Federal Deposit
Insurance Corporation

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   [¶5043] FDIC Docket No. FDIC-84-214g (4-30-85)

   FDIC issued an order continuing the suspension and prohibition from further participation in the affairs of the bank against a chairman of the board of directors and the managing director/chief executive officer of the bank who were both charged with crimes involving dishonesty and breach of trust.

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   [.1] Prohibition, Removal, or Suspension—Criminal Indictment
   Whenever any officer or director, or other person participating in the affairs of the bank, is charged with a crime involving dishonesty or breach of trust punishable by imprisonment for a term exceeding one year under state or federal law, the appropriate banking agency may suspend him from office or prohibit him from further participation in the affairs of the bank if continued service or participation by such individual may pose a threat to the interests of the bank's depositors or may threaten to impair public confidence in the bank.

   [.2] Prohibition, Removal, or Suspension—Right to Hearing
   An individual served with a Notice and Order of Suspension and Prohibition has a right to a hearing to show that his continued service to or participation in the affairs of the bank does not, or is not likely to, pose a threat to the interests of the bank's depositors or threaten to impair public confidence in the bank.

   [.3] Suspension and Prohibition—Deceitful Activity
   Fraud, false statements, deceit, misrepresentation, false entries in books and records, false applications, lying and concealment of material facts in connection with a bank in dealings with state and federal authorities seeking to carry out their official functions involve actions and activities central to a bank and bear on the very integrity of the nation's banking system.

   [.4] Suspension and Prohibition—Impairment of Public Confidence in a Bank
   The federal banking agency having jurisdiction is not required to wait until public confidence in a bank is actually impaired, but may suspend and prohibit an individual from further participation in a bank's affairs where there is a likelihood of such impairment.

IN THE MATTER OF * * *


MANAGING DIRECTOR AND CHIEF
EXECUTIVE OFFICER * * * BANK
(INSURED STATE NONMEMBER
BANK)
ORDER CONTINUING NOTICE AND
ORDER OF SUSPENSION AND
PROHIBITION
FDIC-84-214g

   IT IS ORDERED, that the Notice and Order of Suspension and Prohibition issued by the Board of Directors of the Federal Deposit Insurance Corporation against * * *, pursuant to section 8(g) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(g)), on December 13, 1984, be, and hereby is, continued in effect.
   By order of the Board of Directors.
   Dated at Washington, D. C., this 30th day of April, 1985.
/s/ Hoyle L. Robinson
Executive Secretary

BEFORE THE FEDERAL DEPOSIT INSURANCE CORPORATION

RECOMMENDED DECISION

Procedural History

   On * * * the U.S. Attorney for the U.S. District Court for the Southern District of * * * filed indictments against * * *, Chairman of the Board of Directors, and against * * *, Managing Director and Chief Executive Officer, of the * * * Bank, * * *. Both were charged with crimes involving dishonesty and breach of trust.
   On January 14, 1985, both * * * and * * * requested a hearing pursuant to Section 308.59 of the Corporation's rules and regulations as provided for in Section 8(a)(3) of the Act. On February 13, 1985, the undersigned was appointed presiding officer. The hearing was set to commence on March 11, 1985, in the * * * County Court House, * * *, and commenced on {{4-1-90 p.A-412}}that date and was completed in the afternoon of the following day.
   At the commencement of the hearing counsel for respondents announced that * * * was not pursuing any remedies respecting the Notice and Order of Suspension and Prohibition issued against him and that * * * sought a modification thereof in certain particulars.
   At the completion of the hearing, pursuant to the request of counsel for the FDIC the record was held open through March 20, 1985.
   The transcript and exhibits were transmitted to the FDIC on Friday, March 29, 1985, and obtained by the undersigned on April 1, 1985. Concise briefs from both sides were also filed on March 29, 1985, and short reply briefs were filed the following Wednesday, April 3, 1985.
   The record consists of 484 pages of transcript and 18 exhibits, amounting to approximately 150 pages. Of these exhibits ten were introduced by counsel for the FDIC and eight by counsel for * * *, Eight witnesses testified, six for * * * and two for the staff of the FDIC. In addition, counsel for * * * introduced excerpts from the testimony of nine witnesses in a 1984 hearing in an administrative proceeding involving * * * and the * * * Bank, now before the Corporation.

