Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders




FDIC Enforcement Decisions and Orders

ED&O Home | Search Form | Text Search | ED&O Help


{{4-1-90 p.A-926}}
   [5068] FDIC Docket No. FDIC-85-216k (7-1-86).

   Bank directors who failed to file a request for a hearing within 10 days of being served with a Notice and Order were assessed final and unappealable civil money {{4-1-90 p.A-927}}penalties. The FDIC further ruled that a hearing should be open to the public only if necessary to protect the public interest.

   [.1] Civil Money Penalties—Hearing—Public or Private
   Administrative enforcement hearings shall be private unless the appropriate federal banking agency determines that a public hearing is necessary to protect the public interest.

   [.2] Civil Money Penalties—Hearing—Request Required
   Each respondent to an enforcement action must submit a request in writing for a hearing to the Executive Secretary. The failure to request a hearing within the statutory time period results in a civil money penalty assessment being final and unappealable.

In the matter of * * *, and * * *,
individually and as officers and or
directors of * * * Bank (Presently doing
business as * * * Bank * * *) (Insured
State Nonmember Bank)


FDIC-85-216k
DECISION AND ORDER WITH
RESPECT TO REQUEST FOR
PUBLIC HEARING AND MOTION TO
EXCLUDE CERTAIN
RESPONDENTS FROM
PARTICIPATION IN THE HEARING

   On July 31, 1985, a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice and Order") was issued pursuant to section 18(j) of the Federal Deposit Insurance Act ("Act"), against Respondents, all directors of the * * * Bank * * *, * * *, now the * * * Bank, * * * ("Bank"). The Notice and Order alleged violations of Section 22(h) of the Federal Reserve Act, 12 U.S.C. § 375b, and Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 215, promulgated thereunder.
   In connection with this civil money penalty proceeding there are three separate matters that have come before the Board of Directors ("Board") for decision:
   1. The administrative law judge's ("ALJ") Recommended Ruling On Request for Open Hearing;
   2. The ALJ's Recommended Ruling on Motion to Exclude Certain Respondents from the Hearing as to Respondents * * *, * * *, and * * *; and
   3. The ALJ's Recommended Decision and default judgment in the proceeding as to Respondent * * *.
The Board considers each of these matters separately below.

   1. The Request for Open Hearing

   In the Notice and Order the FDIC stated that it was "preliminarily" of the opinion that the hearing should be open to the public. Respondents * * * and * * * have filed formal objection to a public hearing. Respondent * * * argues that the possible publicity will adversely affect the Bank and his attempts to improve its position. Respondent * * * states only that "it is obvious that the situation at the Bank will not be enhanced by a public hearing...." The ALJ has recommended that a public hearing be held in this matter.
   The Board is of the opinion, after a review of the entire record, that a public hearing is unnecessary to protect the public interest.

   [.1] Section 8(h)(1) of the FDI Act provides that administrative enforcement hearings (except (g)(1) suspension hearings) "shall be private, unless the appropriate Federal banking agency, in its discretion, after fully considering the views of the party afforded the hearing, determines that a public hearing is necessary to protect the public interest."
   The Board is of the opinion that FDIC enforcement counsel has not established in this case that "a public hearing is necessary to protect the public interest." No factors are alleged peculiar to this case that support the grant of a public hearing that would not also be present in other civil money penalty cases.
   In its response to Respondent * * *'s request for a private hearing, FDIC enforcement counsel relied upon the Board's Statement of Policy Regarding Disclosure by the FDIC of Statutory Enforcement Actions adopted on May 6, 1985, which was to become effective on January 1, 1986, but has now been extended to January 1, 1987. {{4-1-90 p.A-928}}In extending the effective date, the Board of Directors stated that it has decided to work with other federal bank regulators on a uniform approach to disclosure policy for banks. Until such a policy has been adopted, or the Board decides to adopt a specific policy for holding public enforcement hearings, it is the Board's opinion that it should order public hearings only in cases where the abuses alleged meet the statutory public interest standard, independent of specific disclosure criteria. In this case, while serious abuses are alleged, the Board does not view them as rising to a level which rebuts the statutory presumption for a private hearing and warrants an open forum.
   The Board is therefore not adopting the ALJ's recommendation that the hearing be public.

