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FDIC Enforcement Decisions and Orders |
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Civil money penalty assessed against a person who participated in the conduct of the affairs of a bank, but who was not an officer, director, employee, or agent of the bank, for engaging in conduct which resulted in substantial financial loss to the bank, evidencing his willful or continuing disregard for the safety and soundness of the bank.
[.1] Lending and Collection Policy and ProceduresUnsafe or Unsound PracticesAdequacy of Documentation
[.2] DepositsBrokeredPremature Withdrawal of Certificates of Deposit Penalties
[.3] Change in Bank Control ActAcquiring Person
[.4] Participants in Conduct of AffairsActual Authority
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[.6] Participants in Conduct of AffairsDuty of Care
[.7] Participants in Conduct of AffairsRemoval No Defense
[.8] Participants in Conduct of AffairsProhibition
[.9] Civil Money PenaltiesPartiesParticipant in Bank Affairs
[.10] Civil Money PenaltiesDefensesReliance on Others
[.11] Civil Money PenaltiesAmount of PenaltyStatutory Standard
In the Matter of * * *, individually, as
I. INTRODUCTION
This proceeding is a consolidation of three separate actions brought by the Federal Deposit Insurance Corporation ("FDIC"): a civil money penalty action against * * *, individually and as an acquiring party and * * * ("Respondent") individually and as a participant in the acquisition of * * * Bank ("* * * Bank"), and * * * Bank ("* * * Bank") (collectively referred to as the "Banks"), pursuant to section 7(j)(15) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1817(j)(15), for knowing violations of the Change in Bank Control Act ("CBCA"); a second civil money penalty action against * * *, Respondent * * *, and * * *, president of * * * Bank at all times pertinent to this proceeding until October 3, 1984, pursuant to section 18(j)(3) of the FDI Act, 12 U.S.C. § 1828(j)(3), for alleged violations of section 22(h) of the Federal Reserve Act, 12 U.S.C. § 375(b), and Regu-
{{4-1-90 p.A-996}}lation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 215 ("Reg. O"); and a removal and prohibition action against * * *, as a director and officer, and Respondent * * *, as a participant in the conduct of the affairs, of the Banks pursuant to section 8(e)(1) and (2) of the FDI Act, 12 U.S.C. § 1818(e)(1) and (2).
II. STATEMENT OF THE CASE1
Respondent * * * was hired in 1981 by Mr. * * * to "work out" his existing tax problems and, thereafter, to manage his tax affairs (Tr. p. 43031). Respondent carried out this charge with the purchase in mid- 1984 of * * * Bank and * * * Bank as vehicles for creating tax deductions for * * * (Tr. p. 438, 449). * * * located the Banks, negotiated the purchase transactions, corresponded with the FDIC regarding CBCA requirements, filed the Notices of Acquisition of Control ("Control Notices") for * * * (Tr. p. 438-44; 446-49) and then installed himself as de facto manager of the Banks.
A. Facts Related to Charges of Violations of
In mid-1984, * * * acquired more than 10 percent of the stock of both * * * Bank and * * * Bank. Prior to the purchases, and pursuant to the requirements of the CBCA, Control Notices for both Banks were filed with the FDIC on behalf of Mr. * * *. Although both Control Notices were signed by Mr. * * *, they were prepared by his personal accountant and tax planner, * * *. The Control Notice for acquisition of * * * Bank stated that Mr. * * * would purchase that Bank's stock with cash raised from the liquidation of long term real estate contracts. The Control Notice for acquisition of * * * Bank stated that the purchase would be with cash and a contract of sale, and that no indebtedness would be incurred as part of the purchase.