Indictments

   * * * was indicted for aiding and abetting in the commission of Federal crimes in violation of 18 U.S.C. § 2, interstate and foreign travel in aid of racketeering in violation of 18 U.S.C. § 1952(a)(1), the use of U.S. mail for fraud in violation of 18 U.S.C. § 1341, racketeering in violation of §§ 1962(c) and (d), the importation of controlled substances in violation of 21 U.S.C. § 952(a), and conspiracy in violation of 21 U.S.C. § 963.
   * * * was indicted for aiding and abetting in the commission of Federal crimes in violation of 18 U.S.C. § 2, the use of U.S. mail for fraud in violation of 18 U.S.C. § 1341, and racketeering in violation of 18 U.S.C. §§ 1962(c) and (d).

Position and Proposal of the * * *

   Counsel for * * *, as stated, announced at the hearing on March 11, 1985, that * * * was not pursuing any remedies as to the Corporation's Notice and Order of Suspension and Prohibition issued to him in consequence of the foregoing indictment. Counsel stated (Tr. 12):

   "...while we filed papers at the beginning of this proceeding contesting the suspension order as to * * *, in light of our subsequent entry into a Consent Order with the State of * * * which occurred on February 5, 1985, that we have in that Consent Order agreed not to have him participate even as a consultant or an advisor. So, therefore, it would be fruitless for us to sit here and argue that issue before your Honor when we're already agreed that as to * * * that we would not pursue any remedies as with the State of * * *.
   So what I am stating on the record is that we are not pursuing any effort to modify the or replace the Suspension Order as to * * * in this proceeding, as well."

   "... assistance of the BANK'S counsel in the prosecution or defense of cases involving the BANK, the assistance in collection of loans, the assistance in International Banking, and the preparation and leasing of the * * * property and * * *.

Statutory Criteria

   [.1] Section 8(g)(1) of the FDI Act states that whenever any officer or director, or other person participating in the conduct of the affairs of a bank, is charged with the commission of or participation in a crime involving dishonesty or breach of trust punishable by imprisonment for a term exceeding one year under state or federal law, the appropriate federal banking agency may suspend such individual from office or prohibit him from further participation in any manner in the conduct of the affairs of the bank if continued service or participation by such individual may pose a threat to the interests of the bank's depositors or may threaten to impair public confidence in the bank.

   [.2] Under Section 8(g)(3) an individual served with a Notice and Order of Suspension and Prohibition has a right to a hearing to show "that the continued service to or participation in the conduct of the affairs of the bank by such individual does not, or is not likely to, pose a threat to the interests of the bank's depositors or threaten to impair public confidence in the bank".