   2. Motion to Exclude Respondents * * *, * * * and * * * from the Hearing

   Enforcement Counsel for the FDIC has moved for entry of an order excluding Respondents * * *, * * * and * * * from the hearing because each failed to file a request for a hearing within 10 days of being served with the Notice and Order, as required by section 18(j)(3)(C) of the Act, 12 U.S.C. § 1828(j)(3)(C), and section 308.69(b) of the FDIC Rules and Regulations, 12 C.F.R. 308.69(b). The Notice and Order, dated July 31, 1985, was served by certified mail upon each Respondent.
   In a letter dated November 6, 1986, to the FDIC's Executive Secretary, Respondent * * * stated that he did not have the time or money to participate in a hearing and in the same letter offered a defense. On December 13, 1985, after receiving a notice of prehearing conference, Respondent * * * filed an answer and request for hearing with the ALJ. Respondent stated that the reason for his change of mind was a desire that his reputation not be damaged by the assessment of a civil money penalty against him. He further stated that he would be absent from the prehearing conference due to recuperation from an illness which began on November 9, 1985.
   Respondent * * * filed his answer and request for hearing with the ALJ on January 8, 1986, but did not appear at the December 19, 1985, prehearing conference because of confusion concerning the location of the conference.
   Respondent * * * did not file a written request for hearing but stated orally at the prehearing conference that he wanted a hearing. The ALJ instructed Mr. * * * to file a written answer to the Notice and Order by January 10, 1986. However, Mr. * * * failed to file a written answer with the ALJ despite the repeated admonitions and extensions of time.

ALJ'S RECOMMENDED DECISION

   The ALJ has recommended that the Board deny the motion to exclude as to Respondents * * * and * * * on the ground that allowing their participation in the hearing did not inconvenience the parties or delay the proceedings. As to Respondent * * *, the ALJ has recommended that the Board deem the Motion to Exclude as moot and has issued a Recommended Decision and Order as to Respondent * * *, under section 308.06(d) of the FDIC Rules and Regulations, 12 C.F.R. § 308.06(d), as a default judgment based on his failure to file an answer.

THE BOARD'S DECISION

   [.2] Section 18(j)(3)(C), 12 U.S.C. § 1828(j)(3)(C), and section 308.69(b) of the FDIC Rules and Regulations, 12 C.F.R. § 308.69(b), requires that each respondent to an enforcement action submit a request in writing for a hearing to the Executive Secretary. The failure to request a hearing within the statutory time period results in the civil money penalty assessment being final and unappealable. 12 U.S.C. § 1828(j)(3)(C) and 12 C.F.R. § 308.70. The Board is of the opinion that Respondents * * *, * * * and * * * were each fully apprised of the requirements of the Act and the Rules and Regulations with respect to the filing of a written request for a hearing, including the applicable time limitation, by both the Notice and Order and the letter transmitting it. Respondent * * * was served with the Notice and Order on August 20, but failed to respond until November 6, when he asserted that he could not afford the time or expense of a hearing. Respondent * * * did not file a request for hearing until January 8, 1986. Neither Respondent offered a valid excuse or explana- {{4-1-90 p.A-929}}tion for his failure to comply with the ten day time limitation for a request for hearing.*
   Respondent * * * not only failed to request a hearing within the required ten days, but has never filed any written request for a hearing as required by the FDIC's Rules and Regulations. Indeed, this Respondent has not filed any exceptions to or objections with regard to the ALJ's recommended decision based on his default. Thus, the record in this proceeding contains no excuse or explanation by Respondent * * * for his defaults.
   Having considered the ALJ's recommendations with respect to Respondents * * *, * * * and * * *, the transcript of the prehearing conference of December 19, 1985, and all pleadings and documents of record in this proceeding, the Board respectfully disagrees with the ALJ's recommendations. The Board need not decide here whether or not the statutory time period is a jurisdictional requirement that cannot be waived by the Board because no respondent offered any legitimate reasons for his failure to file a timely request for a hearing. In addition, contrary to the ALJ's statement, the failure by these parties to comply with the clear time requirements of the Act and the FDIC's Rules and Regulations has resulted in delay in this action as to the remaining Respondents who did comply with the time requirements while the Board considers FDIC Enforcement Counsel's motion and the ALJ's recommended ruling with respect thereto.
   The requirement that a party request a hearing within ten days is not an onerous one. It does not require a party to prepare a substantive legal document responding to the formal charges. All that is required is a short letter to the Executive Secretary identifying the proceeding and stating that a hearing is requested. These three Respondents are businessmen who are subject to various legal constraints and requirements in many facets of their lives. In this case, by becoming bank directors they voluntarily made themselves subject to the legal requirements of the Act and the FDIC's Rules and Regulations. In this instance we are not dealing with a mere oversight or a matter about which these Respondents may not have had prior knowledge. Here the Respondents received written notification of exactly what was expected and required of them.
   In view of this disregard for the established time limits and procedures of the FDIC, the Board finds that upon the expiration of the tenth day following receipt of the Notice and Order by Respondents * * *, * * * and * * *, that Notice and Order became final and unappealable as to those Respondents as provided by the Act, 12 U.S.C. § 1828(j)(3)(C), and section 308.70 of the Rules and Regulations, 12 C.F.R. § 308.70. Therefore, FDIC's enforcement counsel's Motion to Exclude is granted and those Respondents may not participate in the hearing in this matter.

