FDIC: 1988 - Docket No. FDIC-85-87k


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[¶5119]] Docket No. FDIC-85-87k(9-13-88).

Former Chairman of Board of Directors of Bank assessed civil money penalty for violations of lending limit and prior approval requirements, seriously harming Bank and placing it in jeopardy. (An Application for Special Leave to Appeal was denied 12-8-87. See [¶ 8002].)

[.1] Practice and Procedure—Hearing—Delay
In absence of showing prejudice or agency bad faith, agency failure to commence hearing within 60 days after receipt of Respondent's request is not a reason for dismissal of action.

[.2] Regulation O—Violation—Calculation
Violations of Regulation O are determined by a straightforward mathematical calculation.

[.3] Civil Money Penalties—Amount of Penalty—Personal Gain
A significant factor in assessing civil money penalties is the financial or economic benefit the Respondent obtained from the violation(s). In some circumstances, it is appropriate that the penalties reflect an additional amount beyond the economic benefit derived as punishment for the offense and as a deterrent to similar conduct.

[.4] Civil Money Penalties—Amount of Penalty—Ability to Pay
Respondent's ability to pay a civil money penalty is not limited by his net worth. It is appropriate to consider Respondents future earning capacity when determining the size of such penalty.

[.5] Civil Money Penalties—Burden of Proof
While the preponderance of the evidence does not demonstrate that Respondent knowingly violated the lending limit requirements, Respondent's violations were not committed in good faith where Respondent was aware of the existence of legal limitations on his activities and repeatedly acted in his own interest in highly imprudent disregard of his legal and ethical obligations.

[.6] Federal Reserve Act § 23A—"Covered Transactions"
Loans and other extensions of credit by Bank to Respondent and his related interests were found to be Covered Transactions and were made and/or renewed in violation of lending limits and the prior approval requirement of applicable federal law and regulations.

[.7] Civil Money Penalties—Amount of Penalty—Statutory Standard
In an action for the assessment of Civil Money Penalties for violations of lending limits, an appropriate penalty to be imposed for violations must take into account the five statutory factors pertaining to 1) the good faith of the offender, 2) the size of the financial resources of the offender, 3) the gravity of the violations that occurred, 4) any history or prior violations involving the offender, and 5) any other matter that may be required by justice.

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[.8] Civil Money Penalties—Burden of Proof
FDIC has the burden of proof and otherwise establishing that the amount of the penalty to be imposed is appropriate after taking into account statutory factors; Respondent had the burden of proving any allegations or assertions that the size of financial resources of Respondent are insufficient or otherwise do not warrant the assessment of a penalty because of the proprietary and subjective nature of such information.

In the Matter of ***, individually, and as
Chairman of the Board, Director and
Principal Shareholder of *** BANK

(Insured State Nonmember Bank)
Decision and Order to Pay

I. Introduction

This case involves the assessment of a civil money penalty by the Federal Deposit Insurance Corporation ("FDIC") against *** ("Respondent"), former chairman of the board of directors of *** Bank *** (the "Bank"), for violations occurring over approximately a two year period of time of the lending limit prohibitions and prior approval requirements of sections 22(h) and 23A of the Federal Reserve Act (the "Act") (12 U.S.C. §§375b and 371c) and Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O") (12 C.F.R. Part 215).¹ The large amount of money involved and the number, repetition, and continuing nature of these violations seriously harmed the Bank and placed it in jeopardy.
Pursuant to section 18(j)(3) of the Federal Deposit Insurance Act ("FDI Act")² and Part 308 of the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308) a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law ("Notice of Assessment") and Order to Pay was issued on April 3, 1985, against Respondent and others.³ The Order to Pay which accompanied the Notice of Assessment required Respondent to pay a civil money penalty in the amount of $1,069,000 and also specified that a civil money penalty of $500 per day would accrue for each day that each violation continued beyond the date of the assessment.

II. Procedural History

On April 15, 1985, Respondent requested a hearing and on June 7, 1985, filed an Answer to the Notice of Assessment. On April 1 and 3, 1985, the FDIC initiated two other unrelated actions against Respondent *** regarding his participation in the affairs of another bank. Due to the nature of these actions (i.e., permanent removal from banking and payment of a civil money penalty), agreement was reached among the Administrative Law Judge in this action, the FDIC, and Respondent *** that the trial of these other bank actions should proceed prior to the trial of this action, and that the rulings made in those actions regarding discovery and other pre-hearing matters would be followed generally in this action.⁴
Between April 23, 1985, and November 30, 1987, the parties engaged in extensive and protracted pre-hearing discovery, including an interlocutory appeal to the Board of Directors of the FDIC (the "Board") and the convening of six pre-hearing conferences to assist in narrowing and defining the issues for trial. A hearing on the merits of this action began in ***, on December 1, 1987, and concluded on December 10, 1978. The ALJ issued his Recommended Decision on May 12, 1988. Both parties filed Exceptions to the Recommended Decision. The Board has carefully reviewed the record in its entirety and adopts the ALJ's Recommended Decision, Findings of Fact and Conclusions of Law except as modified in this Decision and Order to Pay (the "Decision and Order"). As discussed herein, the Board has modified certain findings made by the ALJ with respect to the determination of the amount of loss to the Bank and economic benefit to

¹ The statute and regulations are made to apply to insured state nonmember banks by section 18(j)(2) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(j)(2).