B. Facts Supporting Charges of Violations of
[.1] The second civil money penalty action against Respondent * * * is based on violations of Reg. O resulting from the four, 90-day, unsecured loans he arranged to be made by * * * Bank to his shell corporations. Contrary to normal and prudent banking practices, each loan had poor or no loan documentation, e.g., there were no financial statements at the Bank on the named obligors. The loans also contravened * * * Bank's formal loan policies in that they were unsecured, did not receive the required approval of the Bank's board of directors prior to disbursement, were made to out-of-territory corporations without explanation, and were used for purposes different from those documented in the Bank's files. Lastly, the loans were not repaid on a timely basis and, in fact, were never repaid by the named obligors, i.e., Respondent * * *, shell corporations, or by Respondent * * *.
[.2] The practices and conduct engaged in by Respondent * * * also undermined the financial stability of the Banks. For example, he arranged the loan agreements used to purchase * * * Bank stock and made the unauthorized draws on Mr. * * *' line of credit in order to raise capital for the purchase of * * * Bank. The transactions not only violated the CBCA and Reg. O, they also constituted unsafe and unsound banking practices in that * * * Bank's assets were used to purchase its own stock. Respondent * * * also arranged for and forced the Banks to take a large volume of brokered deposits in the form of one year
{{4-1-90 p.A-998}}certificates of deposit ("CD") in direct contravention of the policies of both Banks' boards of directors. These deposits subjected the Banks to above normal risk since this one year funding source was used to make seven year loans with no prepayment penalties for premature withdrawal of the deposits and with a fixed interest rate for the loans only during their first year.
D. Administrative Law Judge's Recom-
The ALJ adopted all but six of FDIC enforcement counsel's Proposed Findings of Fact. However, he found against the FDIC on each of the substantive violations and the remedies sought against Respondent. The ALJ's decision is based primarily on his conclusion that as a matter of law the Respondent was not a person participating in the conduct of the affairs of the Banks.
III. DISCUSSION
The Board has thoroughly reviewed the entire record herein and agrees that the Findings of Fact proposed by FDIC enforcement counsel and adopted by the ALJ are supported by substantial evidence on the record as a whole. Therefore, the Board also adopts the Findings of Fact adopted by the ALJ. In addition, as specifically discussed below, the Board finds that the six Proposed Findings of Fact rejected by the ALJ are also supported by the record and adopts those Findings.2 The Board, as discussed below, also modifies certain other findings or comments made by the ALJ in his discussion of the Findings of Fact.3 However, based on our review of the factual record in this proceeding, the Board cannot agree with many of the ALJ's conclusions of law or his Recommended Decision and declines to adopt those conclusions and that decision for the reasons set forth herein.
A. No Penalty Can Be Assessed Against Re-
FDIC enforcement counsel maintained that Respondent * * * violated the CBCA by virtue of misrepresentations in and omissions from the Control Notices for * * * Bank and * * * Bank and in correspondence with the FDIC. It is undisputed by the parties, and the ALJ found, that Respondent * * * was advised that approval of the two acquisitions was "contingent upon the accuracy of the information furnished in the notice of acquisition and that the FDIC must be notified in writing of any changes in the conditions of the transaction prior to its consummation." (R.D. at 3.) The ALJ further found that Respondent * * * rejected an opportunity to amend the * * * Bank Control Notice after being notified by the FDIC that it had been informed by the selling parties that borrowed funds would be used in the acquisition of * * * Bank. (R.D. at 3.) Respondent * * * responded to the FDIC, in writing, indicating that no changes in the financing had been made. (R.D. at 3.) The ALJ also found that the information submitted in the Control Notice for * * * Bank was incorrect at the time it was filed. (R.D. at 9.) However, the ALJ concludes that no penalty should be assessed against Respondent * * * for violation of the CBCA because "Mr. * * * was
[.3] The evidence reflects that Respondent * * * was not "directly or indirectly or through or in concert with one or more other persons," and "acquiring person" within the meaning of the CBCA. FDIC enforcement counsel maintains that jurisdiction over Respondent * * * is obtained under section 7(j)(15) of the FDI Act (12 U.S.C. § 1817(j)(15)) which refers to "any person who willfully violates any provision of this subsection", rather than to "an acquiring person." Despite this distinction in terminology, a careful analysis of the statute reflects that only "acquiring persons" have an obligation to comply with and can therefore violate the operative provisions of subsection (j). Thus, unless Respondent * * * were determined to be an acquiring person, he cannot be deemed to have violated section 7(j) of the FDI Act. The more general language of section 7(j)(15) merely establishes the penalty for violations and does not overcome this defect. This conclusion is in no way intended to condone Respondent * * *' actions. It merely recognizes that the statute as currently written does not enable the Board to take action under the CBCA against persons who are not "acquiring persons." Because we conclude that Respondent * * * could not on the present facts be held to have violated section 7(j), the Board finds that no penalty can be assessed against him.
