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   [5073] FDIC Docket No. FDIC-86-107k (10-16-86).

   Civil money penalties were assessed against several persons based on their purchase of control of a bank in violation of the Change in Bank Control Act, which requires that persons who acquire control of a bank provide the appropriate federal banking agency with 60 days prior written notice of the proposed acquisition. The Respondents purchased control of the bank without giving any prior notice.

   [.1] Change in Bank Control Act—Compliance
   The Change in Bank Control Act requires that persons who acquire control of a bank provide the appropriate federal banking agency, here, the FDIC, with 60 days prior written notice of the proposed acquisition.

   [.2] Civil Money Penalties—Notice of Assessment—Failure to Answer
   Failure to file an answer within 20 days after service of the notice of hearing constitutes a waiver of the right to appear and contest the allegations contained in the notice.

   [.3] Civil Money Penalties—Notice of Assessment—Failure to Answer
   An answer and a request for hearing serve independent functions in the administrative process. A submission that does not admit, deny, or otherwise respond to the charges set forth in the notice of hearing does not focus the case of those facts or other issues which are actually disputed. Unless a document responds to the specific allegations of the notice, it does not constitute an answer.

   [.4] Practice and Procedure—Hearings—Adequacy of Notice
   A Notice of Hearing that states that the hearing will commence 60 days from the date of receipt of a request for a hearing at a specified place, and that the exact time and location of the hearing will be determined by the Administrative {{4-1-90 p.A-976}}Law Judge, is sufficient notice of the time, place, and nature of the hearing as required by the FDIC Rules.

   [.5] Practice and Procedure—Answer—Time
   The FDIC Rules provide that a hearing on the Notice is to commence within 30 days after receipt of a request for hearing. Even though a notice of hearing states that the hearing would commence 60 days from the date of receipt of a request for such hearing, the failure to answer is a waiver of a hearing within 30 days, or at any other time.

   [.6] Practice and Procedure—Answer—Failure to File
   Failure to file an answer to a Notice of Hearing authorizes the entry of a default judgment.

In the Matter of * * * , individually and
as acquiring persons of * * * Bank
(Insured State Nonmember Bank)


DECISION AND ORDER
TO PAY CIVIL MONEY PENALTIES

FDIC-86-107k

   I. Introduction

   This proceeding, brought by the Federal Deposit Insurance Corporation ("FDIC"), seeks civil money penalties against * * * , * * *, * * *, * * *,1 * * *, * * * and * * * ("Respondents"), based upon their purchase of control of * * * Bank, * * * ("Bank"), in violation of section 7(j) of the Federal Deposit Insurance Act ("FDI Act"), commonly referred to as the Change in Bank Control Act (the "Control Act"), 12 U.S.C. § 1817(j).

   [.1] The Control Act requires that persons who acquire control of a bank provide the appropriate Federal banking agency, here, the FDIC, with 60 days prior written notice of the proposed acquisition. The Respondents in this case, acting as a group, purchased control of the Bank without giving any prior notice. Based upon their violation of this statutory provision, the Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice") in this proceeding seeks civil money penalties against each of the seven Respondents.

   [.2] The Board of Directors of the FDIC ("Board") has reviewed the record, the parties' motions, and the Recommended Decisions of the Administrative Law Judge ("ALJ"). The Board agrees with the ALJ that each of the six Respondents dealt with in this Decision and Order to Pay Civil Money Penalties failed to file an answer within the time required by section 308.06 of the FDIC Rules of Practice and Procedures ("FDIC Rules"), 12 C.F.R. § 308.06. Accordingly, pursuant to section 308.06(d) of the FDIC Rules, the Board finds that Respondents have waived their right to appear and contest the allegations contained in the Notice and finds the facts to be as alleged in the Notice.
   The Board finds that Respondents' willful violations of the Control Act warrant the imposition of the full amount of civil money penalties set forth in the Notice, as follows:

* * * $ 50,000
* * * $ 10,000
* * * $150,000
* * * $ 75,000
* * * $ 47,000
* * * $ 35,000

   II. Procedural History

   On May 14, 1986, the FDIC issued the Notice to Respondents pursuant to the Control Act. As evidenced by return receipts, Respondents * * * , * * * and * * * received their Notices on May 19, 1986; Respondent * * * received his Notice on May 20, 1986; and Respondent * * * received his Notice on May 21, 1986. Respondent * * * received his Notice on July 29, 1986. As stated in the Notice, pursuant to section 308.69(b) of the FDIC Rules, a written request for hearing may be filed within ten days of receipt of the Notice. Respondents * * * , * * * , * * * , and * * *2 made timely requests for a hear-


1 In connection with this same acquisition of control an assessment of $35,000 was made by the FDIC against * * *. Service of the Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing has not yet been made on Mr. * * *. Consequently, he is not involved in the instant Decision.