   3. The ALJ's Recommended Decision as to Respondent * * *

   In view of the fact that the Board's decision that the Notice and Order are final and unappealable because of Respondent * * *'s failure to request a hearing within the statutory time limit, the ALJ's Recommended Decision and Ruling on Motion for Default Judgment are moot and it is unnecessary for the Board to consider them.

ORDER

   For the reasons set forth above, it is hereby
   ORDERED that the Recommended Ruling On Request For Open Hearing of the Administrative Law Judge granting FDIC Enforcement Counsel's request for a public hearing not be adopted and that a private hearing shall be held in this proceeding at a time and place to be specified by the Administrative Law Judge. It is further
   ORDERED that FDIC Enforcement Counsel's Motion to Exclude Respondents * * *, * * * and * * * is granted and that the Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law and Order to Pay are deemed final and enforceable as to Respondents * * *, * * * and * * *. It is further
   ORDERED that Respondents * * *, * * * and * * * shall pay their respective


* The record indicates that Respondent * * * suffered a serious illness on November 9, 1985, which prevented him from attending the prehearing conference. However, this illness occurred more than two months after the statutory ten-day period expired and does not provide any explanation for his failure to request a hearing within the statutory period.

{{4-1-90 p.A-930}}civil money penalty assessments within fourteen days of issuance of this ORDER.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this, 1st, day of July, 1986.
/s/ Hoyle L. Robinson
Executive Secretary