B. Removal Under Section 8(e)(2) is Appro-
1. Respondent Participated In the Conduct of the Affairs of the Banks.
a. Legislative History of Section 8(e)(2).
It is clear from the legislative history of section 8(e) of the FDI Act that in granting prohibitory powers to the bank regulatory agencies Congress was providing a mechanismmore finely tuned than the already existing power to terminate insuranceto pin-point and eradicate insider abuse. Congress was concerned with the overall health of the nation's financial system and the banking industry. The FDI Act was intended to provide protection for the public, whose financial well-being rests upon the integrity of the banking industry. The amendments to the FDI Act which became section 8(e) provided an additional remedy for the regulatory authorities to use in combatting bank abuse. The protective and remedial nature of the FDI Act compels a reading of the statute with its purpose and intent clearly in mind.
b. Actual Authority is Not a Prerequisite
[.4] In finding that Respondent * * * was not a person participating in the conduct of the affairs of the Banks, the ALJ's Recommended Decision concluded that Respondent * * * had no actual "authority to make decisions or issue orders and no one at the bank was under any obligation to enforce any decisions made by him or obey any of his orders" (R.D. at 16).6 The ALJ apparently believed that "formal" or "official" authority is the prerequisite for a person to be participating in the conduct of the affairs of a bank. However, the ALJ completely ignores the possibility of a person acting with inherent authority or in excess of actual authority.7 With this oversight, the ALJ erroneously interprets Section 8(e).
[.5] There is no great mystery as to the source of Respondent * * *' authority. He was the alter ego of the majority shareholder and chairman of the Banks, Mr. * * *. Compared with this role, his consultancy was inconsequential. Mr. * * * was Respondent * * *' power base as clearly as if
c. Respondent's Active Management of the
[.6] Respondent * * * was Mr. * * *' "trusted aide." He was initially entrusted with the job of tax planning for Mr. * * *. But the relationship only begins there because the vehicle used by Respondent * * * to resolve Mr. * * *' tax problem was the manipulation of two banks owned by Mr. * * *. Respondent * * *' activities failed to take into account the fact that persons involved in banking are held to a higher duty of care than ordinary businessmen. See, Briggs v. Spaulding, 141 U.S. 132 (1891). Ignorance of banking law, regulations or practice is not a defense to activity that violates those laws, regulations or practices. Because of banking's public trust nature, violations of laws and regulations even unwittingby inexperienced bankers cannot be excused.
2. Substantial Financial Loss or Other
On May, 4, 1984, * * * Bank and * * * Bank entered into transactions involving CDs issued to Respondent * * * as president of * * * and extensions of credit to * * * secured by the CDs. * * * Bank extended credit to * * * in the amount of $900,000 secured by ten-year9 CDs in the amounts of $400,000 and $500,000 at 11.5% interest. The * * * Bank transaction involved a one million dollar loan and two five-year CDs totaling an equivalent amount. * * * Bank received a loan origination fee of $100,000 from Mr. * * * in connection with the loan.
a. Payment of Loss By A Non-Obligor
The ALJ disagrees with the assertion of FDIC enforcement counsel that Respondent * * *' activities led to substantial financial losses with respect to the four large loan transactions at * * * Bank, the advances under a line of credit granted by * * * Bank to * * *, the payments of Respondent * * *' fees by * * * Bank and the failure of * * * Bank to assess and collect the early withdrawal penalty. He places great reliance on the fact that these monies were ultimately paid to the Bank by Mr. * * * (R.D. at 17). This reliance is misplaced. The ALJ's conclusion that "the fact that the loans were repaid by someone other than the stated obligor only indicates that the stated obligor and the real obligor were not the same party" ignores the risk such an arrangement presents for a bank. The ALJ confuses the moral obligation Mr. * * * may have had as the beneficiary of the loans or advances with a binding legal obligation to repay them.
