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FDIC Enforcement Decisions and Orders

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   [5005] FDIC Docket No. 80-64e (2-9-81).

   FDIC prohibited a participant in the conduct of the affairs of a bank from further participation in such affairs when the participant failed to file an answer to the charges, and failed to make an appearance in a removal proceeding.

   [.1] Prohibition, Removal, or Suspension—Failure to Answer Notice of Intention
   Failure of an individual to make an appearance in a removal proceeding is deemed to be consent by the individual to an order of removal.

   [.2] Practice and Procedure—Waiver of Right to Appear
   A participant in the conduct of the affairs of a bank who fails to file an answer to a Notice of Intention to Remove him from further participation is deemed to have waived his right to appear and contest the allegations of the Notice.

In the matter of * * *




FINDINGS OF FACT, CONCLUSIONS
OF LAW AND FINAL ORDER OF
PROHIBITION FROM
PARTICIPATION
FDIC DKT. 80-64e

   Pursuant to its authority under Section 8(e)(4) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4)), the Federal Deposit Insurance Corporation (the "FDIC"), on October 27, 1980, issued a "Notice of Intention to Remove from Participation in Conduct of the Affairs of Bank" (the "Notice") against * * * (the "Respondent") in his capacity as a participant in the conduct {{4-1-90 p.A-57}}of the affairs of * * * (the "Bank"). At the same time, under the authority of Section 8(e)(3) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3)), the FDIC issued an "Order of Prohibition from Participation" against the Respondent which prohibited him from participating in the conduct of the affairs of the Bank pending completion of the administrative proceedings instituted pursuant to the Notice.
   The Notice charged Mr. * * * with having engaged in conduct or practices with respect to the Bank which resulted in substantial financial loss or damage to the Bank, evidencing a willful or continuing disregard for the Bank's safety and soundness and an unfitness to participate in the conduct of the affairs of the Bank. The Notice directed the Respondent to file an answer within twenty days after its service. Mr. * * * did not file an answer to the Notice.
   Under the rules of procedure of the FDIC applicable to proceedings for the removal or prohibition of individuals from participating in the affairs of banks:

    "Failure of a party to file an answer . . . within the time provided shall be deemed a waiver of the right to appear and contest the allegations of the notice of hearing and shall authorize the administrative law judge, without further notice to the party, to find the facts to be as alleged in the notice and to file with the Executive Secretary [of the FDIC] a recommended decision containing such findings and appropriate conclusions." (12 C.F.R. 308.06(d)).
   Under this authority, and pursuant to a motion made by the FDIC, Administrative Law Judge Walter J. Alprin, who was assigned to conduct hearings on the Notice, on December 18, 1980, rendered a "Recommended Decision and Order". On January 8, 1981, pursuant to FDIC regulations, this case was submitted to the Board of Directors of the FDIC for final decision.

FINDINGS OF FACT AND
CONCLUSIONS OF LAW

   [.1—.2] Under Section 8(e)(4) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4)) and Section 308.06(d) of the regulations of the FDIC (12 C.F.R. 308.06(d)), failure of an individual to enter an appearance in a removal proceeding is deemed to represent a consent by the individual to an order of removal. In light of the Respondent's failure to file an answer to the Notice, therefore, he is deemed to have waived his right to appear and contest the allegations of the Notice. He is further deemed to have consented to an order of prohibition from participation.
   Accordingly, the allegations of the Notice, which is attached hereto and incorporated herein by reference, are found as facts. It is also the conclusion of the Board of Directors of the FDIC that, in light of these findings, the grounds for prohibition of an individual's participation in an FDICinsured bank, as set forth in Section 8(e)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(2)), exist.