Evidence Introduced by * * *

   * * *, Assistant Director of the Division of Banking, * * * State Comptroller's Office, testified that he had had more to do with the * * * Bank than most other employees of the Division of Banking and that he was involved in negotiations concerning the Consent Order signed by directors of the * * * Bank and the Comptroller of * * * subsequent to the Indictment of * * * on December 11, 1984.
   Mr. * * * and the other officials of the Division of Banking concluded the Consent Order allowing * * * to participate in the affairs of the * * * Bank in an advisory and consulting capacity in the areas set out earlier because it was felt that the charges against him were much less severe than those against * * *, because he was a respected member of the * * * community in * * * and many of the bank's customers patronized the bank because of him, that he knew the bank's borrowers, that it was believed that he should be able to participate in the defense of administrative actions against the bank to protect the bank and his assets, and generally that it would be detrimental to the bank if he were kept out of the bank during the pendency of the charges against him (Tr. 39–44).
   The * * * Division of Banking considered that * * * had personal knowledge of the bank's loans, that one of his chief roles was handling international banking, and that it would place an economic burden on the bank to hire new officials to handle these matters. The * * * Bank is currently operating at a loss and Mr. * * * felt it was prudent not to ask the bank to take on an additional burden of other salary at this time (Tr. 48, 73).
   Mr. * * * testified that the Division of Banking would not have entered the Consent Order permitting * * * to perform the activities listed if the Division had felt there was any threat to the bank's depositors or to public confidence (Tr. 49). Mr. * * * regarded the State of * * * as the prime regulator of the * * * Bank (Tr. 70).
   A customer and depositor of substantial funds in the * * * Bank, * * *, testified that he was president of a company engaged in the export of bottling machinery, that the * * * Bank discounted many of his accounts receivable (Tr. 109), that * * * was very helpful to his firm in structuring financial transactions with customers in overseas countries and by assisting in collecting or withdrawing funds from such countries, and that in certain instances such help enabled his firm to repay obligations to the * * * Bank (Tr. 83–91). Mr. * * * confidence in the * * * Bank was not disturbed by the indictments of * * * and * * * He did not feel that his deposits in the bank would be threatened "if * * * were allowed back into the * * * Bank on a consulting basis". In fact, he would feel more confi- {{4-1-90 p.A-414}}dent if * * * were at the bank rather than if he were not (Tr. 94).
   Mr. * * * testified that * * * reputation was good and that he had received at least twenty telephone calls supporting * * * subsequent to his indictment. If Mr. * * * were not allowed back in the bank "on a limited consulting basis in conformity with paragraph 4 of the consent order" he "would probably start looking for another bank" and he thought others also would do the same thing (Tr. 96). He thought public confidence in the bank would be enhanced if Mr. * * * were reinstated as a bank consultant or advisor because of the nature of the * * * community and * * * reputation in that community and his personal contacts (Tr. 100–104).
   A wholesale grocer of * * * or * * * foods, a substantial customer of the * * * Bank and a recently named member of the Board of Directors of the bank, * * *, testified that he considered * * * to be an honest man and that he believed that to be his reputation in the * * * community. The indictment has not changed that opinion (Tr. 123–125). He did not think Mr. * * * participation in the bank's affairs as an advisor or consultant would pose any threat to the depositors or impair public confidence. As a bank director he wanted * * *'s help as an advisor and consultant (Tr. 127).
   * * *, a son of * * *, executive vice-president, director and chief loan officer of the * * * Bank, has been an officer and employee since May 1978 when "the * * * family was involved in the purchase and acquisition of the bank" (Tr. 197). He came to the United States from * * * around 1961 when he was seven years old.
   In his opinion * * * or * * * banking is more on a personal basis than traditional American banking.
   * * * testified to his father's extensive banking experience in * * *, * * * and later in the United States before he became the Managing Director and Chief Executive Officer in 1978 of the * * * Bank.
   According to * * * the bank grew from about four million dollars of deposits to its current level of ninety-eight million dollars between 1978 and 1985. Presently a Memorandum of Understanding with the State of * * *, Division of Banking, requires the bank to limit deposits to 100 million dollars until it reaches certain capital levels (Tr. 201).
   * * * testified that there was a run on the * * * Bank in the spring of 1984 when he, his father, * * * and his brother, * * *, were suspended by the Corporation and adverse publicity circulated in the media in the * * * area (Tr. 203). Around ten to fifteen million dollars was withdrawn (Tr. 204; see Rx 7).
   In the days following the indictment of * * * and * * * on December 11, 1984, no run occurred (Tr. 205-10; see Rx 6(a) through (h)). He attributed the lack of a run after December 11, 1984, the day of the indictment, to the good relationship of the bank with depositors, to the fact that he did not think depositors accepted the charges, that he, his father and brother maintained their identity with the bank, and to the fact that he was in the bank reassuring depositors (Tr. 211).
   * * * considered his father necessary to the collection of 15 or 20 past due loans because he knew the circumstances of those loans (Tr. 212-13). Similarly, be believed his father to be essential in advising and consulting with the bank in the international banking area because of his expertise and experience, particularly his experience in Central and South America (Tr. 214).
