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{{4-1-90 p.A-1160}}
   [para;5094] FDIC Docket Number FDIC-87-144e (12-8-87)

   Bank president was prohibited from further participation in the conduct of the affairs of the bank when the president failed to file an answer to a Notice of Intention to Prohibit from Further Participation.

   [.1] Prohibition, Suspension, or Removal—Notice of Intention—Failure to Answer
   The failure to timely file an answer to a Notice of Intention to Prohibit from Further Participation is deemed a waiver of the right to contest the allegations of the Notice.

IN THE MATTER OF * * *,
individually and as a participant in the
conduct of the affairs of * * * BANK
(INSURED STATE NONMEMBER
BANK)


DECISION AND ORDER
FDIC-87-144e

DECISION

   [.1]This matter comes before the Board of Directors ("Board") of the Federal Deposit Insurance Corporation on the Recommended Order of Default of the Administrative Law Judge ("ALJ"), wherein he adopts the facts as alleged in the Notice of Intention to Prohibit from Further Participation ("Notice") as his findings of fact and conclusions of law. The ALJ's recommendation indicates that the Notice was duly served, but Respondent failed to file an Answer to the Notice. Under the FDIC's Rules of Practice and Procedures, 12 C.F.R. § 308.06(d), the failure to timely file an answer shall be deemed a waiver of the right to contest the allegations of the Notice, and the ALJ may find the facts as alleged in the Notice.
   The Board, having reviewed the record in this proceeding, concludes that the ALJ's recommendation is just and proper. We, therefore, accept the ALJ's recommendation and adopt and incorporate herein by reference as the Board's Findings of Fact and Conclusions of Law, paragraphs 1 through 11 of the Notice of Intention to Prohibit from Further Participation issued in this matter.

ORDER

   The Board of Directors of the Federal Deposit Insurance Corporation ("FDIC"), having found and concluded that * * * ("Respondent"), individually, and as a participant in the conduct of the affairs of * * * Bank, * * * ("Bank"), engaged in conduct or practices which resulted in substantial loss or other damage to the Bank, evidence a willful or continuing disregard for the safety and soundness of the Bank and evidence an unfitness to participate in the conduct of the affairs of the Bank or any other bank insured by the FDIC, IT IS HEREBY ORDERED that:
   1. * * * be and hereby is prohibited from participating in any manner in the conduct of the affairs of the Bank without the prior written approval of the FDIC;
   2. * * * be and hereby is prohibited from participating in the affairs of any bank insured by the FDIC without the prior written approval of the FDIC; and
   3. * * * be and hereby is prohibited from voting for a director of the Bank or any bank insured by the FDIC without the prior written approval of the FDIC.
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   IT IS FURTHER ORDERED, that this ORDER shall become effective thirty (30) days after the date of its issuance and shall remain effective and enforceable except to the extent that, and until such time as it shall have been modified, terminated, suspended, or set aside by the FDIC.
   IT IS FURTHER ORDERED, that copies of the Decision and Order shall be served on the parties to this proceeding, * * * Bank and the Commissioner of Banks and Trust Companies for the State of * * *.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 8th day of December, 1987.

/s/ Hoyle L. Robinson
Executive Secretary

FDIC-87-144e

RECOMMENDED ORDER OF
DEFAULT

   On July 21, 1987, the Federal Deposit Insurance Corporation issued a Notice of Intention to Prohibit from Further Participation under Section 8(e) of the Federal Deposit Insurance Act against Respondent * * *. The Notice was served on Respondent * * * the same day. No answer to the Notice was filed within 20 days as required by Sec. 308.06(a) of the FDIC Rules and Regulations. Under Sec. 308.06(d), failure to file a timely answer constitutes a waiver of the right to contest the allegations of the Notice and authorizes the Administration Law Judge to make findings and conclusions based on the allegations of the Notice and to enter a recommended order.
   Accordingly, I make as my findings of fact and conclusions of law the allegations of the Notice issued July 21, 1987, and recommend that the Federal Deposit Insurance Corporation issue an Order prohibiting Respondent * * * from voting for a director of, or from participating in any manner in the conduct of the affairs of the Bank or any bank insured by the FDIC without the prior written approval of the FDIC.