[.7] For purposes of section 8(e)(2) of the FDI Act, substantial financial loss is not eliminated by the wholly fortuitous circumstances of repayment by a party with no legal obligation to do so although the overall effect of the loss is mitigated. The purpose of the removal statute would be substantially weakened if a respondent could
b. Respondent's Conduct Led to Other
In addition to the losses at * * * Bank discussed at pp. 2324, supra, and the losses related to the four loans at * * * Bank discussed above, the record reflects and the Board finds that Respondent * * *' activities caused substantial financial loss in connection with several other transactions.
3. A Willful or Continuing Disregard for
[.8] Under section 8(e)(2), an individual whose conduct has evidenced a willful or continuing disregard for a bank's safety or soundness, as well as "unfitness to participate in the conduct of the affairs of such insured bank" may be prohibited from further participation in the affairs of a bank.
Respondent * * * himself admits that his consultancy was "two-fold" (Tr. p. 536) with obligations to the Banks and to Mr. * * *. The record reflects that Respondent * * * tenure at the Banks was marked by a singleminded dedication to the tax planning and personal financial needs of his principal and his treatment of the Banks and their funds as a vehicle for the achievement of the tax and personal financial goals of Mr. * * *. The result of these creative financial planning efforts was a consistent, total disregard for the financial condition of the Banks.
b. The Record Evidences Respondent's-
The specific transactions which the Board finds actually evidence a willful disregard and a continuing disregard by Respondent * * * are summarized below.14 Respondent * * * knew at the time the Control Notice for * * * Bank was filed that Mr. * * * had borrowed money from * * * Bank to purchase shares in * * * Bank. (R.D. at 9.) The failure of Respondent * * * knowingly to file an accurate Control Notice evidences willful disregard, as does the arrangement for the four loans from * * * Bank that were part of the deceptive scheme to acquire the Bank. Respondent * * * disregarded prudent lending practices in causing those loans to be made without an established means of repayment, without obtaining basic loan documentation and admittedly in contravention of state lending limitations.15 Furthermore, Respondent * * * displayed this same indifference in arranging brokered deposit transactions in violation of established bank policies, without sufficient risk investigation or analysis and with incomplete documentation. The Respondent's willingness to accept fees from * * * Bank for services not rendered to the Bank demonstrates his willful disregard for the financial well-being of that Bank.
C. Assessment of the Civil Money Penalty
[.9] Section 22(h) of the Federal Reserve Act, 12 U.S.C. § 375(b), and Reg. O of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 215, promulgated thereunder, are made applicable to insured state nonmember banks by section 18(j)(2) of the FDI Act, 12 U.S.C. § 1828(j)(2), and section 337.3 of the FDIC Rules and Regulations, 12 C.F.R. § 337.3. Significantly, section 18(j)(3)(A) of the FDI Act, 12 U.S.C. § 1828(j)(3)(A), also extends the scope of coverage of Reg. O to bank employees, agents or any other person participating in the affairs of a nonmember insured state bank. Violations of Reg. O are punishable under section 18(j)(3)(A) of the FDI Act, 12 U.S.C. § 1828(j)(3)(A), which gives the bank regulatory agencies broad civil money penalty assessment authority because of the high degree of Congressional concern with insider abuse. This section provides in pertinent part:
[.10] Moreover, it is clear from the legislative history of section 22(h) of the Federal Reserve Act, 12 U.S.C. § 375(b),17 and the case law that a showing of willful intent is not necessary to establish a violation. The defense that one's conduct was merely misguided or was based upon the representations of others does not provide an exemption from the assessment of a civil money penalty because of the affirmative duty to make a reasonable inquiry. 765 F.2d at 576-78. Nor does an untainted motivation excuse a violation of the regulation. Rather, the state of mind of a violator is merely one factor to be taken into account in determining the appropriateness of the fine under section 18(j)(3)(B) of the FDI Act, 12 U.S.C. § 1828(j)(3)(B). As stated by the court in Fitzpatrick, "it is clear that good faith goes only to the amount of the penalty, not...to its presence or absence." 765 F.2d at 578.