   Assuming the "normal bias between father and son" * * * did not believe participation by his father in the affairs of the bank, as provided in the Consent Order with the * * * banking regulators, as an advisor and consultant, would threaten depositors or erode public confidence (Tr. 215-16). It was * * * opinion that his father's presence in the bank would help in the * * * community particularly in view of the probable publicity likely to arise when the trials occurred in the fall of 1985 (Tr. 216; see Tr. 10). His father's assistance in the renovation of the * * * property and the construction of * * * was essential to the bank in * * * view (Tr. 217-20).
   * * * took the stand and began his testimony by describing his suspension, and that of his two sons, * * * and * * *, from the * * * Bank on March 15, 1985 by issuance of a Notice of Immediate Suspension and Prohibition by the Corporation (see Rx 5). Publicity occurred and there was a run on the bank. There was no run in December 1984 when he and his son, * * *, were indicted because, in his opin- {{4-1-90 p.A-415}}ion, * * * who was executive vice-president remained at the bank (Tr. 270).
   * * * believed that his continued personal participation in the * * * Bank's affairs, as provided by the proposed order modification, was important to insure public confidence because depositors have known him for many years and because his presence maintained an image of the bank, even though he would not be participating in day-to-day transactions (Tr. 271–353). He has established himself in an office across the street from the bank because he does not have any interest in becoming especially visible at this time (Tr. 272).
   * * * testified that the administrative law judge who conducted the administrative hearing in June 1984, resulting from the Corporation's Notice of Immediate Suspension and Prohibition, issued a recommended order which essentially followed the Memorandum of Understanding with the state of * * *, and did not recommend that he or * * *, his son, be prohibited from further participation in the bank (Tr. 272-76).
   * * * contended that most of the counts in the indictment did not involve him, that he had pled not guilty, and that an internal memorandum of the FDIC staff, recommending to the Board that he be suspended, prejudiced him by erroneously reporting that the indictment had charged him with acting as a nominee for two other members of the alleged conspiracy, Mr. * * * and Mr. * * *, in acquiring the * * * Bank (Tr. 281-83; see FDIC Ex. 3). According to Mr. * * *, the indictment did not charge him with being a nominee for Mr. * * * and Mr. * * *.
   * * * believed that * * * banking had an advantage over traditional American banking in the * * * community and in * * * because of language and cultural affinity.
   According to Mr. * * *, the * * * Bank had ten to fifteen cases in litigation for the collection of loans and substantial litigation with the FDIC (Tr. 285-86). He has been very active and knowledgeable in these cases. He believed that he had close knowledge of the bank's large borrowers and his experience was essential in the collection of loans, particularly where international loans were involved (Tr. 287-88).
   With respect to the * * * and * * * properties, Mr. * * * testified in substance that much work was involved, that he knew how to accomplish the work and could benefit the bank by his advice and consultation.
   He did not believe that his presence in the bank in a limited advisory or consulting capacity would pose a threat to depositors or erode public confidence (Tr. 289-90; 353). During the course of thirty-five years of banking, Mr. * * * testified that he had not been charged with doing anything adverse or wrongful with depositors' funds (Tr. 351).
   * * *, a criminal lawyer and teacher of advanced criminal procedure at the University of * * *, testified that the guilty plea of * * * named as a key member of the alleged conspiracy, could not be used against * * * or * * * in their trials (Tr. 369-70) and that neither of them had been charged in the indictment with being the nominee for Mr. * * * in acquiring the * * * Bank (Tr. 371).
   Counsel for * * * introduced excerpts of testimony received in the administrative hearing held in June 1984, referred to earlier, relative to the banking practices of * * * and his two sons, * * * and * * *, and to the reputation and character of * * *.
   George LeMaistre, former Chairman of the FDIC, testified in 1984 that the attitude of the * * * banking authorities, and the attempts they were making to straighten out the problems the * * * Bank was evidently having under the * * *, should be considered by the FDIC and that * * * solutions deserved "just as much credence as the FDIC". Mr. LeMaistre felt that if "they [* * * authorities] put something in place, and it begins to work [he] would give it a chance to work" (Tr. 155).
   Mr. * * *, chairman of the * * * County School Board and * * *, senior vice-president of the Bank of * * *, testified in the 1984 proceeding to the character and integrity of * * * (Tr. 156-61).
   * * *, an expert in banking management from the University of * * *, testified in 1984 that the * * * Bank grew substantially under the * * * and that in his opinion they were "good managers" (Tr. 164-65):
   An FDIC bank examiner testified in the 1984 hearing that * * * had extensive ex- {{4-1-90 p.A-416}}perience in international banking, that he had no specific cause to question his integrity and felt that he should be allowed to operate the international portions of the bank (Tr. 166-67).
   A Mr. * * *, an attorney, member of the * * * County School Board and former chairman of the * * * Democratic Party, endorsed * * * reputation as excellent (Tr. 169).
   A * * * Savings and Loan president, * * *, testified in the 1984 hearing that * * * credit history and reputation were good (Tr. 174).
   The Director of the * * * Division of Banking testified in 1984 that "we felt they were (* * *) a vital part of the institution and had not caused the problems at the institution," and were "capable managers" (Tr. 176-77).
   * * * president of the * * * National Bank of * * *, one of the largest "* * *" banks in the United States, stated he had a high opinion of * * *, that his character and reputation were good, and that he was a capable banker and an expert in international banking (Tr. 178-79).