2 Mr. * * * sent a letter to the Executive Secretary of the FDIC on May 22, 1986, the day after he received the Notice. The FDIC enforcement staff argues in its Motion for Finding of Waiver of Hearing and/or Recommended Decision that Respondent * * * letter cannot reasonably be interpreted as a request for a hearing or as an answer. We (Continued)

{{4-1-90 p.A-977}}ing. Mr. * * *'s request for hearing was filed late, but given his failure to answer we need not decide whether the late filing of a request for hearing was a waiver of the right to a hearing.
   As stated in the Notice sent to each Respondent and pursuant to section 308.06(a) of the FDIC Rules, Respondents had twenty days from receipt of the Notice within which to file answers with the Executive Secretary of the FDIC.
   Answers were due from Respondents * * *, * * *, * * *, * * * and * * * no later than June 10, 1986. Respondent * * *'s answer was due on August 21, 1986. To date no answers have been filed by any of the Respondents.
   This Decision and the accompanying Order to Pay Civil Money Penalties deal with all six Respondents who have failed to answer. However, the ALJ entered three separate Recommended Decisions based on the six Respondents' failure to answer. To assure clarity, we summarize below the basis upon which each of those three Recommended Decisions was entered.
   On July 10, 1986, a month after the answers of Respondents * * * , * * * , * * * and * * * were due, the FDIC enforcement staff served on those Respondents and filed with the ALJ a Motion for Recommended Decisions. That motion sought a finding that * * * , * * * , * * * , and * * * failed to file answers within the time required by 12 C.F.R. § 308.06, and thus waived their right to appear and contest the allegations of the Notice.
   Respondents * * * and * * * each filed an Opposition to the Motion for Recommended Decisions ("Opposition Memoranda") and served them upon the FDIC on July 21, 1986 and July 23, 1986, respectively. The Opposition Memoranda contain insubstantial procedural arguments discussed below concerning those Respondents' refusal and/or failure to file an answer. The Opposition Memoranda were not accompanied by answers to the Notice. Respondents * * * and * * * neither responded to the Motion for Recommended Decisions nor filed answers to the Notice in response to the FDIC enforcement staff's July 10 motion. On July 14, 1986, the ALJ issued a Recommended Decision recommending entry of orders to pay against Respondents * * *, * * *, * * * and * * *.
   On August 8, 1986, the FDIC enforcement staff served on Respondent * * * and filed with the ALJ a Motion for Finding of Waiver of Hearing and/or Recommended Decision based upon Respondent * * *' failure to answer. Mr. * * * submitted a brief letter in response to the motion, but did not answer the Notice.3 On August 12, 1986, the ALJ issued a Recommended Decision recommending entry of an order to pay against Respondent * * *.
   Respondent * * *'s answer was due on August 21, 1986. When no answer was received, on September 8, 1986, the ALJ issued a Recommended Decision recommending entry of an order to pay against Respondent * * *.
   Each Recommended Decision found that the Respondents waived their right to appear and contest the allegations of the Notice by failing to file an answer.
   Each Respondent was notified that the ALJ's Recommended Decision against him had been submitted to the Board for final decision. Since that notice was given, none of the Respondents have sought leave to file late answers or made any further effort to excuse their failure to answer.

   III. Failure to Answer

   Section 308.06 of the FDIC Rules provides:

       Every party to a proceeding shall file an answer with the Executive Secretary within 20 days after service of the notice of hearing...(emphasis added).

2 Continued: conclude that this letter can fairly be read as a request for hearing. However, the Board finds that even if liberally construed, the letter does not constitute an answer as it does not specifically admit, deny or state that Respondent * * * lacks sufficient information to admit or deny each allegation set forth in the Notice, as required by 12 C.F.R. § 308.06(b).
   On May 30, 1986, two months before service of the Notice was made on * * * , he sent a letter to the Executive Secretary. This letter requested notice of the charges and requested a hearing. As with Respondent * * * letter, we find that, although Respondent * * *'s letter can be treated as a request for hearing, it does not constitute an answer within the meaning of 12 C.F.R. 308.06(b).

3 Mr. * * * letter is dated August 12, 1986. It appears unlikely that the letter was received by the ALJ prior to entry of the Recommended Decision. The Board has, however, considered that letter.
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The directive of this rule could not be more clear. An answer must be filed by every Respondent. Consistent with the Rule, the Notice of Hearing repeats that the obligation to file an answer falls on every Respondent. The Notice of Hearing states:
       Any Respondent who requests a hearing shall file an answer to the charges in the NOTICE OF ASSESSMENT within 20 days of receipt of the NOTICE OF HEARING in accordance with section 308.06 of the FDIC Rules...(emphasis added).

   [.3] As noted above, none of the Respondents filed an answer. An answer and a request for hearing serve independent functions in the administrative process. A submission which does not admit, deny or otherwise respond to the charges set forth in the Notice does not focus the case on those facts or other issues which are actually disputed. Unless a document responds to the specific allegations of the Notice it does not constitute an answer. 12 C.F.R. § 308.06(b). See C. Wright, The Law of Federal Courts § 66 (4th ed. 1983). No matter how liberally read, none of the papers filed by Respondents can be viewed as answers to the Notice.

   [.4] Respondents * * * and * * *4 argue that there were inadequacies in the Notice which excuse their failure to answer. Those arguments lack merit. We discuss each argument briefly. Respondents first argue that the Notice does not contain a Notice of Hearing as defined in section 308.05 of the FDIC Rules. This section provides that the Notice of Hearing "shall indicate the time, place, and nature of the hearing." Respondents assert that the Notice sent by the FDIC does not state the date, time, or place of the hearing. The language on the face of the Notice renders this argument untenable. The Notice of Hearing states that:

       if any Respondent requests a hearing with respect to the charges in the NOTICE OF ASSESSMENT, the hearing shall commence 60 days from the date of receipt of such request at * * * , * * *...The hearing will be held before an Administrative Law Judge to be appointed by the U.S. Office of Personnel Management pursuant to 5 U.S.C. § 3344. The exact time and location of the hearing will be determined by the Administrative Law Judge. (Emphasis added).
This Notice of Hearing is in full compliance with section 308.05.
   Respondents argue that the Notice served by the FDIC is vague and ambiguous because neither the Notice of Assessment, nor any part thereof, constitutes a Notice of Hearing. This argument is simply spurious. Page one of the Notice contains the title of the document in bold letters: NOTICE OF ASSESSMENT OF CIVIL MONEY PENALTIES, FINDINGS OF FACT AND CONCLUSIONS OF LAW, ORDER TO PAY, AND NOTICE OF HEARING (emphasis added). Page 8 of the Notice contains the bold heading: NOTICE OF HEARING. The Notice meets all the requirements of Section 308.05 of the FDIC Rules.

