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FDIC Enforcement Decisions and Orders |
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FDIC assessed a civil money penalty against a bank's executive officer, director, and principal shareholder for causing the bank to purchase certain loan participations that involved more than the normal risk of repayment or presented other unfavorable features.
[.1] Federal Reserve Act § 23ATransaction with AffilliatesApproval of Directors
[.2] Civil Money PenaltiesAmount of PenaltyStatutory Standard
[.3] Civil Money PenaltiesPurpose
[.4] Civil Money PenaltiesAmount of PenaltyPersonal Gain
[.5] ShareholdersPersonal Benefit
In the Matter of * * * * * * BANK
I. INTRODUCTION
The ALJ reviewed the four batches of loan participations (consisting of a total of 26 loans) that the Bank acquired from * * * between May 4, 1984 and July 30, 19841 and concluded that the Respondent
IV. THE PARTIES' EXCEPTIONS
V. OPINION
[.1] However, the Board also finds that the ALJ erred in failing to conclude that purchase of the loan participations violated section 215.4(b) of Regulation O, 12 C.F.R. § 215.4(b). Section 215.4(b) requires that certain transactions with affiliates which exceed $25,000 or 5 percent of capital and surplus must receive prior approval by a majority of the Bank's board of directors. Although the ALJ does not explain his reasoning, it appears that he believed that the loan participations had received prior approval by the Bank's board of directors. The ALJ thus failed to adopt FDIC Proposed Findings of Fact 14, that the loan participations were purchased without the prior approval of the board of directors of the Bank. Evidence presented at the hearing, including admissions made by Respondent, clearly show that purchase of the loan participations violated section 215.4(b)(1) for the following reasons:
[.2] The Federal Deposit Insurance Act provides only that the maximum penalty is $1,000 per day for each violation and requires that the FDIC:
[.3.4] As stated in the FDIC's Manual of Examination Policy ("Manual") "[c]ivil money penalties are assessed not only to punish the violator according to the degree of culpability and severity of the violation, but also to deter future violations...the primary purpose...is not to effect remedial action.4 Furthermore, it is the FDIC's policy that, whenever a violation results either in personal financial or economic gain by an offender and/or in loss to the bank, that amount may be assessed as a portion of the penalty. Additionally, the Manual states that the violator should "pay a penalty over and above" the amount of loss to the bank or personal gain for violating the law.5 Willingness and promptness in making restitution is also a factor that may affect the amount of the penalty.6 As the Board has stated on other occasions, the thirteen factors set forth in the Policy Statement provide a useful guide for evaluating the responsibility or culpability of a violator for the violations that form the basis for a civil money penalty. In addition, the Board believes that the amount of direct or indirect benefit to a violator, whether in the form of financial or economic gain or otherwise, and the amount of harm suffered by the bank, should also be major considerations in the determination of the amount of the penalty.
[.5] Finally, there is the issue as to benefit to Respondent from the transactions giving rise to the violations of Section 23A, Regulation O and the Order. The ALJ concluded that Respondent did not profit from any of these transactions, nor was he motivated by self-interest. It is true that there is no evidence of ultimate benefit to Respondent in this instance since * * * went bankrupt. Nevertheless, in view of what can only be described as Respondent's willful disregard of the outstanding Order and normal safety and soundness considerations, it is reasonable to conclude that the purchase of loan participations from * * * for cash was intended to aid the financially ailing * * * and thereby indirectly benefit Respondent, * * * principal shareholder. Therefore, the Board concludes that Respondent did receive some benefit from the transactions, albeit, indirect and short-lived in view of * * * closure (Factor 7).
VI. CONCLUSION
ORDER TO PAY CIVIL MONEY
After taking into account the appropriateness of the penalty with respect to the size of the financial resources and good faith of * * *, the gravity of the violations, the history of previous violations, and such other matters as justice may require, it is:
Recommended Decision
FDIC-85-2k
This matter came before the undersigned Administrative Law Judge on a request for hearing made by the Respondent in a letter dated February 26, 1985. A hearing was held in * * * on August 19 and 20, 1985.
STATEMENT OF THE CASE
ASSESSMENT OF CIVIL MONEY
FINDINGS OF FACT
CONCLUSIONS OF LAW |
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Last Updated 6/6/2003 | legal@fdic.gov |