Arguments of * * *

   * * * maintains that the evidence which he introduced, legal authority, policy considerations, and the record in this proceeding, establish that he is entitled to the modification he proposes to the Order of Suspension and Prohibition issued by the Corporation. * * * states that (Brief, p. 1):

"(a) the FDIC has failed to give due deference to the effective, regulatory action taken with respect to Respondent by the Comptroller of the State of * * *;
(b) the FDIC has failed to establish that the Respondent's limited involvement in the Bank within the restrictive parameters set forth in para. 4 of the Consent Order entered into between the Bank and the State of * * * (Resp. 1) poses a threat, in any way, to the interests of the Bank's depositors;
(c) the FDIC has failed to establish that the Respondent's limited involvement in the Bank within the restrictive parameters set forth in para. 4 of the Consent Order entered into between the Bank and the State of * * * threatens, in any way, to impair public confidence in the Bank."

   * * *, Assistant Director for the FDIC's * * * Region, stated that the * * * Bank fell within his personal scope of responsibility as assistant regional director. When he learned of the indictments brought by the federal grand jury against * * * and * * * he was concerned for the bank's liquidity. He was afraid that adverse publicity could result in a run on the bank and suggested to the bank that a line of credit be sought through the Federal Reserve (Tr. 383). On receiving the indictment, Mr. * * * determined that a felony involving dishonesty and a breach of trust was charged.
   Mr. * * * reviewed the charges contained in the indictment against * * * (Tr. 385-86) and concluded that they related directly to the operation of the * * * Bank involving, among other alleged offenses, concealment of the bank's true ownership, false statements to * * * banking authorities, misrepresentations and submission of false documents (Tr. 387). He became aware of adverse publicity about the * * * Bank arising from the indictments. He and others at the * * * Regional Office were concerned because of the risk "to depositors as well as the impairment of public confidence in the bank" (Tr. 388). Concern was heightened by the high position * * * held in the bank.
   It was decided to recommend an order of suspension against Mr. * * * to FDIC headquarters because it was felt that the continued participation of * * * in the affairs of the * * * Bank under the circumstances had the capacity to pose a threat to the bank's depositors and to public confidence in the bank (Tr. 391-92).
   In making this determination the * * * Office did not survey the public or the bank's depositors (Tr. 410).
   Although Mr. * * * had been involved in a prior administrative proceeding of the FDIC against the * * * Bank and the * * * in which the decision of the administrative law judge basically went against and contradicted the position of the Office, and although Mr. * * * had been named personally as a defendant by the bank and the * * * in a "Bivens" complaint, he denied being motivated by any bias against the bank or the * * * in recommending the subject Notice and Order of Suspension and Prohibition (Tr. 401-08, 419-20).
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   Mr. * * * believed that * * * could assist counsel in the prosecution and defense of cases involving the bank under the subject order of the FDIC so long as he did not do so on behalf of the bank and was not "linked to the bank" in doing so (Tr. 422-23). He did not believe Mr. * * * should work on the * * * project or the * * * project or participate in the affairs of the bank so long as the Corporation's Notice and Order were outstanding (Tr. 424-27).
   * * *, currently Chief Special Situations Section of the FDIC at agency headquarters, which deals with problem banks, handled the * * * Office recommendation for the issuance of a Notice and Order of Suspension and Prohibition against * * * and * * *. His office reviewed the recommendation and approved it. Thereafter it was sent to the FDIC Board of Review and then to the Corporation's Board of Directors.