1. Respondent Violated Reg. O.
The ALJ concluded that the facts support a violation of Reg. O and states that "an argument could be made that Mr. * * * was aiding or abetting the violation by Mr. * * *" (R.D. at 19). He nonetheless concludes that no civil money penalty can be assessed against Respondent * * * because he "was not himself an officer, director, employee, agent or other person participating in the conduct of the affairs of either bank." (R.D. at 19.) That conclusion, of course, is pivotal. For the reasons discussed in Section III.B.1, supra, the Board disagrees with the ALJ and concludes that Respondent * * * is a person participating in the conduct of the affairs of the Banks within the meaning of section 18(j) of the FDI Act, 12 U.S.C. § 1828(j). The Board further concludes, in accordance with the findings of fact made by the ALJ, that Respondent * * * orchestrated the making of four loans by * * * Bank to four companies * * *, * * *, * * * and * * *of which Respondent * * * was an officer. Each of these loans was made for the direct benefit of Mr. * * *,18 was made on an unsecured basis (F.F. Nos. 65, 68, 71 and 74) without sufficient information to judge the creditworthiness of the borrowers (see F.F. Nos. 78 and 81), was made without identification of a means for repayment (see F.F. No. 78), and was made in contravention of the * * * Bank's loan policies and procedures in effect at the time (see F.F. No. 89). Thus, these loans were made on terms more favorable than terms applicable to non-insiders and presented a more than normal risk of repayment, in violation of section 215.4(a)(2) of Reg. O, 12 C.F.R. § 215.4(a)(2).
2. The Proposed Civil Money Penalty is
[.11] Section 18(j)(3)(A) provides for the imposition of a civil money penalty of up to $1,000 per day for each day a violation of Reg. O exists. In assessing a penalty the FDIC is required by section 18(j)(3)(B) to take into account a number of factors including the good faith of the person involved, the gravity of the violations, financial resources of the person involved and other matters as justice may require. Given the purpose and nature of the loans, and the violations of * * * Bank's own policies which they entailed, the Board must conclude that Respondent * * * did not act in good faith with respect to these loans. Further, insider lending violations are very serious violations and present severe financial risks.
ORDER TO PAY CIVIL MONEY
ORDER OF PROHIBITION FROM
The Board of the Federal Deposit Insurance Corporation, having considered the
RECOMMENDED DECISION
FDIC-85-25e
FDIC-85-112k
FDIC-85-113k
This hearing is a consolidation of three different Administrative actions. One of these, a "notice of intention to remove from office and/or prohibit from participation" (FDIC-85-25e) seeks to prohibit the respondent, * * *, from participating in the conduct of the affairs of any bank insured by the Federal Deposit Corporation. Another administrative action, "Notice of Assessment of Civil Money Penalties and Order to Pay" (FDIC-85-112k) seeks to assess a penalty of $65,000 against Mr. * * * and to order him to pay such fine. The third administrative action, another "Notice of Assessment of Civil Money Penalties and Order to Pay" (FDIC-85-113k) seeks to assess a separate penalty of $10,000 against Mr. * * * and to order him to pay such penalty. Originally, each of these actions involved other parties who have been dismissed as parties due to the fact that they had reached a settlement with the FDIC, the details of which are unknown to the undersigned Administrative Law Judge. Because of such settlements, the only party remaining is * * * who has requested a hearing.