   [.5] Respondents next argue that the Executive Secretary failed to comply with section 308.81 of the FDIC Rules which provides that a hearing on the Notice is to commence within 30 days after receipt of a request for hearing. Respondent's argument fails on the facts since their own failure to answer was a waiver of a hearing within thirty days, or at any other time.
   Respondents' final argument is based purely on what is obviously a non-prejudicial typographical error. The Motion for Recommended Decision incorrectly states that the Notice to Respondents * * * , * * * and * * * was issued pursuant to 12 U.S.C. § 1818(i)(2). Of course, the Notice was issued pursuant to 12 U.S.C. § 1817(j)(1), and plainly so states in the Notice itself. Respondents were not misled or otherwise prejudiced by this simple typographical error. Indeed, Respondents' Opposition Memoranda do not even suggest that they do not understand the Motion for Recommended Decision to involve Respondents' failure to answer the Notice in this case. Correct citations and references to section 7(j) are found in the Notice of Assessment, Findings of Fact and Conclusions of Law, the Order to Pay, and the Notice of Hearing. Pages 1–6 of the Notice detail for Respondents the particular actions for which they are charged. Respondents were given ample notice of the charges and the authority under which these charges were being made. There can be no doubt that Respondents were charged with violations


4 The Opposition Memoranda filed by * * * and * * * are identical in all significant aspects and therefore we treat them as one response.
{{4-1-90 p.A-979}}of the Control Act. Further, the typographical error occurred in a document filed on July 10, 1986—a month after Respondents were required to have filed their answers. This document is of no relevance to the adequacy of the Notice received by the Respondents. The typographical error contained in the Motion for Recommended Decision did not prejudice Respondents and cannot excuse Respondents from filing an answer to the Notice.
   In sum, the six Respondents involved in this Decision have failed to answer the Notice, and their failure to answer is unexcused.

   IV. Default Judgment

   Section 308.06(d) of the FDIC Rules entitled "effect of failure to answer" provides:

       Failure of a party to file an answer required by this section within the time provided shall be deemed a waiver of the right to appear and contest the allegations of the notice of hearing and shall authorize the administrative law judge, without further notice to the party, to find the facts to be as alleged in the notice and to file with the Executive Secretary a recommended decision containing such findings and appropriate conclusions (emphasis added).

   [.6] In short, absent an answer, default judgment is to be entered. Section 308.06(d) of the FDIC Rules authorizes the administrative law judge to find the facts to be as alleged in the Notice and to file with the Executive Secretary a recommended decision containing such findings and appropriate conclusions. Those steps have been completed.

   V. Respondents' Violation of the Control
Act

   The Control Act requires a person seeking to acquire control of a state nonmember bank, directly or indirectly or through or in concert with one or more persons, to file a written notice of the proposed acquisition with the FDIC sixty days prior to the transfer.5 That notice must contain, among other things, detailed information regarding each acquiring person's background, material business activities, pertinent legal proceedings, and financial condition, as well as the terms and conditions of the acquisition. The FDIC is authorized to disapprove a proposed acquisition for any of the following reasons: (1) the proposed control would result in a monopoly; (2) the proposed control would lessen competition; (3) the financial condition of any acquiring person is such as might jeopardize the financial stability of the bank or prejudice the interests of the depositors of the bank; (4) the competence, experience, or integrity of any acquiring person or of any of the proposed management personnel is in question; or (5) the acquiring person neglects, fails, or refuses to furnish all the information required by the agency. 12 U.S.C. § 1818(j)(7). Willful violations of the Control Act carry civil penalties of $10,000 per day for each day the violation continues.
   Based on the findings set forth in the Notice, we find that Respondents * * * , * * * , * * * , * * * , * * * and * * * , individually and as acquiring persons of the Bank, willfully violated the Control Act (12 U.S.C. § 1817(j)(1)) and section 303.4 of the FDIC Rules (12 C.F.R. § 303.4) by failing to provide the FDIC with the required prior notice of their acquisition of control of the Bank. On or about August 7, 1985, each Respondent, acting directly or indirectly or through or in concert with one or more of the other Respondents, purchased 154,000 shares of the Bank's stock for a total of approximately $1,300,000 and acquired, as a group, over 51 percent of the outstanding stock of the Bank. Each Respondent in the action made purchases in the following amounts:


5 National Banks must make their Control Act filings with the Office of the Comptroller of the Currency. Members of the Federal Reserve system must make their filings with the Federal Reserve Board.
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Number of Approx. Amount Percent of
Shareholder Shares Purchased of Purchase Outstanding Shares
* * * 19,520 $ 164,778 6.5%
* * * 19,520 164,778 6.5%
* * * 19,520 164,778 6.5%
* * * 19,520 164,778 6.5%
* * * 28,200 238,050 9.4%
* * * 19,520 164,778 6.5%
* * * 28,200 238,050 9.4%
_______ ________ _____
154,000 $1,300,000 51.3%