   Among the factors considered by his office in reviewing a Section 8(g) order were the nature and seriousness of the charges, the overall nature and possible effect of the charges on the bank, the potential for publicity, and the position and visibility of the individual or individuals involved (Tr. 435-39).
   Mr. * * * believed that where a determination was made to suspend an individual, such person should be suspended in the entirety to assure that there were no accidental breaches of the order. He believed that the bank was best protected by a total severance of the relation between the bank and the individual, and that it should be made clear to the public that the person is no longer associated with the bank pending resolution of the allegations (Tr. 440). The potential effect on a bank of the indictment of an official, according to Mr. * * *, is not always immediate. Publicity during trial and revelations thereafter could adversely affect a bank, also the immediate impact is not always an indicator of the impact on public confidence because people withhold patronage or do not renew loans (Tr. 441).
   Mr. * * * felt that continued participation by * * * in the affairs of the * * * Bank might impair public confidence in the bank (Tr. 442). In his opinion, the interests of state banking regulators and the FDIC are not always the same. The FDIC has a financial interest at stake because it has insured the bank's deposits (Tr. 443).
   Mr. * * * believed that consideration should be given by the FDIC to actions taken by state banking regulators, but the FDIC should not in all cases defer to such actions (Tr. 445-46). He has not given consideration to the Consent Order agreed to by the * * * Comptroller (Tr. 456). He did not believe there should be any modification in the FDIC subject order (Tr. 463-64).
   Among the exhibits offered by FDIC staff were examples of the publicity generated by the indictments of those alleged to have been involved in the conspiracy, including * * * and * * * (FDIC Ex. 4).
   Counsel for the FDIC elicited testimony from Mr. * * * the witness from the * * * Division of Banking, that there was no run on the * * * Bank after the indictments were publicized, in his opinion, because the State Comptroller announced that there was no need for the public to worry because their deposits were insured by the FDIC (Tr. 60; see FDIC Ex. 4, pp. 19–20 and Tr. 322-25). Counsel for the FDIC brought out that Mr. * * *, who testified for * * *, was a substantial borrower from the * * * Bank with direct loans of over a million dollars (Tr. 109). Mr. * * * also was a substantial borrower from the * * * Bank. He became a Director when * * * was suspended (Tr. 125, 128) and is a social friend of his (Tr. 138).
   All of the witnesses whose excerpts were offered from the administrative proceeding initiated by the FDIC through issuance of a Notice of Immediate Suspension and Prohibition March 15, 1984, which was tried in June 1984, testified before Mr. * * * was indicted on felony charges relating to the * * * Bank in December 1984. The effect, if any, of that indictment on their opinions relative to the bank and * * * is not known. * * * is * * * son (Tr. 230), as already made clear herein, and has worked in the bank with his father as executive vice-president and loan officer (Tr. 196-97). The run on the * * * Bank following FDIC issuance of a suspension and prohibition order on March 15, 1984, continued after the * * * were restored to their positions by the U.S. District Court, Southern District of * * * (Rx 5; Tr. 231-32).
   Both * * * and * * * were paid substantial sums of money by the * * * Bank in December 1984 and January and February 1985 (Tr. 242-49, 255, 339-40), although a {{4-1-90 p.A-418}}letter from the * * * Director, Division of Banking, Office of the Comptroller; to counsel for the * * * dated December 21, 1984, advised that the state suspension of both father and son "precluded" collection of salaries or fees (FDIC Ex. 1).
   * * * resumed participation in the affairs of the * * * Bank as of February 15, 1985, relying on the Consent Order negotiated with the Comptroller of * * * notwithstanding the outstanding Notice and Order of Suspension and Prohibition issued by the Corporation on December 13, 1984 (Tr. 331-38).