ISSUES
The issues are whether * * * should be prohibited from participating in the affairs of any bank insured by the FDIC without the FDIC's written permission under the provisions of Section 8(e) of the Federal Deposit Insurance Act (12 USC Section 1818(e)); whether a civil money penalty should be assessed against * * * pursuant to Section 7(j)(15) of the Federal Deposit Insurance Act (12 USC Section 1817(j)(15)); and whether a civil money penalty should be assessed against * * * pursuant to Section 18(j)(3) of the Federal Deposit Insurance Act (12 USC Section 1828(j)(3)).
APPLICABLE LAW
Section 8(e) of the Federal Deposit Insurance Act provides, in relevant part, that whenever any person participating in the
{{4-1-90 p.A-1011}}conduct of the affairs of an insured bank, by conduct or practice with respect to such bank which resulted in substantial financial loss or other damage, has evidenced either his personal dishonesty or willful and continuing disregard for the safety and soundness and, in addition, has evidenced his unfitness to participate in the conduct in the affairs of such insured bank, the agency may serve upon such person, a written notice of its intention to prohibit his further participation in any manner in the conduct of the affairs of the bank.
SUMMARY OF THE EVIDENCE
In its brief, the Federal Deposit Insurance Corporation offered several proposed findings of fact and with each finding of fact is a reference to the place in the record which contains the evidence to support each finding of fact. In his brief, Mr. * * *' attorney submitted a much shorter list of proposed findings of facts and conclusion of law. Since the FDIC's proposed findings of fact are more detailed and are, with a few exceptions found to be accurate, the undersigned hereby adopts the FDIC's proposed findings of fact as the findings of fact in this decision, except those proposed findings of fact that are inconsistent with the discussion in the remainder of this decision. As stated in a more condensed, simple form, these facts indicate that Mr. * * * assisted * * * in the filing of a Notice of Acquisition for * * * Bank with the FDIC which the FDIC received on February 3, 1984. The Notice of Acquisition stated that no borrowed funds were being used to purchase the bank and that the funds to buy the bank would be obtained by liquidation of real estate interests by Mr. * * *. The Notice of Acquisition form, itself, and subsequent letters to Mr. * * * from the FDIC advised him that approval of the acquisition was contingent upon the accuracy of the information furnished on the Notice of Acquisition and that the FDIC must be notified in writing of any changes in the conditions of the transaction prior to its consummation. After notifying Mr. * * * that it had information from the selling parties that borrowed funds would be used in the acquisition of * * * Bank * * * , Mr. * * * informed the FDIC, in writing, that no changes in the method in financing had been made. The change in the ownership of the bank occurred on May 4, 1984. Over the period from June 19, 1984 to June 22, 1984, * * * Bank * * * extended unsecured credit to four corporations. Mr. * * * signed the notes for each of these corporations as a corporate officer of the respective corporations. The total of the four loans was $560,123.71. The period the loans were made for was a 90-day period ending on June 17, 1984. There is no supporting credit information in the bank's records and no prior approval by the Board of Directors. The proceeds of the loans were dispersed to the parties who had sold controlling interests of the * * * Bank * * * to Mr. * * *. The FDIC argues that this series of transactions, in fact, presented Mr. * * * as indirectly borrowing money from * * * Bank
{{4-1-90 p.A-1012}}* * * to finance a major portion of his purchase of controlling interest in the bank. The FDIC argues that this is contrary to representations Mr. * * * had made over his signature in the Notice of Acquisition, as well as the representations made by Mr. * * * in his letters to the FDIC.