No Notice of Acquisition of Control was filed with the FDIC sixty days prior to the group's August 7, 1985, purchase of control, as required by the Control Act (12 U.S.C. § 1817(j)(1)). Indeed, no notice under the Control Act had been filed as of the date the Notice was issued, May 14, 1986. One Respondent, * * * , did file some financial and biographical information with the FDIC on October 2, 1985, but even this belated information from Mr. * * * did not set forth all of the information required under the Control Act.
   On August 7, 1985, Respondent * * * was elected or appointed as an "advisory board member" of the Bank. On this same day, Messrs. * * * , * * * , * * * , * * * and * * * were elected or appointed to the Bank's board of directors, replacing five of the seven board members. The board's minutes of August 17, 1985, describe * * * as an "advisory board member." * * * was also placed on four of the board's six committees.
   Respondents have actually exercised control over Bank. That control has already exposed the Bank to a significant risk of loss. More specifically, since the August 7, 1985, change of control, Respondents have been responsible for numerous brokered deposits that appear to have been used to fund "substandard" loans.6 More specifically, once under Respondents' control the Bank began a rapid buildup of brokered deposits and out-of-territory loans. From August 13 to August 26, 1985, the Bank booked approximately thirty-two separate time certificates of deposit with the principal sum of $100,000 each, for a total of $3,200,000. These funds were solicited by and directed to the Bank by Respondent * * *. The brokered deposits were used to fund, among other things, seven credits made between August 13 and August 29, 1985, with disbursed balances totaling $961,000 and undisbursed loan proceeds totaling $422,000, as follows:

Borrower Date Originated Outstanding Undisbursed
* * * 8/29/85 $150,000 $150,000
* * * 8/14/85 200,000 18,000
* * * 8/15/85 150,000 -0-
* * * 8/23/85 46,000 254,000
* * * 8/23/85 15,000 -0-
* * * 8/23/85 200,000 -0-
* * * 8/13/85 200,000 -0-
_______ _______
TOTALS: $961,000 $422,000

   Eight credits booked by the Bank after August 7, 1985 (the seven listed above, plus an extension of credit to * * * , originated August 8, 1985, with $276,000 outstanding as of August 26, 1985, and $24,000 undisbursed as of August 26, 1985), are classified "substandard." Each of these loans was presented to the loan committee (which con-


6 Substandard loans are ones with a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and present a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
{{4-1-90 p.A-981}}sisted of three Respondents) by one or more of its members and was approved unanimously by that committee. In addition, all the loans, except one, were booked before loan documentation was fully completed on each credit.
   In sum, the acquisition of control of the Bank without providing notice to the FDIC of the proposed acquisition constitutes a clear violation by each Respondent of the Control Act and, having exercised that control, the Respondents have exposed the Bank to a significant risk of loss. All Respondents, save Respondent * * * , still hold Bank stock in continuing violation of the Control Act. As discussed more fully below, penalties should be imposed based upon Respondents' violation of the Control Act.

VI. Penalties

   As previously stated, the Control Act carries civil money penalties of up to $10,000 per day for each day during which the violation continues. Each Respondent's violation of the Control Act began on or about August 7, 1985. The fragmented information provided by Mr. * * * indicates that he surrendered his stock to Respondent * * * on December 18, 1985. Thus, Respondent * * * was in violation of the Control Act for at least 130 days. The maximum civil money penalty that could have been assessed for Respondent * * *' violation was $10,000 per day for a total of approximately $1,300,000. The materials submitted by Mr. * * * indicate problems regarding his competence and experience in banking, and his financial ability to support the purchase of Bank stock. Therefore, questions exist regarding whether his application for change of control would have been approved even if it had been timely made. Taking into account Respondent * * *' efforts to cooperate, his divestiture of Bank stock and his poor financial condition, a civil money penalty of $10,000 (to which we are limited by the Notice) is appropriate.
   As to the penalties assessed against Messrs. * * *, * * *, * * *, * * * and * * *, the record indicates that they continue to hold Bank stock in violation of section 7(j). Over a year has passed since they took control of the Bank on August 7, 1985, without filing the requisite notice and obtaining prior approval from the FDIC. Respondents * * *, * * * and * * * were all members of the Board of Directors; Respondent * * * was a member of the Advisory Board and brought large amounts of brokered deposits into the Bank. Mr. * * * was on four board committees; Mr. * * * was on three board committees. The transactions Respondents engaged in were substantial, and the Bank was jeopardized by the numerous substandard loans made by Respondents. Respondents * * * and * * * each purchased over $238,000 worth of Bank stock; Respondents * * *, * * * and * * * each purchased over $160,000 worth of Bank stock.
   The Order to Pay contained in the Notice states that in assessing the penalties the FDIC took into account the financial resources and the good faith of each Respondent, the gravity of the violations, and any data, views and arguments submitted by each Respondent. The statutory maximum penalty of $10,000 per day would have permitted the FDIC to impose penalties on Respondents * * *, * * *, * * *, * * * and * * * in excess of $3 million each. All of the available information indicates that the violations were willful, are continuing, and put the Bank at serious risk. Each of these five Respondents held significant positions on the Bank's board, advisory board or board committees.
   Despite an opportunity to do so, both before and after the Notice was served, none of these Respondents has provided any information indicating that otherwise appropriate penalties should be reduced based on the Respondents' financial condition or on any other basis. The largest of these penalties is less than that person's investment in the Bank's stock and less than 2.5% of the maximum that could have been assessed under the Control Act. The balance of these penalties are less than one-third of the investment these Respondents made in Bank's stock.
   Based on the foregoing findings, the amounts assessed in the Notice are fully justified and should be paid.