Opinion

   The indictment has been described by sections of the U.S. Code allegedly violated earlier in this recommended decision. It is essential, however, to a resolution of the contentions in this matter that the crimes alleged against * * * be understood in detail. Describing these charges is not a matter of parading inflammatory material. Rather, the nature and gravity of the charges against * * * are highly relevant to the issues in this proceeding.
   Along with his son, * * *, and four other persons, * * * has been charged by a federal grand jury with being part of a racketeering conspiracy involving the wholesale importation of marijuana into the United States and the conversion of the multi-million dollar proceeds derived therefrom into legitimate assets and investments. Two of the defendant members of the alleged conspiracy, * * * and * * *, according to the indictment, were the marijuana importers and organized, imported, managed and supervised what the indictment characterizes as the "enterprise".
   One * * * was alleged to have acted as the agent and attorney for the importers * * * and * * *, and one * * * was charged with receiving large sums of cash from which he allegedly laundered by converting a portion to negotiable instruments and by transporting cash and negotiable instruments from * * * to * * * for deposit in * * * bank accounts.
   According to the indictment, * * * was to locate a bank in * * * which could be acquired by * * * and * * *, as hidden owners, with the proceeds of the marijuana smuggling syndicate. * * * would become President of this bank and * * * would become Chairman of the Board and both would receive substantial stock in the bank as part of the conspiracy.
   The indictment states that the * * *, father and son, located the * * * Bank and negotiated for its purchase, falsely claiming to represent a * * * investor and concealing the fact that such * * * investor was a "nominee" for * * * and * * *, the alleged real but concealed owners.
   The * * * Bank was acquired and * * * and * * * became officers as allegedly agreed, and stockholders. In the course of accomplishing the foregoing, the indictment charges that * * * and his son made false biographical statements, false financial statements, and applications containing false, fraudulent and perjurious statements, to the Office of the Comptroller and State Commissioner of Banking of * * * and to the FDIC.
   According to the indictment, after * * * became a fugitive on federal drug charges in the Eastern District of * * *, * * * and his son negotiated to purchase portions of * * * stock to maintain and enhance their control of the * * * Bank. In the course of this activity * * * and * * * are alleged to have made false entries in the books and records of the bank, made additional false oral and written statements to the Comptroller and State Commissioner of Banking of * * * and to the FDIC. A number of specific overt acts and "acts of racketeering" in furtherance of the conspiracy were charged to * * * including use of U.S. Mails, mail fraud, telephone calls, travel, transfer of funds, and other acts.