EVALUATION OF THE EVIDENCE
From the FDIC's point of view, this series of events involved, if not actual loss to the banks, then at least a significant risk of loss. Perhaps the most significant risk came from the fact that both banks were loaning large sums of money with no information contained in either bank's records about the borrowers to show that there was reasonable expectation that the loans would be paid back. Although several loans were secured by Certificates of Deposit, the maturity of the loans were after the maturity date of the Certificates of Deposit. If the money, represented by Certificates of Deposit, was withdrawn at maturity, the bank would be in a very precarious position. Also, the fact that Mr. * * * borrowed money from * * * Bank to finance a portion of the purchase of both banks obviously put * * * Bank in a more risky position than had Mr. * * * paid for the bank with his own money, or had he at least borrowed the money from a different financial institution. Many of the transactions were for the benefit of Mr. * * *, who was an insider and, as such, received preferential treatment. Although it appears sufficiently clear that many of the transactions in which Mr. * * * was involved created significant risk of loss to the bank, it is not so clear that Mr. * * * had any special duty toward the bank to reduce the risk.
FINDINGS OF FACTS
The undersigned Federal Administrative Law Judge adopts as his Findings of Facts, most of the proposed Findings of Facts contained in the FDIC's brief. These proposed Findings of Fact are attached as an appendix to this decision. However, he notes the following exceptions and comments: With regard to proposed Finding of Fact number six, the undersigned is not convinced that the witness * * * would have knowledge of what the understanding of the entire Board of Directors was with regard to the nature of Mr. * * * services. She would have knowledge of only her own understanding. In any event, the agreement (Exhibit 79) speaks for itself with regard to what the nature of Mr. * * * services would be. The same comments are made with regard to proposed Finding of Fact number 8, regarding Mr. * * *'s testimony with regard to Mr. * * *' contract with the * * *'s Bank (Exhibit 83), except that Mr. * * *' testimony does furnish some clarification regarding what the terms contained in the document mean. With regard to proposed Finding of Fact Number 12, Mrs. * * *' testimony indicated that Mr. * * * requested that he be contacted about all loans only during his tenure as acting president "until another president was brought into the bank." (page 338 of the transcript). Proposed Finding of Fact number 16 is not really appropriate as a finding of fact and is not being accepted as a finding of fact. Concluding that Mr. * * *'s "ran the show" is similar to concluding that he "participated in the conduct of the affairs of the bank." This would be a legal conclusion than a finding of fact. From Mrs. * * *' testimony, it appears that she, and perhaps the other officers and directors, assumed that Mr. * * * derived his authority from Mr. * * *, and that contradicting Mr. * * * in anything that he wanted was equivalent to contraindicating Mr. * * *. If Mr. * * * was Mr. * * *' puppet, it seems illogical to conclude that the puppet and not the puppeteer was the one running the show. Proposed Finding of Fact number 18 is not adopted as a finding of fact. Mrs. * * * did not, in fact, testify that she was preoccupied with problems stemming from Mr. * * *' activities. What she said was that she was "mostly putting out fires" which roughly speaking is the normal function of a president anyway. All companies have their "little fires" which the chief executive officer must deal with. Mrs. * * * did not testify that Mr. * * * was the cause of all of her problems. Proposed Finding of Fact number 19 is at best misleading in that it implies that Mr. * * * was the sole or primary cause of the demise of * * * Bank. Throughout the transcript the testimony indicated that * * * Bank was already in an unhealthy condition before Mr. * * * or Mr. * * * ever heard of it. The undersigned does not quarrel with the perception that the transactions involving Mr. * * * may have made some contribution to the demise of * * * Bank, but makes no finding regarding the relative significance these contributions compared to pre-existing problems that were already tending to lead the bank in that same direction. Mr. * * * testified that the bank had substantial tax loss carry-forwards as one of the reasons Mr. * * * was interested in buying the bank.
