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FDIC Enforcement Decisions and Orders |
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FDIC ordered a bank to cease and desist from initiating or conducting any business on the instruction or advice of the bank's former chairman of the board. The bank had issued common stock certificates and increased its equity capital accounts based solely on the receipt of a cashier's check without collecting the funds in payment of the cashier's check, which had been drawn by the former board chairman. FDIC also ordered the bank to cease and desist from carrying account balances on its books which are not accurate, and from making preferential loans and loans which present a greater than normal risk of recovery.
[.2] Cease and Desist OrdersUnsafe or Unsound Practices
In the Matter of * * * BANK and
STATEMENT OF THE CASE
On August 13, 1984, the Federal Deposit Insurance Corporation ("FDIC") simultaneously issued a Notice of Charges and of Hearing ("Notice") and a Temporary Order to Cease and Desist pursuant to Sections 8(b)(1) and 8(c) of the Federal Deposit Insurance Act (12 U.S.C. 1818(b)(1) and (c)). The Notice charged that: (a) the * * * Bank * * * ("Bank"), had issued common stock certificates and increased its equity capital accounts based solely on the receipt of a cashier's check without collecting the funds in payment of the cashier's check, which had been drawn by * * *, the Bank's former chairman of the board of directors * * *; and (b) the Bank had made to * * * and his wife a loan that was not fully collateralized, that had a greater than normal degree of risk of repayment, and that exceeded the Bank's lending limit and was preferential in violation of Regulation O of the Board of Governors of the Federal Reserve System. Such actions, it was charged, constituted unsafe or unsound banking practices and violations of laws and regulations in conducting the business of the Bank. Thirteen days before the date set for the hearing, the Bank withdrew its opposition to the entry of an appropriate cease and desist order and indicated its willingness to have the proceeding continue on an uncontested basis. Subsequently, the hearing was cancelled, the FDIC was invited to submit a proposed order, and the Bank was invited to submit responsive comments regarding the order.
[.1] The language of § 8(b)(1) of the Federal Deposit Insurance Act states, in pertinent part that:
FINDINGS OF FACT
The Board adopts Judge Edison's recommended Findings of Fact and incorporates them herein by reference.
CONCLUSIONS OF LAW
The Board adopts Judge Edison's recommended Conclusions of Law and incorporates them herein by reference.
ORDER TO CEASE AND DESIST
Having found and concluded that the Bank is engaging or has engaged in unsafe or unsound practices in conducting the business of the Bank and has violated Section 22(h) of the Federal Reserve Act, Section 8(b) of the Federal Deposit Insurance Act, and Section 215.4 of Regulation O of the Board of Governors of the Federal Reserve System:
[.2] 3. Engaging in unsafe and unsound banking practices including, but not limited to, issuing stock in return for unreceived funds, carrying account balances on its books which are not accurate, and making preferential loans and/or loans which present a greater than normal risk of recovery.
RECOMMENDED DECISION
Pursuant to the provisions of Part 308 of the Rules of Practice and Procedure of the Federal Deposit Insurance Corporation (FDIC), the undersigned administrative law judge, issues the following Recommended Decision in this case.
PROCEDURAL BACKGROUND
On August 13, 1984, the FDIC simultaneously issued a NOTICE OF CHARGES AND OF HEARING (Ex. 1) and a TEMPORARY ORDER TO CEASE AND DESIST PURSUANT TO SECTION 8(c)(1) OF THE FEDERAL DEPOSIT INSURANCE ACT (Ex. 2), essentially alleging that the respondents were engaging in unsafe or unsound practices in violation of laws and regulations, and would continue to do so unless restrained. On September 12, 1984, respondents, through counsel, filed their ANSWER (Ex. 3), essentially admitting the existence of the transactions complained of, but denying the inferences raised by the FDIC documents. By ORDER dated October 16, 1984, each party was directed to submit a Statement of Position and to outline its hearing case by November 2, 1984 (Ex. 4). A NOTICE OF HEARING issued the same day set the hearing for November 13, 1984, in * * * (Ex. 5). On October 31, 1984, FDIC submitted its TRIAL MEMO RANDUM (Ex. 6). Counsel for respondents indicated in a letter dated November 1 1984, that respondents were withdrawing their opposition to the entry of an appropriate cease and desist order, and indicating their willingness to have the proceeding continue on an uncontested basis (Ex. 9). Subsequently the hearing was cancelled, the FDIC was invited to submit a proposed order, and respondents were invited to comment (Ex. 10). The FDIC's proposal is contained as Ex. 11 in the record, and respondent's reply is Ex. 12. In view of the foregoing, and in keeping with the Rules and Regulations of the FDIC, this case now stands ready for decision.
EVALUATION OF THE EVIDENCE
The FDIC has alleged that respondent bank, * * * Bank * * * and * * * Chairman of the Board of Directors, have engaged in unsafe or unsound practices which violate the law and the regulations of the FDIC, and which need to be restrained. In support for this general charge, the FDIC specifically cites several transactions. It is charged that on June 29, 1984, a worthless check was used to provide additional capital to the bank, and on the same day additional stock was issued to reflect the receipt of this check. The bank increased the amount of assets on its books to reflect the receipt of this check. Specifically the FDIC charges that on June 29, 1984, Chairman * * * remitted a check in the amount of $750,000. to the Bank. That check was a Cashier's Check drawn on the * * * and was dated April 18, 1984. The FDIC further alleges that funds in payment of the check were never received, but nevertheless the Bank continues to carry the $750,000. on its books as an asset. In return for the receipt of this Cashier's Check, the Bank issued to * * * common stock certificates, and also increased its equity capital accounts on its books by $750,000. based solely on the receipt of this allegedly worthless asset (Ex. 1). In its Answer (Ex. 3) respondents admit that this check was utilized on June 29, 1984, to provide additional capital to the bank, that * * * was the remitter, and that funds in payment of the check have not been received. It further admits that stock was issued to * * * in return for the $750,000. "received" by the
{{4-1-90 p.A-441}}Bank. The answer further indicates that on September 6, 1984, the Bank received $750,000. in full payment for the stock issued on June 29, 1984.
FINDINGS OF FACT AND
After carefully considering all the evidence in the record, and the positions of the parties in this proceeding, the Administrative Law Judge makes the following Findings of Fact and Conclusions of Law in this proceeding:
Respectively submitted,
/s/ PETER C. EDISON
ORDER TO CEASE AND DESIST
The Federal Deposit Insurance Corporation ("FDIC") on August 13, 1984, issued to * * * Bank of * * * ("Bank"), and * * *, its Chairman of the Board of Directors ("Chairman * * *") a NOTICE OF CHARGES AND OF HEARING ("NOTICE") under Section 8(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. section 1818(b)(1)). The NOTICE charged the Bank and Chairman * * * with having engaged in unsafe or unsound banking practices and violations of law and regulations.
ORDER TO CEASE AND DESIST
IT IS HEREBY ORDERED, that the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank, cease and desist from:
/s/ Margaret M. Olsen
LIST OF EXHIBITS
Exhibit 1 NOTICE OF CHARGES
CERTIFICATE OF SERVICE |
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Last Updated 6/6/2003 | legal@fdic.gov |