FINAL ORDER OF PROHIBITION
FROM PARTICIPATION

   NOW. THEREFORE, IT IS HEREBY ORDERED, pursuant to sections 8(e)(2) and 8(e)(4) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(2) and 1818(e)(4)), that, except with the prior written consent of the Regional Director of the * * * Region of the FDIC and the * * * Commissioner of Banks and Trust Companies, * * * is prohibited from participating in any manner in the conduct of the affairs of * * *.
   This ORDER shall become effective at the expiration of ten (10) days after its service on Mr. * * *. 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 Board of Directors of the FDIC. The "Order of Prohibition from Participation", dated October 27, 1980, which was issued against * * * is extended until the effective date of this ORDER.
   By Order of the Board of Directors, dated February 9, 1981.

Hoyle L. Robinson
Executive Secretary

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Docket No. FDIC-80-64e

RECOMMENDED DECISION AND
ORDER

Dated December 18, 1980

   * * * found to be in violation of Section 8(e) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)). Order recommended removing * * * from participation in conduct of the affairs of the * * * Bank.

   Before Walter J. Alprin, Administrative
Law Judge:

   The Federal Deposit Insurance Corporation, hereinafter the Corporation, instituted this proceeding pursuant to Section 8(e) of the Federal Deposit Insurance Act (Act), 12 U.S.C. 1818(e), through service of a Notice of Intention to Remove From Participation in Conduct of the Affairs of Bank, on October 27, 1980. An answer, as required by Section 308.06 of the Corporation's Rules and Regulations (12 CFR 308.06) has not been filed, and pursuant to motion made by the Corporation, and herewith granted, as authorized and required by 12 CFR 308.06(d), the following Findings of Fact and Conclusions of Law, and Recommended Order, is filed with the Corporation's Executive Secretary without further notice to the party.

FINDINGS OF FACT

   1. The * * * Bank, hereinafter the Bank, of * * *, is a corporation organized, existing and doing business under the laws of the State of * * *, and has been at all times mentioned herein and is, an insured State nonmember bank.
   2. * * * has been at all times involved herein and is, a participant in the conduct of the bank, having assumed control of the Bank's business in August, 1977. Periodic examinations of the Bank by the Corporation since control was assumed by Respondent * * * revealed the following:

Total Adjusted Total % of
Examination Total Adjusted Capital Classified Book
Date Assets Capital Ratio Assets Capital
01-03-78 40,868,100 2,581,700 6.3% 544,000 19.9%
07-08-78 49,071,600 2,430,400 4.9% 1,319,800 50.3%
01-27-79 50,624,700 2,444,000 4.8% 4,142,200 143.9%
12-08-79 51,127,300 2,466,200 4.9% 6,103,800 181.8%
07-19-80 50,376,700 876,800 1.8% 11,155,000 378.0%