FDIC-85-216K
RECOMMENDED DECISION OF
ADMINISTRATIVE LAW JUDGE

FINDINGS OF FACT AND
CONCLUSIONS OF LAW

   1. * * * Bank, now doing business as * * * Bank (The Bank) was, at all times pertinent to this proceedings, a corporation existing and doing business under the laws of the State * * *, having its principal place of business in * * *. The Bank, at all times pertinent to this proceeding, was an insured State nonmember bank subject to the Federal Deposit Insurance Act (The Act) (12 U.S.C. §§ 1811-1831 d).
   * * * were, at all times pertinent to the charges herein, "directors" and/or "executive officers" of the Bank as those terms are defined in Regulations O of the Board of Governors of the Federal Reserve System (Regulation O) (12 C.F.R. part 215). The Federal Deposit Insurance Corporation (F.D.I.C.) has jurisdiction over the Bank, Respondent * * *, and the subject matter of this proceeding.
   2. * * * is and was, at all times pertinent to this proceeding, a related interest of Respondent * * *, as that term is defined in Regulation O.
   3. (a) On December 14, 1983 and February 15, 1984, the Bank's board of directors renewed an extension of credit to * * * in the amount of $74,000. The loan was renewed with marginal and uncertain collateral and to a company with a weak financial condition. As a result, the renewals of the extension of credit involved more than a normal risk of repayment, in violation of section 215.4(a) of Regulation O (12 C.F.R. § 215.4(a)).
   (b) The Bank extended credit to Respondent * * * in the amount of $17,500, on August 13, 1984, without obtaining the approval of a majority of the Bank's board of directors as required by section 337.3(b) of F.D.I.C.'s Rules and Regulations (12 C.F.R. § 337.3(b)), in violation of section 215.4(b) of Regulations O (12 C.F.R. § 215.4(b)).
   4. On December 14, 1983 and May 16, 1984, the Bank's board of directors renewed extensions of credit to Respondent * * * in the amount of $45,000 and $105,000. The loans were renewed with uncertain and inadequate collateral and while in past due status. As a result, the renewals of the extensions of credit to Respondent * * * involved more than a normal risk of repayment, in violation of section 215.4(a) of Regulation O (12 C.F.R. § 215.4(a)).
   5. On September 17, 1984, the Bank renewed a line of credit to Respondent * * * and to * * * with an outstanding balance of $70,000, without the prior approval of the Bank's board of directors, as required by section 337.3(b) of F.D.I.C.'s Rules and Regulations, in violation of section 215.4(b) of Regulation O (12 C.F.R. § 215.4(b)).
   6. From October 12, 1983 to November 3, 1983, Director * * *'s demand deposit account number 7303765-7 at the Bank was overdrawn 20 days.
   7. From October 3, 1984 to October 5, 1984, Director * * * demand deposit account number 7300827-8 at the Bank was overdrawn in the amount of $89,287. From June 6, 1984 to June 11, 1984, Director * * * demand deposit account number 7300181-0 at the Bank was overdrawn 5 days. Customary service fees which had been assessed were reversed on June 15, 1984. From September 13, 1984 to September 16, 1984, demand deposit account number 7300181-0 at the Bank was overdrawn in an amount of $3,618, and was not charged the customary service fee for an overdrawn account.
   8. Respondent * * * demand deposit account number 7300006-9 at the Bank was overdrawn in excess of 5 days on 11 different occasions during the period December 6, 1983 to October 11, 1984. Respondent * * * demand deposit account number 7304498-4 at the Bank was overdrawn in excess of 5 days from February 24, 1984 to March 11, 1984.
   9. Respondent * * *'s demand deposit account number 7100106-9 at the Bank was overdrawn: 1) from October 21, 1983 to October 24, 1983; from November 3, 1983 to November 6, 1983; and from May 8, 1984 to May 10, 1984, without a customary service charge being assessed; and 2) from March 22, 1984 to March 29, 1984, in excess of 5 days.
{{4-1-90 p.A-931}}
   10. Respondent * * *'s demand deposit account number 7300031-7 at the Bank was overdrawn: 1) from February 9, 1984 to February 13, 1984, for $1,107 to $1,757, without a customary service charge being assessed; and 2) from February 27, 1984 to March 1, 1984, without a customary service charge being assessed.
   11. As a result of the actions described in paragraphs 6 through 10, the Bank paid overdrafts of Respondents * * *, * * *, * * *, * * *, and * * *, in violation of section 215.4(d) of Regulations O (12 C.F.R. § 215.4(d)).
   12. Despite the knowledge of Respondent * * * of violations of Regulations O reported to him by the F.D.I.C. as of October 22, 1983, he failed to take action to prevent a recurrence of the Regulation O violations specified in this Decision.
   13. As a result of the transactions described in paragraphs 3 through 11 above, Respondent * * * caused or allowed the Bank to extend credit with more than a normal risk of repayment, in violation of section 22(h) (1) of the Federal Reserve Act and section 215.4(a) of Regulation O; to extend credit without the prior approval of the Bank's board of directors, in violation of section 22(h) (2) of the Federal Reserve Act and section 215.4(d) of Regulation O and to pay overdrafts, in violation of section 22(h) (4) of the Federal Reserve Act and section 215.4(d) of Regulation O (12 U.S.C. §§ 375b(1), (2), and (4)) and 12 C.F.R. §§ 215.4(a), (b), and (d)).
   14. By virtue of the facts stated in paragraphs 3 through 13 above, Respondent * * * violated sections 22(h) (1), (2), and (4) of the Federal Reserve Act (12 U.S.C. §§ 375b(1), (2), and (4)); and section 215.4(a), (b), and (d) of Regulation O (12 C.F.R. §§ 215.4(a), (b), and (d)); and civil money penalties should be assessed against him under section 18(j) (3) of the Act (12 U.S.C. § 1828(j) (3).

