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FDIC Enforcement Decisions and Orders |
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[.1] DirectorsProhibition, Removal, or SuspensionUnsafe or Unsound Practices
[.2] Prohibition, Removal, or SuspensionLiabilityDishonesty
In the Matter of * * * MAJORITY
/s/ Hoyle L. Robinson
FDIC-84-207(e)
* * *, Esquire
INITIAL DECISION AND ORDER
Statement of the Case
This administrative action was instituted by the Board of Directors of the Federal Deposit Insurance Corporation ("FDIC") on December 17, 1984 when it issued a Notice of Intention to Prohibit from Further Participation ("Notice") and an Order of Prohibition from Further Participation ("Order"). Both the Notice and Order were issued against * * * ("Respondent"), majority shareholder and the former chairman of the Board of Directors of the * * * Bank of * * * ("Bank"), pursuant to sections 8(e)(1) and (2) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §§ 1818(e)(1) and (2); section 8(e)(5) of the Act, 12 U.S.C. § 1818(e)(5); and the FDIC Rules of Practice and Procedure ("FDIC Rules and Regulations"), 12 C.F.R Part 308, et. seq. The Notice and Order charged Respondent with having committed violations of law and regulations; with having engaged or participated in unsafe or unsound practices in connection with the operation of the bank; and with having committed or engaged in acts, omissions or practices which constituted a breach of his fiduciary duty as a director of the Bank. The Notice further alleged that the Bank has suffered or will probably suffer substantial financial loss or other damage; that the interests of the Bank's depositors could be seriously prejudiced by reason of such violations, practices and breach of fiduciary duty; and that Respondent has received financial gain by reason of such violations, practices and breach of fiduciary duty. Accordingly, because such alleged violations, practices or breach of fiduciary duty are alleged to demonstrate a willful or continuing disregard for the safety and soundness of the Bank; involve personal dishonesty; and demonstrate an unfitness to serve as a director or officer and/or to continue to participate in the conduct of the affairs of the Bank or any other bank insured by the FDIC, the FDIC sought to prohibit Respondent from further participation in the affairs of the Bank.
Findings of Fact
* * * Bank is a State Chartered Bank with deposits insured by the FDIC. The Bank is subject to the Act, 12 U.S.C. §§ 1811-1831d, the FDIC Rules and Regulations, 12 C.F.R. Chapter III, and the laws of the State of * * *.
[.1] In the performance of its duties, the FDIC may, inter alia, prohibit from further participation bank personnel responsible for specific violations or unsafe or unsound practices. (12 U.S.C. § 1818(e))
The Infusion of Additional Capital and Issuance of Stock
On June 29, 1984, Respondent used a $750,000 cashier's check dated April 18, 1984, drawn on * * * to provide additional capital to the Bank. Credit was immediately given for the cashier's check, but funds in payment were not received from the issuing bank. The transaction was carried on the Bank's books until September 6, 1984, at which time Respondent used the proceeds of a loan from another financial institution to reimburse the Bank. The Bank suffered financial loss as no interest was charged or earned on this cash item for a period of approximately 70 days.
The Under-collateralized Loan Made to Respondent and His Wife
On July 17 1984, Respondent and his wife borrowed $204,332 from the Bank. On July 23, 1984, proceeds of the loan were deposited to the account of * * *, a purported interest of Respondent's wife. The proceeds were deposited in this account for the purpose of paying an insufficient funds check drawn on the account of * * * and made payable to * * *. The check was dated July 20, 1984, and was in the amount of $199,000.
The Extension of Credit to * * *
On July 24, 1984, Respondent caused the Bank to extend credit in the amount of $51,000 to * * *. On July 26, 1984, the proceeds were deposited into * * * account. A check in the amount of $10,000, drawn on the account of * * *, and made payable to Respondent, was returned for insufficient funds, but was later re-presented and paid.
The Transfer of Funds to The * * * Bank
On June 18, 1984, Respondent caused the Bank to transfer $305,000 to The * * * Bank, * * *. The funds were deposited into the account of the * * *. The Bank's board of directors had passed a resolution establishing a correspondent banking relationship with The * * * Bank, and the Bank's books indicated a cash balance due from The * * * Bank. No reason for the credit of funds to the * * * was given. However, Respondent himself had a banking relationship with the European * * *
The Bank's Indemnification of The * * * Bank
The letter dated July 30, 1984, Respondent caused the Bank to indemnify The * * * Bank for claims of any person, firm, or other entity with respect to the collecting of funds transferred to The * * * Bank which were credited to * * *. The letter also indicated that the indemnification agreement covered payment of attorney fees and other costs incurred by The * * * Bank with respect to the funds.
On July 20, 1984, Respondent caused the Bank to invest $240,000 in * * *, Inc. The contract concerning this transaction is unclear as to how the Bank was to profit, and the documentation held in support of this investment was inadequate. The investment was not approved by the Bank's board of directors.
Other extensions of Credit to Respondent
In addition to the July 17, 1984, personal loan described above, from June 29, 1984 to September 11, 1984, Respondent received the following extensions of credit which exceeded the Bank's aggregate lending limit, in violation of section 215.4(c) of Regulation O, 12 C.F.R. § 215.4(c):
(1) Respondent received immediate credit for a $750,000 cashier's check drawn on a foreign bank which resulted in the Bank carrying a cash item for an extended period of time.
Conclusion and Order
Based on the transactions, above, as set forth by the FDIC and left unrebutted by Respondent, I conclude that Respondent, as majority shareholder, former chairman of the Bank's board of directors, and a participant in the conduct of the affairs of the Bank has:
[.2] These violations, acts, omissions or practices, as committed by Respondent, evidence that degree of personal dishonesty and willful or continuing disregard for the safety or soundness of the Bank which necessitates the conclusion that Respondent is unfit to serve as a director or officer of the Bank, and to continue any participation in the affairs of the Bank or any other bank insured by the FDIC.
CERTIFICATE OF SERVICE
I hereby certify that copies of this INITIAL DECISION AND ORDER issued by ALAN W. HEIFETZ, Chief Administrative Law Judge, Docket No. FDIC-84-207e, were mailed to the parties listed below on this 24th day of May, 1985. |
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Last Updated 6/6/2003 | legal@fdic.gov |