Dated: September 28, 1987

/s/ WILLIAM A. GERSHUNY
Administrative Law Judge

In the Matter of * * * * * * Individually,
and as participants in the conduct of the
affairs of * * * BANK (INSURED
STATE NONMEMBER BANK)

NOTICE OF INTENTION TO
PROHIBIT FROM FURTHER
PARTICIPATION

FDIC-87-144e

   The Federal Deposit Insurance Corporation ("FDIC") is of the opinion that * * * and * * * ("Respondents"), individually, and in their capacities as participants in the conduct of the affairs of * * * Bank, * * * ("Bank"), engaged in conduct or practice which resulted in substantial loss or other damage to the Bank and which evidence a willful or continuing disregard for the safety and soundness of the Bank and which evidence their unfitness to participate in the conduct of the affairs of the Bank. Therefore, the FDIC institutes this proceeding for the purpose of determining whether an appropriate order should be issued against the Respondents under the provisions of section 8(e) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(e), prohibiting the Respondents from further participation in the conduct of the affairs of the Bank, or any other bank insured by the FDIC.
   The FDIC hereby issues this NOTICE OF INTENTION TO PROHIBIT FROM FURTHER PARTICIPATION ("NOTICE") pursuant to section 8(e) of the Act, 12 U.S.C. § 1818(e), and Part 308 of the FDIC Rules and Regulations, 12 C.F.R. Part 308, and alleges as follows:
   1. The Bank is a corporation existing and doing business under the laws of the State of * * * , having its principal place of business at * * *. The Bank 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 State of * * *.
   2. On information and belief, * * * is a corporation existing and doing business under the laws of the State of * * *, having its principal place of business in * * *.
   3. On information and belief, * * * , is a corporation existing and doing business under the laws of the State of * * *, and {{4-1-90 p.A-1162}}having its principal place of business in * * *.
   4. On information and belief, * * * , is a corporation existing and doing business under the laws of the province of * * * in the country of * * * , having its principal place of business * * *, * * * entered into a consulting agreement with the Bank.
   5. On information and belief, * * * is and was at all times pertinent to the charges herein, the president of * * * and the president and a shareholder of * * *. At all times pertinent to the charges herein, * * * acted as consultant to * * * and signed official documents for * * *.
   6. On information and belief, Respondent * * * is a citizen of * * * and acted as president of * * *. Respondent * * * was elected to the board of directors of the Bank on or about March 30, 1987. On information and belief, Respondent * * * , was at all times pertinent to the charges herein a paralegal for the * * * law firm of * * *, which represented * * *. At all times pertinent to the charges herein, Respondents * * * and * * * participated in the conduct of the affairs of the Bank.
   7. At all times pertinent to the charges herein, the Bank had issued and outstanding 970 shares of common stock. The following individuals owned a total of 765 of such shares:

Name Number of Shares % of Ownership
* * * 533 54.9
* * * 110 11.3
* * * 54 5.5
* * * 37 3.8
* * * 11 1.1
* * * 10 1.0
* * * 10 1.0
____ ____
765 78.6