ORDER TO PAY CIVIL MONEY
PENALTIES

   The Board of the Federal Deposit Insurance Corporation, on the basis of the record in this proceeding, including the Adminis- {{4-1-90 p.A-982}}trative Law Judge's Recommended Decisions dated July 14, 1986, August 12, 1986, and September 8, 1986, adopts the Recommended Decisions of the Administrative Law Judge, incorporates them herein by reference and finds * * *, * * *, * * *, * * *, * * * and * * *, individually and as acquiring persons of * * * Bank * * * to be in violation of § 7(j) of the Federal Deposit Insurance Act, 12 U.S.C. § 1817(j), and accordingly,
   IT IS HEREBY ORDERED, the following penalties are assessed pursuant to § 7(j)(15) of the FDI Act, 12 U.S.C. § 1817(j)(15):

* * * $ 50,000
* * * $ 10,000
* * * $150,000
* * * $75,000
* * * $47,000
* * * $35,000.

   IT IS FURTHER ORDERED, that civil money penalties assessed against each of the named individuals shall not be paid directly or indirectly by the Bank, but shall be paid by the individual against whom the penalty is assessed. These amounts are to be paid within 60 days of the date of this Order.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 16th day of October, 1986.
/s/ Hoyle L. Robinson
Executive Secretary

FDIC-86-107k

RECOMMENDED DECISION

   On this 12th day of August, 1986, the Motion for Finding of Waiver of Hearing and/or Recommended Decision filed by the Federal Deposit Insurance Corporation came on for hearing. The Court considered the documents on file and the argument pertaining to the failure and/or refusal of Respondent * * * to file an answer as specified in Section 308.06 of the FDIC Rules of Practice and Procedures and page eight of the Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice"). Based thereon, and on all relevant considerations, the Court hereby finds that Respondent * * * has failed to file an answer within the time required by 12 C.F.R. § 308.70 of the FDIC Rules of Practice and Procedures. Pursuant to Section 308.06(d) of the FDIC Rules and Practice and Procedures the Court finds that the Respondent is deemed to have waived his right to appear and contest the allegations of the notice of hearing, and finds the facts to be as alleged in the Notice.
   This Recommended Decision will be filed with the Executive Secretary of the FDIC as provided by Section 308.06(d) of the FDIC Rules of Practice and Procedures.
   Signed and entered this 12th day of August, 1986.
/s/ Alan W. Heifetz
Chief Administrative Law Judge
U.S. Department of Housing
and Urban Development
451 7th Street, S.W., #2156 Washington,
D.C. 20410

FDIC-86-107k

RECOMMENDED DECISION

   On this 14th day of July, 1986, the Motion for Recommended Decisions filed by the Federal Deposit Insurance Corporation came on for hearing. The Court considered the documents on file and the argument pertaining to the failure and/or refusal of Respondents * * *, * * *, * * * and * * * to file an answer as specified in Section 308.06 of the FDIC Rules of Practice and Procedures and page eight of the Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice"). Based thereon, and on all relevant considerations, the Court hereby finds that Respondents * * *, * * *, * * * and * * * have failed to file an answer within the time required by 12 C.F.R. § 308.70 of the FDIC Rules of Practice and Procedures. Pursuant to Section 308.06(d) of the FDIC Rules of Practice and Procedures the Court finds that those Respondents are deemed to have waived their right to appear and contest the allegations of the notice of hearing, and finds the facts to be as alleged in the Notice.
   This Recommended Decision will be filed with the Executive Secretary of the FDIC as provided by Section 308.06(d) of the FDIC Rules of Practice and Procedures.
   Signed and entered this 14th day of July, 1986.
/s/ Alan W. Heifetz
Chief Administrative Law Judge
U.S. Department of Housing
and Urban Development
{{4-1-90 p.A-983}}
451 7th Street, S.W., #2156
Washington, D.C. 20410

FDIC-86-107k

RECOMMENDED DECISION

   On this 8th day of September, 1986, came on to be heard the Federal Deposit Insurance Corporation Notice of Motion and Motion for Recommended Decision and whereas the court having considered the arguments and exhibits herein pertaining to the failure and/or refusal of the Respondent * * * to file an answer as specified in Section 308.06 of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06) and page eight of the Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice") hereby finds that Respondent * * * has failed to file an answer within the time required by Section 308.06(a) of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06(a)). Pursuant to Section 308.06(d) of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06(d) the court finds that the Respondent is deemed to have waived his right to appear and contest the allegations of the notice of hearing and finds the facts to be as alleged in the Notice.
   The court hereby orders this Recommended Decision to be filed with the Executive Secretary of the FDIC as provided by Section 308.06(d) of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06(d)).
   Signed and entered this 8th day of September, 1986.
/s/ Alan W. Heifetz
Chief Administrative Law Judge
U.S. Department of Housing
and Urban Development
451 7th Street, S.W., #2156
Washington, D.C. 20410

