of the Act, 12 U.S.C. 1818(j). If granted, the request would require a modification or termination of the FDIC Order of Prohibition from Further Participation, docket number FDIC-91-73e ("Order of Prohibition" or "Order"), issued in connection with Respondent's activities at Regent.

BACKGROUND

   Respondent first became associated with Regent in 1964. In connection with an examination of Regent, conducted jointly by the North Dakota Department of Banking and the FDIC as of October 13, 1989, the FDIC sought an order of prohibition against Respondent. On February 4, 1991, after negotiations with Respondent and his attorney, Respondent entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER OF PROHIBITION FROM FURTHER PARTICIPATION ("Consent Agreement"). As part of the Consent Agreement, Respondent, inter alia, waived receipt of a notice, his rights to respond and assert defenses to the allegations set forth in a notice, and the right to a hearing conducted for the purpose of taking evidence on the allegations in a notice.
   In connection with the Consent Agreement, Respondent's legal counsel provided a letter opinion dated January 30, 1991, in which counsel stated:

    It is my view that Mr. and Mrs. Richter have executed these documents voluntarily and that their consents to the issuance of the referenced order have not been made {{8-31-97 p.TC-375}} involuntary by reason of promises or coercion by the FDIC or by other duress of a nature that would render the consents or an order of prohibition to be invalid. I believe Mr. and Mrs. Richter do understand the ramifications of their consent and the issuance of an order of prohibition by the FDIC and that they do understand that by this action, they are waiving rights to hearing and judicial review.
   (Mrs. Richter is not a party to this present application to modify or terminate the Order of Prohibition.)
   On August 20, 1991, the FDIC accepted the Consent Agreement and issued the Order of Prohibition against Respondent. The Order prohibits Respondent from holding any office or participating in any manner in the conduct of the affairs of any institution or agency described in section 8(e)(7)(A) of the Act, 12 U.S.C. 1818(e)(7)(A), without prior written consent of the appropriate regulatory agency obtained in accordance with section 8(e)(7)(B) of the Act, 12 U.S.C. 1818(e)(7)(B).

DECISION AND ORDER

   In support of his request for modification or termination of the Order of Prohibition, Respondent first lists his employment history since resigning from Regent. Respondent indicates that he has worked as a real estate agent or associate broker for Coldwell Banker since 1992, and has a real estate broker's license from both the North Dakota and South Dakota Real Estate Commissions. Respondent indicates he is also licensed by and has a "clear record" with the North Dakota Insurance Department and the South Dakota Gaming Commission. Respondent further states that his credit is good and has submitted a financial report dated February 6, 1995, in which he indicates a significant net worth.
   Second, Respondent alleges that the Order of Prohibition refers only in generalities to the violations and unsafe practices, breaches of fiduciary duty, dishonesty and financial gains attributed to the Respondent, which formed the basis of the Order. Respondent also states that he agreed to sign the Order "without any admission...to any of the allegations referred to [in] the Order." Respondent also alleges that Regent's blanket bond insurance company found the bond claims filed in connection with his activities, and the insolvency and failure of Regent to be groundless since, in Respondent's words, the bonding company paid a "nominal amount just to close the claim." Finally, Respondent indicates that no criminal charges were filed against him, and that he has no knowledge of any current or pending law suits against him.
   A review of FDIC records indicates that investigations and the examination of Regent, conducted as of October 13, 1989, revealed serious irregularities in which Respondent was directly or indirectly involved, including apparent insider and accommodation loans, misappropriation of bank funds, misrepresentations to bank examiners and regulatory agencies and other violations, at the time Respondent held the highest offices at Regent. These activities resulted in a loss to the bank exceeding $1 million, which contributed to Regent's subsequent insolvency and failure on February 22, 1990.
   Section 8(e)(7)(B) of the Act, which establishes the requirement for Agency consent, provides in pertinent part:

    (7) INDUSTRYWIDE PROHIBITION.— (B) EXCEPTION IF AGENCY PROVIDES WRITTEN CONSENT.— If, on or after the date an order is issued under this subsection which removes or suspends from office any institution-affiliated party or prohibits such party from participating in the conduct of the affairs of an insured depository institution, such party receives the written consent of—
       (i) the agency that issued such order; and (ii) the appropriate Federal financial institutions regulatory agency of the institution described in any clause of subparagraph (A) with respect to which such party proposes to become an institution-affiliated party, subparagraph (A) shall, to the extent of such consent, cease to apply to such party with respect to the institution described in each written consent.
12 U.S.C. 1818(e)(7)(B)
   To meet this burden Respondent must, inter alia, demonstrate: (1) his fitness to participate directly or indirectly in the conduct of the affairs of an insured depository institution; (2) that his participation would not pose a risk to the institution's safety and soundness; and (3) that his participation would not erode public confidence in the institution. See In the Matter of Michael D.
{{8-31-97p.TC-376}}
McCormick, FDIC Enforcement Decisions and Orders, ¶5212, p.A-2408 (1994). (Docket No. FDIC-92-248e); see also In the Matter of Charles E. Floyd, FDIC Enforcement Decisions and Orders,¶5177, p. A-1976 (1992) (Docket No. FDIC-87-178e) (allowing respondent to return to banking absent demonstration that the return is warranted would undermine public confidence in the banking system and the regulatory process); In the Matter of Frederick M. Pfeiffer, FDIC Enforcement Decisions and Orders, ¶5163A, p A-1656 (1991) (Docket No. FDIC-87-61e) (respondent must show good cause for FDIC to determine that the early return to banking is warranted in order to maintain public confidence in the banking system and the regulatory process); In the Matter of ***BANK***, FDIC Enforcement Decisions and Orders, ¶5117, p. A-1303 (1988) (Docket No. FDIC-83-153e) (burden of submitting complete application falls upon applicant).
   Respondent has not shown that, subsequent to the issuance of the Order, he has occupied positions of trust comparable to those that he now seeks to occupy in banking. Nor has he presented evidence that a bonding company would issue fidelity bond coverage for him. The Respondent also has not presented evidence that he has made any restitution. Even if, as asserted, Respondent's "record is clear" in the real estate and gaming industries and no formal complaints have been lodged against him at state licensing commissions, absence of complaints does not demonstrate rehabilitation. There has been no credible evidence submitted to show that Respondent would not repeat the dishonest acts and/or breaches of fiduciary duty with which he was charged prior to his removal.
   Likewise, settlement of a bond claim by a bonding company for acts of dishonesty of a covered bank employee is inadequate to show that a covered employee did not commit such acts. Neither does such a settlement show that the employee did not commit acts which provide a reasonable basis for an Order of Prohibition, even if such acts had been completely excluded from coverage by the terms of a bond. In any event, whether Respondent committed these specific bondable acts is not at issue in this Application. Respondent agreed to the entry of the Consent Order and the FDIC determined Respondent's activities warranted entry of an Order of Prohibition pursuant to 12 U.S.C. § 1818(e).
   Finally, even acceptance of Respondent's bare statement that his credit is good would provide no proof of his rehabilitation. To the extent Respondent's credit or financial condition may have significance regarding restitution, Respondent has presented no evidence that he has made any attempt toward restitution of any portion of the losses he caused Regent. Restitution may be an appropriate consideration in certain circumstances, for example, when a Respondent received financial gain or other benefit.
   Also troubling is that Respondent now implies that he agreed to the entry of the Order without understanding or knowing the gravity of the charges against him and that he did not admit to those charges. On the contrary, the record reflects that Respondent was fully informed of the charges against him, their gravity, and was fully aware of his responsibility for those acts that formed the basis for the charges. Respondent, with the advice of counsel, and after being informed of his right to a notice detailing the charges against him and of his right to a hearing regarding the same, knowingly waived those rights and agreed to the entry of the Order of Prohibition without either admitting or denying the allegations. Respondent will not now be heard to deny his awareness and understanding of the acts that formed the basis of the Order. See generally In the Matter of Charles E. Floyd, FDIC Enforcement Decisions and Orders, 5177, p. A-1976 (1992) (Docket No. FDIC-87-178e) (respondent who received a Notice setting forth the allegations that formed the basis of FDIC's Order of Prohibition against him and who executed a consent agreement to the entry of the Order of Prohibition could not assert four years later that he had not read the Notice when the Notice was delivered to Respondent who had given it to his attorney).
   Having previously decided it was to his advantage not to formalize or rebut the violations, practices, breaches of fiduciary duty, financial gain, or dishonesty alleged to have been committed by him, Respondent will not now be heard to complain that the Order does not sufficiently detail specific activities forming the basis for the issuance of the Order, to which he consented. It is also disingenuous that Respondent now asserts that he did not "admit" the charges against him, when, by negotiation and by agreement to {{11-30-98 p.TC-377}}the language of the Consent Agreement, he is not allowed to "deny" those charges — which he now tacitly attempts to do. Respondent agreed to the entry of the Order of Prohibition, with full knowledge of the activities on which the Order is based. If anything. Respondent has demonstrated his failure to take responsibility for his actions.
   In reviewing this Application, the FDIC has considered, among other pertinent factors, the nature and circumstances giving rise to the issuance of the Order of Prohibition; evidence of rehabilitation which may include consideration of restitution for losses incurred as a result of the misconduct, and the position to be held by the Respondent.
   At issue here is whether Respondent has shown that he is rehabilitated. Upon review of the record as a whole, including information provided by Respondent in writing, by telephone and by personal meeting as recently as March 1997, the FDIC finds that Respondent has failed to present persuasive evidence to meet his burden for obtaining consent from the FDIC to become an institution-affiliated party pursuant to section 8(e)(7)(B) of the Act, 12 U.S.C. 1818(e) (7)(B). The FDIC finds that Respondent has failed to present sufficient evidence to demonstrate his fitness to participate directly or indirectly in the conduct of the affairs of an insured depository institution; that his participation would not pose a risk to the institution's safety and soundness; and that his participation would not undermine public confidence in the banking system and the regulatory process.
   Accordingly, the Application is hereby denied. Pursuant to delegated authority. Dated at Washington, DC this 18th day of June, 1997.

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