   4. On September 21, 1979, the Bank entered into a Memorandum of Understanding with the Corporation, signed by Respondent * * * as Director, providing in part the following:
       (a) "The Board of Directors shall not allow * * * lending authority in excess of $20,000."
       (b) "The Bank will make no new restaurant related loans and shall reduce its present concentration of such loans to an amount not exceeding 50% of the Bank's total capital and reserves."
       (c) "The Bank shall employ and retain a knowledgeable and experienced senior loan officer."
       (d) "No cash dividends or payments of any nature shall be made to the Bank's holding company without the prior written approval of the Commissioner and the Corporation's Regional Director in its * * * Regional Office."
   5. On April 14, 1980, the Corporation issued a notice of charges against the Bank and its Board of Directors, including Respondent * * *, pursuant to Section 8(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(b)(1)), alleging unsafe or unsound banking practices. The Corporation issued a consent order of cease and desist in that matter on August 4, 1980.
   6. Respondent * * * caused to the Bank to pay dividends on February 7, 1980, and March 1, 1980, contrary to Section 42 of the * * * Bank Act and the aforementioned Memorandum of Understanding. Payment of such dividends was caused to be made by Respondent * * * without proper notice to or consent of the Bank's Board of Directors.
   7. Respondent * * * has made loans and caused funds to be dispersed on such loans without proper notification to the Bank's Board of Directors, in excess of his legal lending limit, and contrary to the aforemen- {{4-1-90 p.A-59}}tioned Memorandum of Understanding, as follows:
       (a) On January 25, 1980, Respondent * * * caused funds to be dispersed on a loan to * * * Corporation, classified Substandard as of July 19, 1980.
       (b) On June 7, 1980, Respondent * * * caused funds to be dispersed on a loan to * * * loan being subsequently repaid by Respondent * * *, who is believed to have a majority interest in this Company.
       (c) On March 22, 1980, May 3, 1980, May 13, 1980 and May 16, 1980, Respondent * * * caused loans to be dispersed totalling $61,000 to * * * At the time of this loan the bank has pending a suit against * * * husband on his loan at the Bank. As of July 29, 1980, the loan to * * * was classified $29,500 Lost and $31,500 Substandard.
   8. For the period January 1, 1979 to July 19, 1980, respondent * * * incurred certain expenses totalling approximately $201,000, and caused the Bank to pay same without proper notification of the Board of Directors and, for many of the expenses, inadequate documentation. The expenses included:
       (a) Airfare for excessive and unwarranted overseas and domestic trips made by respondent * * *,
       (b) Hotel, restaurant and other charges for an excessive and unwarranted number of banker's conventions attended by respondent * * *.
       (c) Hotel, restaurant and other charges for an excessive and unwarranted number of other domestic and overseas trips made by respondent * * *.
       (d) Hotel, restaurant and other charges relating to the Bank -sponsored "* * * Poetry Reception", an unwarranted Bank expenses.
       (e) Expenses for meals for Bank officers and customers incurred without adequate documentation.
       (f) Excessive and unwarranted life insurance premiums on two life insurance policies concerning the life of Respondent * * *, of which the Bank is not the beneficiary for the larger policy.
       (g) Undocumented fees paid to * * * for public relations work in connection with the aforementioned "* * * Poetry Reception".
       (h) Cost incurred for Dinner Affair for Wedding Anniversary of Respondent * * *, an unwarranted Bank expense.
       (i) Chauffeur salary for the chauffeur of the limousine used by Respondent * * *, an unwarranted Bank expense.
       (j) Telephone charges for the telephone in the limousine of Respondent * * *, an unwarranted Bank expense.
       (k) Charges for additional limousine rental, an unwarranted Bank expense.
       (l) Cost of three automobiles provided by the Bank for the use of Respondent * * *, an excessive and unwarranted Bank expense.
   9. As a result of the above stated and other practices attributed to Respondent * * * on June 17, 1980 an emergency meeting was called by the Commissioner of Banks for the State of * * * with the Bank's Board of Directors to inform said Board of the State's intention to commence removal proceedings against Mr. * * * under Section 48 of the * * * Banking Act if Respondent * * * did not immediately resign his position as an active Officer and Director. Respondent * * * then immediately resigned his position as President, Chief Executive Officer and as member of the Board of Directors of the Bank, effective June 17, 1980.
   10. Notwithstanding the above reference to resignation from the Bank, Respondent * * * has continued to participate in the affairs of the Bank through conduct or practice evidencing an undue influence over the daily operations and lending function of the Bank, as follows:
       (a) Respondent * * * occupies the only enclosed and most visible office in the Bank's lobby for which he alone has a key.
       (b) Respondent * * * continues to draw a salary of $50,000 dollars a year.
       (c) Respondent * * * has been provided with three Bank owned automobiles for which the Bank pays expenses.
       (d) Respondent * * * is in the Bank on an almost daily basis and remains the primary contact with many of the Bank's borrowing customers.
    {{4-1-90 p.A-60}}
       (e) Respondent * * * conducts numerous meetings with the Bank's office staff in his office, at times without the presence of Executive Vice-President * * *.
       (f) Respondent * * * has interfered in the loan collection efforts of officers of the Bank, as evidenced by a memo from assistant Vice-President * * * to Executive Vice-President * * *, dated August 8, 1980, in reference to instructions by Respondent * * *, to Mr. * * * to cease certain loan collection efforts.
       (g) A note for $14,000, dated July 7, 1980 to * * * was issued by the Bank to cover an overdraft in * * * checking account. The note was approved by Respondent * * * and has been classified Lost.
       (h) On August 28, 1980, an advance via a cashier's check for $25,000 was issued on the basis of a personal check that was returned unpaid. The transaction was handled by Vice President * * * upon instructions of Respondent * * *.
       (i) The Bank's sole major correspondent Bank, * * * Bank and Trust Company, provides checking clearing service to the Bank solely because of Executive Vice-President * * * presence in the Bank and would not continue this service for the Bank in his absence because of the involvement by respondent * * * in the conduct of the affairs of the Bank.
       (j) The Bank has been unable to obtain Banker's Blanket Bond insurance and excess employee insurance because of the involvement by Respondent * * * in the conduct of the affairs of the Bank.
       (k) Mr. * * * and other employees of the Bank continue to be influenced by and act under the instructions of Respondent * * * in the performance of their duties, frustrating the efforts by Executive Vice-President's * * * to function effectively as Chief Executive Officer.
   11. Such conduct or practices by Respondent * * * have resulted in substantial financial loss or other damage to the Bank, in that the Bank has suffered excessive deterioration in its loans, capital, and earnings during the period in which he has participated in the conduct of the affairs of the Bank.