   8. The FDIC has jurisdiction over the Bank, Respondents, and the subject matter of this proceeding.
   9. The Respondents have engaged in certain conduct or practice with respect to the Bank that has resulted in substantial financial loss or other damage by reason of the following:
   (a) On or about March 31, 1987, the Respondents voted as members of the Bank's board of directors to pay $2,259,867 to * * * , for the purchase of twenty-eight (28) real estate mortgages without establishing the existence, validity and creditworthiness of the mortgages, which are outside the Bank's trade area, and without sufficient knowledge of the legal and financial status of * * *. The only documentation of these mortgages was a list provided by * * * which totaled $2,198,048. Further, the Respondents voted, as members of the board of directors of the Bank, to pay a $22,598 "brokerage fee" to * * * for the purchase of these mortgages.
   (b) The amount of these out-of-territory real estate mortgages equaled 147.8% of the Bank's total equity capital and reserves as reflected in the Bank's April 6, 1987 Statement of Condition.
   (c) On or about March 31, 1987, the $2,259,867 described in paragraph 9(a) above was paid to * * * in the form of a cashier's check which was subsequently credited to the account of * * * maintained at the Bank. At the time the cashier's check was issued, the Bank had sufficient cash or near cash assets to honor the check upon presentment for payment.
   (d) On or about March 31, 1987, and in conjunction with the transaction described in paragraph 9(c), the Bank took $800,000 from the account of * * * and issued $800,000 in certificates of deposit payable to * * *. The Bank had insufficient liquid assets available to pay these certificates upon their maturity ($300,000 on April 30, 1987 and $500,000 on May 30, 1987).
   (e) On or about March 31, 1987, the Bank transferred $1,000,000 from * * *'s account to the Bank's capital surplus account. In connection with this transfer, Respondents voted, as members of the Bank's {{4-1-90 p.A-1163}}board of directors, to pay a $50,000 "brokerage fee" to * * *. This fee should have been paid by * * * or the selling shareholders referenced in paragraph 7 above.
   10. The Respondents have engaged in other conduct or practice with respect to the Bank that constitutes violations of laws, rules or regulations and that has resulted in substantial financial loss or other damage to the Bank by reason of the following:
   (a) On or about March 31, 1987, Respondent * * * wrote five checks on behalf of * * * , payable to former Bank shareholders, totaling $120,990 for the purpose of acquiring 222 shares of Bank stock. This stock, along with 533 shares obtained from Director * * * under an "Option Agreement" between * * * and * * * , allowed * * * and/or * * * , consultant to * * * , to acquire "control" of the Bank as that term is defined in section 7(j)(8)(B) of the Act, 12 U.S.C. § 1817(j)(8)(B), or section 2(a) of the Bank Holding Company Act, 12 U.S.C. § 1841(a). Neither * * * nor any other person has filed an application with any Federal banking agency prior to the acquisition of control of the Bank as required by section 7(j) of the Act, 12 U.S.C. § 1817(j), or section 3(a) of the Bank Holding Company Act, 12 U.S.C. § 1842(a), nor has any application been filed with the Commissioner of Banks and Trust Companies for the State of * * * as required by section 15(9) of the * * * Banking Act, * * * Ann. Stat. Ch. 17, § 322.9.
   (b) On March 30, 1987, Respondents were, along with * * * , elected to the board of directors of the Bank by vote of the then members of the board of directors, * * *, * * *, * * *, * * *, * * *, and * * * , in violation of section 16(5) of the * * * Banking Act, * * * Ann. Stat. Ch. 17 § 323.5, in that more than one-third of the board members were appointed without the vote of the shareholders. Following the vote, Directors * * * , * * * , and * * * resigned from the board of directors on March 30, 1987.
   11. The conduct or practice and violations specified in paragraphs 9 and 10 evidence the Respondents' willful or continuing disregard for the safety and soundness of the Bank and their unfitness to participate in the conduct of the affairs of the Bank or any other bank insured by the FDIC.
   12. Notice is hereby given that a hearing will be held at * * * commencing 60 days from the date of service of this NOTICE on the Respondents, unless an earlier or later date is set by the FDIC at the request of the Respondents for good cause shown, or the Attorney General of the United States, for the purpose of taking evidence on the charges herein specified, in order to determine whether a permanent order should be issued to prohibit the Respondents from further participation in the conduct of the affairs of the Bank, or any other bank insured by the FDIC without the prior written approval of the FDIC.
   13. The hearing is to 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 hearing will be private unless the FDIC shall determine that a public hearing is necessary to protect the public interest and in all respects will be conducted in compliance with the provisions of the Act and the FDIC Rules of Practice and Procedures. The Respondents are each hereby directed to file an answer to this NOTICE within 20 days from the date of service on the Respondents, as provided by section 308.06 of the FDIC Rules of Practice and Procedures, 12 C.F.R. § 308.06.
   14. Originals of all papers filed in this proceeding shall be served upon the Office of the Executive Secretary, Washington, D.C. 20429. Further, copies of all papers filed in this proceeding shall be served upon the Federal Deposit Insurance Corporation, Legal Division, Compliance and Enforcement Section, 550 17th Street, N.W. Washington, D.C. 20429 and upon the Regional Counsel, Bank Supervision, for the * * * Regional Office of the Federal Deposit Insurance Corporation, * * *.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 21st day of July, 1987.

/s/ Margaret M. Olsen (for)
Hoyle L. Robinson
Executive Secretary

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