RECOMMENDED ORDER TO PAY

   After taking into account the appropriateness of the penalty with respect to the financial resources and good faith of * * *; the gravity of the violations of this Respondent; and other such matters as justice may require, it is hereby ORDERED: that by reason of the transactions and violations set forth in paragraphs 2 through 11 above, a penalty of $2,500 be, and hereby is, assessed against * * *, pursuant to section 18(j) (3) of the Act (12 U.S.C. § 1828(j) (3)).
   Dated this 31st day of March, 1986.
/s/ Larry M. Miller
Administrative Law Judge
Office of Regional Chief
Administrative Law Judge
300 S. Wacker Drive
16th Floor
Chicago, Illinois 60606

FDIC-85-216K
RULING ON MOTION FOR
RECOMMENDED DEFAULT
JUDGMENT AGAINST * * * AND
RECOMMENDED DECISION AND
ORDER

   On February 4, 1986 Counsel for the F.D.I.C. filed the above motion, for failure to file an answer. Counsel cites 12 C.F.R. 308.12 and asks me to enter a Recommended Order of Default Judgment. They apparently ask for a recommended Order because 12 C.F.R. 308.07(b) (9) reads that an administrative law judge does not have the authority to rule on any motion resulting in a final determination of the merits of the proceedings.
   However, Section 308.06(d) of the cited Rules of Practice and Procedure of the F.D.I.C. provides that if a party does not file an Answer, the administrative law judge shall, without further notice to the party, find the facts alleged in the Notice of Hearing and file a recommended decision containing such findings and appropriate conclusions.
   The notice of Assessment of Civil Money Penalties Order to Pay and Notice of Hearing in this case issued on July 31, 1985 and it was served on Mr. * * * on August 16, 1985. The Notice reads that any Respondent who requests a hearing must file an answer to the charges within 20 days of the receipt of the Notice.
   On December 12, 1985, I issued a Notice of Pre-Hearing Conference that states that any Respondent who intends to file a request for hearing or answer, shall file it with me by December 16, 1985.
   At the pre-hearing conference of December 19, 1985, I told Mr. * * * that he had not yet filed a request for hearing or an answer and that if he wanted a hearing he {{4-1-90 p.A-932}}must file an answer to each of the allegations of the Notice by January 10, 1986.
   In spite of these repeated admonitions and extensions, Mr. * * * has still not filed an answer. Further, he has not responded to the proposed written stipulations in spite of my written order that he must do so. While this is not strictly germane to the Motion, it further shows a purposeful and recalcitrant course of conduct that calls for the imposition of this admittedly extreme penalty.
   Mr. * * * is representing himself as are all but one other Respondent. However, everyone else by this time has filed some response.
   Therefore, pursuant to 12 C.F.R. 308.06(d), I find that Respondent * * *, has waived his right to appear and contest the allegations of the Notice of Hearing and I find the facts alleged against him in the Notice of Assessment are true. The findings in this decision, of course, are not binding against any other Respondent. Attached is my proposed recommended decision.
   Dated this 31st day of March, 1986.
/s/ Larry M. Miller
Administrative Law Judge
Office of the Regional Chief
Administrative Law Judge
300 S. Wacker Drive
16th Floor
Chicago, Illinois 60606

ED&O Home | Search Form | Text Search | ED&O Help

Last Updated 6/6/2003 legal@fdic.gov