   [.3] In sum, charges have been made that * * * and * * * have used fraud, false statements, deceit, misrepresentation, false entries in books and records, false applications, lying and concealment of material facts in connection with the * * * Bank and in dealings with state and federal authorities seeking to carry out their official functions.
   Obviously a person is innocent until proven guilty. None the less, the gravity and nature of the charges levied in a proceeding of this type must be considered. And the charges preferred against * * * are of the utmost severity. The allegations involve actions and activities central to the * * * Bank and of a type bearing on the very integrity of the nation's banking system.
   * * *, during his testimony (Tr. 279, 292-99), tended to minimize the charges {{4-1-90 p.A-419}}preferred against him by the grand jury's indictment. He testified that out of more than thirty counts he was named in only four (Tr. 279). The indictment is in the record (FDIC Ex. 2), and the role charged to * * * in the alleged conspiracy and alleged enterprise can be determined. There are thirty Counts in the indictment which numbers 62 pages, but all these Counts are not necessarily comparable. Thus, Count I consumes 46 pages of the indictment, recites 48 racketeering acts and 94 overt acts, and names * * * approximately twenty times. In contrast, many of the other counts allege a single act such as a wire transfer in aid of the conspiracy, an instance of travel or the mailing of a letter as a violation of a specific section of the U.S. Code. In the opinion of the undersigned * * * was not charged as a minor figure in the alleged conspiracy and alleged enterprise although he is not charged with the actual importation and sale of marijuana.
   The adverse publicity relative to the * * * Bank generated by the indictments of * * *, * * *, * * * and * * *, and the two other alleged members of the conspiracy, syndicate and enterprise, was local, regional and national in scope. News stories were disseminated by United Press International, Reuters and the Associated Press. Articles appeared in the * * *, the * * * Times, the * * * and the * * * (FDIC Ex. 4). On the national level, articles were printed in the New York Times, USA Today, and the American Banker.
   Based on the wire service of United Press, Reuters and the Associated Press, it is probable that news stories appeared in many other newspapers, and probably over TV and radio. Most of the news stories named * * * and his son, * * * and provided coverage of the allegations of the federal grand jury in considerable detail. Attorney General William French Smith was quoted in a number of the articles as saying that the indictment "demonstrates one of the important aspects of the scope of drug trafficing activities - the penetration of the financial and business communities" (FDIC Ex. 4, p. 18). Pictures of * * * and * * * were printed in the * * * and the * * *.
   The * * * Bank was almost invariably named in connection with * * * and * * * and the alleged racketeering and marijuana importing scheme, and the alleged use of the proceeds to infilter legitimate business enterprises.
   Section 8(g)(1) of the Act is couched in terms of potential or capacity. That is, whether continued participation of an individual charged with crimes involving dishonesty or breach of trust in the affairs of a bank "may" threaten to impair public confidence in bank.

   [.4] The federal banking agency having jurisdiction is not required to wait until public confidence in a bank is actually impaired, but may suspend and prohibit an individual from further participation in a bank's affairs where there is a likelihood of such impairment. Senator Proxmire introduced legislation permitting suspension or prohibition of a bank official charged with a crime involving dishonesty or breach of trust and stated:

". . .I do not believe that any Member of this Senate would want to keep his money in a bank or a savings or loan association if one of its directors or officers had engaged in this kind of conduct and was still active in the affairs of the bank or savings and loan association. I believe as strongly as any other man in the Senate that a man is innocent until he is proven guilty. I believe the interests of the officer and director should be fully protected.
I believe equally strongly that the interests of savers and depositors and borrowers and trust beneficiaries and the public at large must also be protected. Remember, we are speaking about bank officers and savings and loan officers who are handling other people's money by virtue of a special government license granted to them in the public interest."

Conclusions and Recommendation

   Based on a consideration of all the evidence and the record as a whole, and all the circumstances, including the charges of conspiracy, racketeering, submitting false information to banking authorities, charges of causing and maintaining false entries in the books and records of the * * * Bank, and charges of concealing the true ownership of certain other defendants named in the indictment, the undersigned concludes that participation of * * * and * * *, in any manner, in the aftairs of the * * * Bank, may pose a threat to the interests of the bank's depositors and may threaten to impair public confidence in the bank.
   It is recommended that the Notice and Order of Suspension and Prohibition issued to * * * on December 13, 1984, be continued in effect, and not modified in any respect. It is recommended that the Notice and Order of Suspension issued to * * * on December 13, 1984, be continued in effect.
/s/ Daniel H. Hanscom
Presiding Officer
Former Chief Administrative Law Judge,
Federal Trade Commission
April 16, 1985