NOTICE OF MOTION AND MOTION
FOR RECOMMENDED DECISION

FDIC-86-107k

NOTICE OF MOTION AND MOTION
FOR RECOMMENDED DECISION

   Now comes the Federal Deposit Insurance Corporation ("FDIC") in this its Notice of Motion for Recommended Decision against Respondent * * * pursuant to Sections 308.06(d) and 308.12 of the FDIC Rules of Practice and Procedures (12 C.F.R. §§ 308.06(d) and 308.12) and in support thereof and as factual grounds states the following:
I. Respondent's Failure to File an Answer Constitutes a Waiver of His Right to Appear in This Proceeding
   1. On May 14, 1986 the FDIC issued a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice") against the Respondent pursuant to Section 7(j) of the Federal Deposit Insurance Act (12 U.S.C. § 1817(j)) as evidenced by the attached "FDIC Exhibit A." Page one of the Notice bears a bold caption "NOTICE OF ASSESSMENT OF CIVIL MONEY PENALTIES." Page one bears a bold caption "FINDINGS OF FACT AND CONCLUSIONS OF LAW." Page six bears a bold caption "ORDER TO PAY." Page seven bears a bold caption "NOTICE OF HEARING."
   2. The Notice meets all the requirements placed upon the FDIC as specified in Section 308.79 of the FDIC Rules of Practice and Procedures. As specified in Section 308.79(a), the civil penalties were assessed by written notice which clearly states the amount of the penalty (Notice, p. 6) and the legal authority and grounds for assessment (Notice, pp. 1-6).
   3. On May 14, 1986, the Assistant Executive Secretary of the FDIC transmitted the Notice by certified mail with a return receipt requested to all Respondents herein, including but not limited to the attached letter to the Board of Directors, marked as "FDIC Exhibit B." On July 29, 1986, Respondent * * * was personally served the Notice and May 14, 1986 transmittal letter by the United States Marshals Service as evidenced by the "Process Receipt and Return" attached as "FDIC Exhibit C."
   4. As stated in the Assistant Executive Secretary's letter of May 14, 1986 transmitting the Notice and pursuant to Section 308.06(a) of the FDIC Rules of Practice and Procedures, Respondent * * * had twenty days from receipt of the Notice (July 29, 1986) within which to file his answer with the Executive Secretary. Section 308.06 provides:

       § 308.06 Answer.
    {{4-1-90 p.A-984}}
       (a) Filing. Every party to a proceeding shall file an answer with the Executive Secretary within 20 days after service of the notice of hearing upon the party afforded the hearing, unless the Board specifies a different filing period of not less than 10 days after service of the notice. For good cause shown, the Board, the Executive Secretary or the administrative law judge may permit filing of an answer after expiration of the filing period.
The center of page seven of the Notice bears the words "NOTICE OF HEARING." Page eight of the Notice states:
       Any Respondent who requests a hearing shall file an answer to the charges in the NOTICE OF ASSESSMENT within 20 days of receipt of the NOTICE OF HEARING in accordance with section 308.06 of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06).
   5. Respondent * * * has failed to file his answer. His answer was due no later than August 18, 1986. On August 29, 1986 Margaret M. Olsen, Deputy Executive Secretary of the FDIC, certified that there is no answer on file for Respondent as evidenced by the "Certificate" attached as "FDIC Exhibit D."
   6. The effect of a failure to answer is specifically addressed in Section 308.06(d) of the FDIC Rules of Practice and Procedures. Section 308.06 states in pertinent part:
       (d) Effect of failure to answer. Failure of a party to file an answer required by this section within the time provided shall be deemed a waiver of the right to appear and contest the allegations of the notice of hearing and shall authorize the administrative law judge, without further notice to the party, to find the facts to be as alleged in the notice and to file with the Executive Secretary a recommended decision containing such findings and appropriate conclusions.
   7. By virtue of Respondent * * *'s failure to answer the Respondent has waived his right to appear and contest the allegations of the Notice.
   8. The FDIC Rules of Practice and Procedures are equally applicable to the FDIC and to Respondent * * *. The purpose of these rules, similar to any administrative or judicial rules, is to establish "a level playing field" upon which the parties will conduct the administrative action. The administrative law process in this matter should and must be conducted by the impartial application of the procedural rules.
   THEREFORE, the FDIC respectfully requests the court to issue a Recommended Decision to the Executive Secretary pursuant to Section 308.06(d) of the FDIC Rules of Practice and Procedures by virtue of Respondent's failure to file an answer as specified in Section 308.06 of the FDIC Rules of Practice and Procedures.
Respectfully submitted,
Regional Counsel
Federal Deposit Insurance Corporation

NOTICE OF ASSESSMENT OF CIVIL
MONEY PENALTIES, FINDINGS OF
FACT AND CONCLUSIONS OF LAW,
ORDER TO PAY, AND NOTICE OF
HEARING

FDIC-86-107k

NOTICE OF ASSESSMENT OF CIVIL
MONEY PENALTIES

   The Federal Deposit Insurance Corporation ("FDIC") has determined that * * *, * * *, * * *, * * *, * * *, * * *, and * * * ("Respondents"), individually and as acquiring persons of * * * Bank * * * ("Bank"), have willfully violated section 7(j)(1) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. § 1817(j)(1)) and section 303.4 of the FDIC Rules and Regulations (12 C.F.R. § 303.4). The FDIC hereby issues this NOTICE OF ASSESSMENT OF CIVIL MONEY PENALTIES, FINDINGS OF FACT AND CONCLUSIONS OF LAW, ORDER TO PAY, AND NOTICE OF HEARING ("NOTICE OF ASSESSMENT") pursuant to the provisions of section 7(j)(15) of the Act (12 U.S.C. § 1817(j)(15)) and Part 308 of the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). In support thereof, the FDIC finds and concludes the following:

FINDINGS OF FACT AND
CONCLUSIONS OF LAW

   1. The Bank is a corporation existing and doing business under the laws of the State of * * * having its principal place of business in * * *. The Bank is, and has been at all times pertinent to this proceeding, a state-chartered bank insured by the FDIC but not a member of the Federal Reserve System, subject to the Act (12 U.S.C. § 1811-1831d) and the FDIC Rules and {{4-1-90 p.A-985}}Regulations (12 C.F.R. Chapter III). For purposes of section 7(j)(1) of the Act, the FDIC has been the "appropriate Federal banking agency" with respect to the Bank at all times pertinent to this proceeding. The FDIC has jurisdiction over the Bank, each Respondent, and the subject matter of this proceeding.
   2. Since it opened for business in 1983, the Bank has had only one class of authorized capital stock. From 1983 until August 7, 1985, 51.3 percent or 154,000 shares of its outstanding common stock was owned by * * * Bancorp, * * * ("* * * Bankcorp").
   3. On or about August 7, 1985, each Respondent, acting directly or indirectly or through or in concert with one or more of the other Respondents, purchased 154,000 shares of the Bank's stock from * * * Bancorp for an aggregate purchase price of approximately $1,300,000 and acquired as a group approximately 51 percent of the outstanding stock of the Bank in the following proportions:

Number of Percent of
Shareholder Shares Purchased Outstanding Shares
* * * 19,520 6.5%
* * * 19,520 6.5%
* * * 19,520 6.5%
* * * 19,520 6.5%
* * * 28,200 9.4%
* * * 19,520 6.5%
* * * 28,200 9.4%
_______ _____
154,000 51.3%

   4. Each Respondent had knowledge or had reason to know of the change in control notice and approval requirements of section 7(j) of the Act (12 U.S.C. § 1817(j)) prior to such acquisition of control on August 7, 1985.
   5. On May 30, 1985, the FDIC, as previously requested, mailed to Respondent * * *, a Notice of Acquisition of Control form and instructions in reference to the above-captioned bank.
   6. On a different Notice of Acquisition of Control form ("Notice") with regard to subject bank filed by a Mr. * * * on July 11, 1985, it was indicated that all correspondence regarding such Notice should be mailed in care of Mr. * * * at Mr. * * *, address and subsequent correspondence was, in fact, sent by the FDIC to Mr. * * * , as indicated, regarding such Notice of Acquisition of Control.
   7. No Notice of Acquisition of Control was filed with the FDIC prior to August 7, 1985, as required by section 7(j)(1) of the Act (12 U.S.C. § 1817(j)(1)), nor had any been filed as of February 24, 1986, although Respondent * * * filed financial and biographical information with the FDIC on October 2, 1985, after such information was requested from the Respondents.
   8. Neither the FDIC nor the State Banking Department were advised of the change in control prior to August 19, 1985.
   9. On August 7, 1985, Respondent * * * was elected or appointed as an "advisory board member" of the Bank.
   10. On August 7, 1985, Respondents * * *, * * *, * * *, * * * and * * * were elected or appointed to the Bank's board of directors, replacing five of the seven board members.
   11. Respondent * * * was never elected nor appointed an official director or advisory director. However, his name appears in the board's minutes of August 17, 1985, as an "advisory board member" and he has been placed on four of the board's six committees. The committee structure designated as of August 7, 1985, was as follows:
{{4-1-90 p.A-986}}

Executive Committee Loan Committee Audit Committee
* * * * * * * * *
* * * * * * * * *
* * * * * *
Asset and Liability Stock Option
Personnel Committee Investment Committee Committee
* * * * * * * * *
* * * * * * * * *
* * * Employee * * *
Representative * * *

   12. The Bank paid * * * a $4,000 monthly consulting fee for the month of June, July, and August, 1985.
   13. Since the August 7, 1985 change of control, the control group has caused damage to the Bank to the detriment of depositors. The Bank began a rapid buildup of brokered deposits and out-of-territory loans. The following specific actions indicate potential danger the Bank faces from the control group:
   (a) From the period August 13, 1985 to August 26, 1985, subject Bank booked approximately thirty-two (32) separate time certificates of deposit with the principal sum of $100,000 each, for a total of $3,200,000. These funds were solicited by and directed to the Bank by Respondent * * *.
   (b) The above-described brokered deposits were used to fund seven loans from August 13, 1985 to August 29, 1985, with disbursed balances totaling $961,000 and undisbursed loan proceeds totaling $422,000 as follows:

As of August 26, 1985

Borrower Date Originated Outstanding Undisbursed
* * * 8/29/85 150,000 150,000
* * * 8/14/85 200,000 18,000
* * * 8/15/85 150,000 -0-
* * * 8/23/85 46,000 254,000
* * * 8/23/85 15,000 -0-
* * * 8/23/85 200,000 -0-
* * * 8/13/85 200,000 -0-
_______ _______
TOTALS: 961,000 422,000