RATIONALE FOR LEGAL
In its action to prohibit Mr. * * * from participating in the conduct of the affairs of * * * Bank * * *, * * * Bank * * *, and any other bank insured by the FDIC (FDIC-85-25e), the FDIC cites as its authority for such action Section 8 (e) of the Federal Deposit Insurance Act, (12 USC Section 1818(e)). A careful reading of this Section reveals nothing that would give the FDIC any authority, under any set of facts, to prohibit any person from participating in the conduct of the affairs of all banks insured by the FDIC. The most that this statute would give the FDIC authority to do would be to prohibit Mr. * * * from participating in the conduct of the affairs of * * * Bank * * * and * * * Bank * * *, * * *. The * * * Bank * * * no longer exists, having been absorbed by * * * Bank. Certain parts of Section 8(e) refer only to directors and officers, of which Mr. * * * was neither; certain other parts refer to directors, officers, and "any other person participating in the conduct of the affairs" of an insured bank. The question then becomes whether Mr. * * * was a person "participating in the conduct of the affairs" of the banks within the meaning of the Statue. As the FDIC admits in it brief, the legislative history of this Section of the Act does not offer any detailed analysis of the meaning of the phrase in question. In trying to defend its version of what Congress intended to be the meaning of the phrase "participating in the conduct of the affairs" it cites testimony given before a subcommittee of the Senate in 1966 by Federal Board Vice Chairman J.L. Robinson. In his testimony, there, Mr. Robinson described an example of a bank that was acquired by a corporation, which corporation was controlled by an individual who was subsequently determined to have a criminal record. This individual was never an officer or director of a bank, but influenced the lending policy of the bank and obtained funds from the bank by charging consultant fees and expenses directly to the bank.
CONCLUSIONS OF LAW
1. * * * Bank * * *, and the * * * Bank * * *, are insured state nonmember banks, subject to the rules and regulations of the Federal Deposit Insurance Corporation.
DECISION
It is the recommended decision of the undersigned Federal Administrative Law Judge that * * * not be prohibited from participating in the conduct of the affairs of * * * Bank * * *, * * * Bank * * *, or any other bank insured by the FDIC, under the authority of Section 8(e) of the Federal Deposit Insurance Act (12 USC 1818(e)(2)).
II. PROPOSED FINDINGS OF FACT
A. GENERAL FINDINGS
1. The * * * Bank * * * ("* * * Bank") is a corporation existing and doing business under the laws of the State of * * * and has its principal place of business at * * * and is and has been at all times relevant to these proceedings, an insured State Nonmember Bank. (Admitted in Answer).
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C. CHANGE OF CONTROL* * * BANK
101. A Notice of Acquisition of Control ("Notice") dated June 19, 1984, was submitted by Respondent * * * to the * * * Regional Regional of the FDIC on June 27, 1984, for * * * Bank. (Admitted in Answer; FDIC Ex. 6)
D. PAYMENT OF FEES BY * * * BANK
125. On May 29, 1984, the * * * Bank paid $20,014 to Respondent * * * for services rendered by Respondent * * * to * * * prior to Mr. * * * acquisition of control of * * * Bank, specifically up to April 30, 1984. (FDIC Exs. 57 and 58; * * * Tr. 201-202)
E. BROKERED DEPOSIT
130. On October 10 and 11, 1984, * * * Bank accepted deposits from Deposit Broker * * *, in the total amount of $1,600,000. (Admitted in Answer) (FDIC Ex. 77; * * * Tr. 514-515)
F. BROKERED DEPOSIT TRANSACTIONS* * * BANK
161. Brokered deposits were credited to an account of * * * Bank at a correspondent bank on October 10, 12, and 13, 1984 in the aggregate of $1,400,000. (Admitted in Answer) (FDIC Ex. 85; * * * Tr. 148; * * * Tr. 237; * * * Tr. 379-380)
G. DIDC TRANSACTION* * * COUNTY BANK
181. On May 4, 1984, * * * Bank issued to Respondent * * * as President of * * * two five-year certificates of deposit in the amounts of $400,000 and $500,000 at interest rates of 11.5%. (Admitted in Answer) (FDIC Exs. 59 and 60)
H. DIDC TRANSACTION* * * BANK
197. On May 4, 1984 * * * Bank issued to Respondent * * * as President of * * * two five-year certificates of deposit, each in the amount of $500,000 at an 11.5% rate of interest. (Admitted in Answer) (FDIC Ex. 63) |
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Last Updated 6/6/2003 | legal@fdic.gov |