CONCLUSIONS OF LAW

   (A) * * * is a person participating in the conduct of the affairs of an insured Bank, and the Corporation has jurisdiction over the Bank and over the actions of respondent * * * as such person.
   (B) As a person participating in the conduct of the affairs of an insured Bank, Respondent * * * has violated laws, rules, or regulations, of the State of * * * and of the United States of America.
   (C) As a person participating in the conduct of the affairs of an insured Bank, respondent * * * has violated a final cease and desist order entered into with the Corporation.
   (D) As a person participating in the conduct of the affairs of an insured Bank, Respondent * * * has participated in unsafe and unsound Banking practices as a result of which the * * * Bank has suffered substantial financial loss and other damages, and the interest of the depositors thereof were seriously prejudiced.
   (E) As a person participating in the conduct of the affairs of an insured Bank, Respondent * * * has received financial gain by reason of violations and practices which were in willful and continued disregard for the safety and soundness of the * * * Bank.

RECOMMENDED ORDER OF REMOVAL FROM OFFICE AND PROHIBITION TO PARTICIPATE IN BANK AFFAIRS

   The Board of Directors of the Federal Deposit Insurance Corporation, finding upon the record herein that each and every ground specified in the notice of hearing has, as stated in the Conclusions of Law herein, been established, and pursuant to Section 8(e) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)) and 12 C.F.R. 308.43, 308.44 and 308.45, the said Board does hereby
   ORDER, That Respondent * * * , be removed from any position as an Officer and Director of, and prohibited from participating in the affairs of the * * * Bank, effective thirty (30) days from the date of service hereof, except with the written consent of the Regional Director and Commissioner of the Federal Deposit Insurance Corporation; and it does further
   ORDER, That the order dated October 27, 1980, prohibiting the participation of said * * * in the affairs of the * * * Bank {{4-1-90 p.A-61}}pending completion of these administrative proceedings, be and it is hereby extended until the effective date of the order first above provided herein.
   Dated at Washington, D.C. on the day and in the year first above written.
/s/ Walter J. Alprin
Administrative Law Judge

CERTIFICATE OF SERVICE

   Pursuant to Sec. 308.21(b) of the Rules of Practice and Procedures of the Federal Deposit Insurance Corporation (12 C.F.R. 308.21 (b)), I hereby certify that the original hereof was filed with the Executive Secretary of the Corporation by mailing same to him, at 550 17th Street, NW, Washington, DC 20429, and copies hereof served on * * *, Regional Counsel for the Corporation, * * * Counsel for the Corporation, * * *
* * *, and on * * * all by regular mail, this 18th day of December, 1980.
/s/ Walter J. Alprin
   Administrative Law Judge

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