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FDIC Enforcement Decisions and Orders

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   [5085] FDIC Docket No. FDIC-85-343e (3-17-87)

   Bank officer prohibited from participating in the affairs of the bank or any other bank insured by the FDIC for engaging in unsafe or unsound banking practices and for engaging in acts, omissions, or practices that constitute a breach of his fiduciary duty as an officer of the bank.

   [.1] Civil Money Penalties—Notice of Assessment—Failure to Answer
   Failure of a party to file an answer required by FDIC Rules of Practice and Procedure within the time provided shall be deemed a waiver of the right to appear and contest the allegations of the notice of hearing.

   [.2] Lending and Collection Policy and Procedures—Unsafe or Unsound Practices
   Bank officer who allowed the bank to extend credit to borrowers of limited financial capacity found to have engaged in unsafe or unsound banking practices.

   [.3] Prohibition, Removal, or Suspension—Factors Determining Liability— Unsafe or Unsound Practices
   FDIC prohibited bank director from further participation in the affairs of the bank or any other bank insured by the FDIC for engaging in unsafe or unsound banking practices.

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In the Matter of * * * INDIVIDUALLY
AND AS AN OFFICER OR DIRECTOR
AND PARTICIPANT IN THE
CONDUCT OF THE AFFAIRS OF
* * * BANK (INSURED STATE
NONMEMBER BANK)

FDIC-85-343e
DECISION AND ORDER ADOPTING
RECOMMENDED DECISION AND
ORDER OF THE ADMINISTRATIVE
LAW JUDGE

   On December 2, 1985, the Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Intention to Prohibit From Further Participation ("Notice") against * * * ("Respondent"). Respondent was served with said Notice by certified mail and by personal service by the * * * Sheriff's Department on May 21, 1986. The Notice specifically informed Respondent that an answer was to be filed within 20 days from the date of service of the Notice. However, Respondent failed to file an answer to the Notice as required by section 308.06(a) of the FDIC's Rules of Practice and Procedure, 12 C.F.R. § 308.06(a).
   On February 6, 1987, the administrative law judge ("ALJ") issued a Recommended Decision and Order, pursuant to section 308.06(d) of the FDIC's Rules of Practice and Procedure, finding the facts as alleged in the Notice with appropriate conclusions and with an appropriate order prohibiting Respondent from participating in the affairs of the * * * Bank * * *, or any other bank insured by the FDIC, without prior written approval. The Board of Directors, having considered the entire record in this proceeding, is in agreement with the ALJ's Recommended Decision and Order.
   NOW, THEREFORE, IT IS HEREBY ORDERED, that the attached Recommended Decision and Order of the administrative law judge is adopted and incorporated by reference herein.
   IT IS FURTHER ORDERED, that this Decision and Order Adopting Recommended Decision and Order of the Administrative Law Judge ("ORDER") and the Recommended Decision and Order shall become effective at expiration of 30 days from the date of service upon Respondent.
   IT IS FURTHER ORDERED, that the Executive Secretary shall cause this ORDER and the Recommended Decision and Order of the administrative law judge to be served upon each party, or their attorney of record, and upon the Commissioner of Banking and Securities for the State of * * *.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 17th day of March, 1987.
/s/ Hoyle L. Robinson
Executive Secretary

RECOMMENDED DECISION AND
ORDER FDIC-85-343e

   On December 2, 1985, the Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Intention to Prohibit From Further Participation ("Notice") against * * * ("Respondent"). The Notice issued against Respondent * * * contained specific allegations for which an Order of Prohibition From Further Participation ("Order") could be issued against Respondent * * * under the provisions of section 8(e) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(e)). The Notice specifically directed Respondent * * * to file an answer within twenty (20) days from the date of service of such Notice, as provided in section 308.06(a) of the FDIC Rules of Practice and Procedures. Respondent * * * was served with the Notice by certified mail and by personal service on May 21, 1986; however, Respondent * * * has not filed an Answer to the allegations contained in the Notice. On January 22, 1987, FDIC filed a Motion for Recommended Decision for Issuance of Order of Prohibition From Further Participation against Respondent * * * for failure of Respondent * * * to answer the allegations contained in the Notice pursuant to sections 308.06(d) of the FDIC Rules of Practice and Procedures (12 C.F.R. §§ 308.06(d)).
   After being fully advised in this matter and having considered the failure of Respondent * * * to file an Answer to the Notice as required by section 308.06(a) of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06(a)), the following findings, conclusions, and recommendations are made:

I. FINDINGS OF FACT

   1. On December 2, 1985, and pursuant to the provisions of section 8(e) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(e)) and Part 308 of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308), the FDIC {{4-1-90 p.A-1059}}issued a Notice of Intention to Prohibit From Further Participation ("Notice") against * * * ("Respondent"), formerly an officer and director of * * * Bank * * * ("Bank"), for the purpose of prohibiting Respondent * * * from any further participation in the conduct of the affairs of the Bank or any other insured bank without the prior approval of the FDIC.
   2. The Notice was issued upon the grounds specified in section 308.40 of the FDIC Rules of Practices and Procedures (12 C.F.R. § 308.40). The Notice meets all the requirements placed upon the FDIC as specified in section 308.42 of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.42) in that it states the facts constituting the grounds for prohibition and fixes a time and place for hearing.
   3. The Notice was mailed by the Office of the Executive Secretary of FDIC under cover of a letter dated December 2, 1985, to Mr. * * *, Respondent's last known address, Certified - Return Receipt Requested, and a receipt signed by Respondent's Agent * * * was returned to the FDIC.
   4. On May 19, 1986, the Notice was transmitted to the Office of * * * Sheriff, * * *, for personal service upon the Respondent who resided at * * *. The Office of * * * Sheriff was able to serve the Notice personally upon Mr. * * * on May 21, 1986.
   5. The Notice directed the Respondent to file an answer within 20 days from the date of service on Respondent, as provided by section 308.06 of the FDIC's Rules of Practice and Procedures (12 C.F.R. § 308.06).

   [.1] 6. The 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)). Section 308.06(d) of the FDIC Rules of Practice and Procedures (12 C.F.R. § 308.06(d)) provides:

       (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. The Administrative Law Judge is authorized, without further notice to Respondent, to find the facts to be as alleged in the Notice and to file with the Executive Secretary of FDIC a recommended decision containing such findings and appropriate conclusions.
   8. The Bank, a corporation existing and doing business under the laws of the * * *, having its principal place of business at * * *, is, and has been at all times mentioned herein, an insured State nonmember Bank. The Bank is subject to the Act (12 U.S.C. §§ 1811-1831d), the Rules and Regulations of the FDIC (12 C.F.R. Chapter III), and the laws of the * * *.
   9. At all times pertinent to the charges in the Notice, Respondent * * * served as president, chief executive officer, and director of the Bank and participated in the conduct of the affairs of the Bank. The FDIC has jurisdiction over the Bank, the Respondent and the subject matter of this proceeding.
   10. In his capacity as an individual, officer, director, and participant in the conduct of the affairs of the Bank, Respondent has committed violations of law, has engaged or participated in willful or continuing unsafe or unsound practices in connection with the operation of the Bank, and/or has engaged in acts, omissions or practices which constitute a breach of his fiduciary duty as an officer and director of the Bank and which evidence his unfitness to participate in the affairs of the Bank, as more fully set forth below.