Eight credits booked by the Bank after August 7, 1985 (the seven listed above, plus an extension of credit to * * * originated August 8, 1985, with $276,000 outstanding as of August 26, 1985, and $24,000 undisbursed as of August 26, 1985), are liberal extensions of credit and are classified "Substandard."
   (c) Each of the loans listed above was presented to the loan committee by one or more of its members and approved unanimously by that committee. In addition, all the loans, with the exception of * * *, were booked before loan documentation was fully completed on each credit.
   14. Each Respondent acted through or in concert with one or more other persons in effecting the acquisitions described in paragraph 3 above.
   15. The acquisition of control described in paragraph 3 above constitutes a willful violation by each Respondent of section 7(j)(1) of the Act and section 303.4 of the FDIC Rules and Regulations, which require that the FDIC be furnished with prior notification of an intent to acquire control of a {{4-1-90 p.A-987}}state-chartered bank which is not a member of the Federal Reserve System.
   16. Despite repeated requests in meetings and correspondence, the Respondents, with the exception of * * *, have refused to send the FDIC individual financial information.

ORDER TO PAY

   After taking into account the appropriateness of each penalty with respect to the financial resources and the good faith of each Respondent, the gravity of the violations, and the data, views and arguments submitted by each Respondent, it is:
   ORDERED, that by reason of the facts set forth in paragraphs 3 through 27 above, a penalty of $50,000 be, and hereby is, assessed against Respondent * * *; a penalty of $10,000 be, and hereby is, assessed against Respondent * * *; a penalty of $150,000 be, and hereby is, assessed against Respondent * * *; a penalty of $35,000 be, and hereby is, assessed against Respondent * * *; a penalty of $75,000 be, and hereby is, assessed against Respondent * * *; a penalty of $47,000 be, and hereby is, assessed against Respondent * * *; and a penalty of $35,000 be, and hereby is, assessed against Respondent * * *, pursuant to section 7(j)(15) of the Act (12 U.S.C. § 1817(j)(15)).
   FURTHER ORDERED, that the effective date of this Order to Pay be, and hereby is, stayed with respect to each Respondent until ten days after the date of receipt of the NOTICE OF ASSESSMENT by each Respondent, during which time the Respondents may each request a hearing pursuant to section 308.79 of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.79). Any such request for a hearing must be filed in writing with the Executive Secretary, Federal Deposit Insurance Corporation, 550 17th Street, N.W., Washington, D.C. 20429. If any Respondent fails to file a request for a hearing, the penalty assessed against each Respondent, pursuant to this ORDER TO PAY, shall be paid within 60 days of the date of issuance of this NOTICE OF ASSESSMENT.

NOTICE OF HEARING

   FURTHER ORDERED, that if any Respondent requests a hearing with respect to the changes in the NOTICE OF ASSESSMENT, the hearing shall commence 60 days from the date of receipt of such request at * * *. The hearing will be conducted in accordance with the provisions of the Act (12 U.S.C. §§ 1811-1831d), the Administrative Procedure Act (5 U.S.C. §§ 551–559), and the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). The hearing will be held before an Administrative Law Judge to be appointed by the U.S. Office of Personnel Management pursuant to 5 U.S.C. § 3344. The exact time and location of the hearing will be determined by the Administrative Law Judge.
   Any Respondent who requests a hearing shall file an answer to the charges in the NOTICE OF ASSESSMENT within 20 days of receipt of the NOTICE OF HEARING in accordance with section 308.06 of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06).
   Originals of all papers filed in this proceeding shall be served upon the Office of the Executive Secretary, Washington, D.C. 20429. Copies of all papers filed in this proceeding shall be served upon the Legal Division, Compliance and Enforcement Section, Washington, D.C. 20429 and upon the Regional Counsel, Bank Supervision, for the Regional Office in which the home office of the Bank is located.
   By direction of the Board of Review, pursuant to delegated authority.
   Dated at Washington, D.C., this 14th day of May, 1986.
/s/ Janet M. Reddish
Assistant Executive Secretary

CERTIFICATE

Recommended Decision

   I, Margaret M. Olsen, hereby certify that I am Deputy Executive Secretary, Federal Deposit Insurance Corporation, and as such that I am custodian of its official records. I hereby certify that I have reviewed the official record maintained in connection with the civil money penalty proceedings entitled * * *, et al., * * * Bank * * *, FDIC-86-107k. There is no Answer by * * * contained in the records.
   Dated: August 29, 1986.
/s/ Margaret M. Olson
Deputy Executive Secretary
   FDIC Exhibit D
{{4-1-90 p.A-988}}
   On this ____, day of ____, 1986 came on to be heard the Federal Deposit Insurance Corporation Motion for Recommended Decision and whereas the court having considered the arguments and exhibits herein pertaining to the failure and/or refusal of the Respondent * * * to file an answer as specified in Section 308.06 of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06) and page eight of the Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice") hereby finds that Respondent * * * has failed to file an answer within the time required by Section 308.06(a) of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06(a)). Pursuant to Section 308.06(d) of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06(d)) the court finds that the Respondent is deemed to have waived his right to appear and contest the allegations of the notice of hearing and find the facts to be as alleged in the Notice.
   The court hereby orders this Recommended Decision to be filed with the Executive Secretary of the FDIC as provided by Section 308.06(d) of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06(d)).
   Signed and entered this ____ day of ____, 1986.
Allan W. Heifetz
Administrative Law Judge

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