² The provisions of section 18(j)(3) of the FDI Act have been recodified as section 18(j)(4).

³ Ten other directors of the Bank were initially named as respondents. All were subsequently dismissed as parties as the result of negotiated settlements with the FDIC.

⁴ Administrative Law Judge E. Wilson Crump, III was initially appointed to preside at the hearing of this matter. Following the expiration of his appointment, he was replaced by Administrative Law Judge Steven M. Charno (the "ALJ"), who ultimately heard this matter and issued the Recommended Decision.
{{4-1-90 p.A-1324}}the Respondent, leading to the Board's assessment of a civil money penalty in the amount of $1,200,000 which is greater than the penalty recommended by the ALJ.

III. Respondent's Motion to Dismiss

On October 15, 1987, Respondent filed with the FDIC Executive Secretary a Motion to Dismiss All Charges and Fine Against *** ("Motion to Dismiss"). Respondent alleged that the FDIC failed to comply with section 308.71 of the FDIC Rules of Practice and Procedures (12 C.F.R. §308.71) by failing to convene a hearing within 60 days after receipt of his request for a hearing. The FDIC filed its Opposition to the Motion to Dismiss and supplemental Opposition on October 21 and 28, 1987. At the fifth pre-hearing conference, held on November 10, 1987, Respondent's Motion to Dismiss was extensively discussed and ultimately denied by the ALJ. Respondent alleged that he had been prejudiced by the delay in commencing the hearing because certain witnesses were deceased or no longer available to testify on his behalf. The ALJ ordered (without objection from the FDIC) that Respondent could make a proffer regarding the testimony of one witness who was allegedly deceased and that Respondent could supplement the record with the sworn testimony given in another action by another unavailable witness. In denying Respondent's Motion to Dismiss, the ALJ cited the following reasons: (1) an administrative law judge does not have the authority under the FDIC Rules of Practice and Procedures to grant a motion to dismiss; (2) any delay in the commencement of a hearing in this proceeding occurred with the acquiescence of Respondent and his counsel of record, and Respondent had therefore waived his objection; (3) the 60 day period provided in section 308.71 of the FDIC Rules of Practice and Procedures is not jurisdictional; and (4) Respondent had not been actually prejudiced by the delay in the commencement of the hearing. On November 18, 1987, Respondent appealed the denial of his Motion to Dismiss. Pursuant to section 308.12(e), Respondent's Motion to Dismiss and Appeal of the Denial of the Motion have been transmitted to the Board for final agency action as part of the record in this matter.

[.1] The Board affirms the ALJ's denial of Respondent's Motion to Dismiss. The issues raised by Respondent have been fully reviewed and decided by this Board in FDIC-85-326b, 2 FDIC Enforcement Decisions ¶6780 (July 29, 1986). Upon full analysis of section 1818(b)(1) of the FDI Act and the FDIC Rules of Practice and Procedures, the Board determined that the 60 day time period is not jurisdictional, but, rather, directory only. The purpose of the time limitation is to assure an orderly proceeding, FDIC-85-326b, supra, at p.6759. Therefore, in the absence of a showing of prejudice or agency bad faith (neither of which were found by the ALJ, nor by the Board in its review), dismissal of the action is not appropriate.

IV. Discussion of the Violations and the
Penalty

Respondent was an "executive officer" of the Bank and served as chairman of its board of directors. R.D. at 3.⁵ He was also a "principal shareholder" of the Bank as the controlling and principal shareholder of ***, a one-bank holding company that owned in excess of 90% of the Bank's capital stock. In addition, the ALJ found that Respondent exercised a significant degree of influence and control over the Bank president. R.D. at 30. All of the violations of law and regulation which are the subject of this action pertain to various loans and other extensions of credit made by the Bank to and/or for the benefit of Respondent and/or his related interests between 1982 and 1985. At issue are a total of 13 loans which were renewed numerous times over a period of approximately 3 years creating a total of 105 lending limit violations and 45 violations of the prior approval requirements of Regulation O. R.D. at 13, and fn. 21.