   [.2] 11. Respondent * * *, while serving as president and chief executive officer of the Bank, engaged or participated in unsafe or unsound banking practices and a violation of law by causing and/or allowing the Bank to extend credit for the benefit of * * *, with such loans being in the names of nominee borrowers of limited financial capacity. Loans were made in the names of * * * dated December 20, 1983, * * * dated December 20, 1983, and * * * dated December 21, 1983. These loans totalled $225,000, of which all but $45,000 of the * * * loan was classified "Substandard" as of November 23, 1984. The remaining $45,000 portion of the * * * loan was classified "Loss" as of November 23, 1984.
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   12. Respondent * * *, while serving as president and chief executive officer of the Bank, violated and/or caused the Bank to violate section 287.280(3) of the * * * Revised Statutes, which prohibits the indebtedness or obligation of any person from exceeding thirty (30) percent of the paid-in capital and actual surplus of a bank or a trust company. Respondent * * * caused and/or allowed the Bank to extend credit to * * *, dated December 21, 1983; to * * *, dated December 20, 1983; and to * * *, dated December 20, 1983. The proceeds of each loan were deposited on the dates they were made to the demand deposit account of * * *. These extensions of credit totaled $225,000, and were entered into for the benefit of * * *. When aggregated with another extension of credit dated January 12, 1984, totaling $760,000 to * * *, the extensions of credit described in this paragraph exceeded the Bank's legal lending limit. As of November 23, 1984, the total indebtedness of * * * continued to exceed the * * * statutory limit of thirty (30) percent of the Bank's paid-in capital and actual surplus.
   13. From approximately January to September, 1984, Respondent * * *, while serving as president and chief executive officer of the Bank caused the Bank to wire funds to two correspondent banks - * * * Bank, * * * and * * * Bank, * * *. At month's end, Respondent * * * then covered payment for those wire transfers with checks drawn on various banks. Respondent * * * then covered those checks with new wire transfers from the Bank. As a result, open items were not reflected on month-end reconcilements. As of November 23, 1984, unreimbursed wire transfers totaled $840,000, of which $630,000 was classified "Doubtful." The unsafe or unsound banking practices and violations specified in this paragraph resulted in financial gain to Respondent * * *.
   14. The unsafe or unsound banking practices and violations of law and regulations specified in paragraphs 11, 12, and 13 will probably result in substantial financial loss or other damage to the Bank.
   15. The above-described acts, omissions and practices constitute breaches of Respondent's fiduciary duty to the Bank and have seriously prejudiced the interests of the depositors of the Bank.
   16. The above-described practices and violations involve Respondent's dishonesty, demonstrate willful or continuing disregard for the safety and soundness of the Bank, and evidence his unfitness to participate in the conduct of the affairs of the Bank or any other bank insured by the FDIC.

II. CONCLUSIONS

   Respondent has been duly served by the Federal Deposit Insurance Corporation with a Notice of Intention to Prohibit From Further Participation. This Notice contained allegations that Respondent committed violations of law, engaged or participated in unsafe or unsound banking practices, and committed or engaged in acts, omissions, or practices which constituted a breach of fiduciary duty as an officer or director of * * * Bank * * * that he received financial gain by reason of such violations, practices, and breaches of fiduciary duty and that such violations, practices, or breaches of fiduciary duty involved personal dishonesty and demonstrated a willful or continuing disregard for the safety and soundness of the Bank; and that these violations, practices or breaches of fiduciary duty have caused the Bank to suffer or will probably cause the Bank to suffer substantial financial loss or other damage and the interest of the Bank's depositors will be seriously prejudiced.
   The Notice directed the Respondent to file an Answer within twenty (20) days from the date of service of the Notice on Respondent (12 C.F.R. § 308.06). Respondent failed to file an Answer within the required time period for answering. Under these circumstances the Administrative Law Judge is authorized to find the facts to be as alleged in the Notice and to file with the Executive Secretary of FDIC a recommended decision containing such findings and appropriate conclusions (12 C.F.R. § 308.06(d)).

   [.3] Appropriate findings of fact have been made heretofore, which findings of fact satisfy the statutory prerequisites for the issuance of an order of prohibition from further participation against Respondent * * *. Therefore, the FDIC may issue such an order of prohibition from participation as it may deem appropriate (12 U.S.C. § 1818(e)). Accordingly, it is recommended that the FDIC enter the following Order:

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ORDER OF PROHIBITION FROM
FURTHER PARTICIPATION

   It is ORDERED that:
   1. * * * is hereby prohibited from participating in any manner in the conduct of the affairs of * * * Bank, * * *, without the prior written approval of the FDIC.
   2. * * * is hereby prohibited from participation in the affairs of any other bank insured by the FDIC, without the prior written approval of the FDIC.
   3. * * * is hereby prohibited from voting for a director of * * * Bank * * *, or any bank insured by FDIC, without the prior written approval of the FDIC.
   IT IS FURTHER ORDERED that this Order shall become effective ten (10) days after the date of its issuance and that it shall remain effective and enforceable except to the extent that, and until such time as, any of its provisions shall have been modified, terminated, suspended, or set aside by the FDIC.
   The court hereby orders this Recommended Decision and Order 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(c)).
   Signed and entered this 6th day of February, 1987.
/s/ William A. Gershuny
Administrative Law Judge

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