A. Liability

Respondent has been charged with violations of the limitation on extensions of credit to "insiders" and bank affiliates, and the prior approval requirements for such extensions of credit.
Section 22(h) of the Act, as implemented by Regulation O, establishes a limit on the

⁵ Citations to the record herein shall be as follows:
—to the Recommended Decision: "R.D. at ________";
to the transcripts of testimony: "Tr. at ________";
to the exhibits: "FDIC Ex. ________"; "Resp. Ex. ________".
{{4-1-90 p.A-1325}}aggregate extensions of credit which a bank may make to an executive officer or principal shareholder and to such person's related interests ("insider"), 12 C.F.R. §215.4(c).⁶
   The aggregate lending limit imposed by Regulation O on unsecured extensions of credit to an insider is 15 percent of a bank's unimpaired capital and surplus; extensions of credit equaling an additional 10 percent of capital and surplus may be made where the extensions are fully secured by "readily marketable collateral," the current market value of which may be ascertained through a regularly published listing or an electronic reporting service. 12 C.F.R. §32.4(b). See also, 12 C.F.R. §§32.4(c), 221.1(j).
   Regulation O also prohibits extensions of credit greater than five percent of a bank's capital and surplus to insiders or to directors and their related interests unless the extension is approved in advance by a vote of a majority of a bank's board of directors in which the insider or director did not participate. 12 C.F.R. 215.4(b).
   Section 23A of the Act limits the amount of credit a bank may extend to a single affiliate to ten percent of the bank's capital and surplus, 12 U.S.C. §371c(a)(1)(A), and limits a bank's aggregate loans to affiliates to twenty percent of capital and surplus, 12 U.S.C. §371c(a)(1)(B). These lending limits apply to the extent that "the proceeds of the transactions are used for the benefit of, or are transferred to," an affiliate. 12 U.S.C. §371c(a)(2).

[.2] Liability for violation of these provisions of the Act and Regulation O is comparatively simple to determine. Lending limitation violations are ascertained by a straightforward mathematical calculation. The record contains tabular summaries which show the aggregate amounts of the loans made by the Bank, as well as the Bank's total capital and surplus, at the time each extension of credit at issue here was originated or renewed. The validity of these summaries and the underlying data is undisputed. R.D. at 6. Accordingly, the Board adopts the ALJ's finding that all of the direct and indirect extensions of credit made to Respondent and his related interests constitute violations of the lending limits and prior approval requirements of section 22(h) of the Act and Regulation O. R.D. at 6. The Board further adopts the findings that the extensions of credit to ***, a Bank affiliate, between February 29 and August 3, 1984, similarly violate the ten percent lending limit of section 23A, and the aggregate extensions of credit to the Bank's affiliates between July 1, 1983, and December 31, 1985, violate the twenty percent lending limit of Section 23A.⁷ R.D. at 6.
The Board modifies, however, the finding of the ALJ with respect to a loan by the Bank involving *** (the "*** loan"). The ALJ correctly concluded that the loan in the amount of $55,000 was attributable to Respondent by virtue of the assumption and guarantee of the debt by ***, a corporation wholly owned by Respondent. R.D. at 6. However, the Recommended Decision nevertheless concluded that the "preponderance of the evidence does not demonstrate that *** received tangible economic benefit from the proceeds of this loan." R.D. at 5. The documentary evidence supporting this loan consists of a new loan voucher in the amount of $55,000 with the name ***, a deposit ticket reflecting the addition of $55,000 to the account of ***, and two checks written by *** to *** and *** for that amount. Resp. Ex. 10. Thus, the only evidence of receipt of the proceeds of this loan identifies *** as the recipient. While it is clear that *** and *** received $55,000 on the day the loan was made, no witness testimony or other evidence in the record linked the deposit to the payments. For example, the two checks to *** could have been payments for debts owed or services rendered by *** to ***. Respondent attempted to explain the payments, but his testimony is quite unspecific and never actually states why the loan proceeds were received by *** or the reason for the payments to ***. Tr. at V/239-242, 256–257. In the face of clear evidence that the proceeds of the loan were deposited to the *** ac-

⁶ An "extension of credit" to an insider takes place when (1) a loan is made or renewed to an insider; (2) a nonrecourse participation is acquired in a loan to an insider; (3) a loan is made which is assumed or guaranteed by an insider or (4) a loan is made, the proceeds of which are "used for the tangible economic benefits of, or are transferred to," an insider. 12 C.F.R. §215.3. If an insider receives an economic benefit from the proceeds of a loan, it is immaterial to the existence of an "extension of credit" that a third party may also benefit from the loan.

⁷ As discussed at pages 10–11, infra, the Board finds additional violations of the ten percent lending limit of Section 23A.
{{4-1-90 p.A-1326}}count, the burden shifts to Respondent to connect the payments to *** and *** with the loan to ***. This burden was not met by Respondent. Accordingly, the Board can only conclude that the preponderance of the evidence demonstrates that *** received the tangible economic benefit of the *** loan.
   The record in this case clearly establishes multiple violations of law and regulation. The ALJ found 82 lending limit violations which were in effect for an aggregate total of 3,063 days and 45 violations of the prior approval requirements of Regulation O. Accordingly, he found $3,108,000 to be the maximum civil money penalty which could be imposed in this case. R.D. at 13. However, in their Exceptions, FDIC Enforcement Counsel cite the failure of the ALJ to determine that there were multiple violations of the ten percent lending limit of section 23A of the Federal Reserve Act incidental to numerous extensions of credit by the Bank to *** Insurance, an affiliate of the Bank. Enforcement Counsel takes exception to this omission and asserts that inclusion of these violations in the calculation of maximum statutory penalty would increase that amount to the appropriate amount of $4,184,000.
   In footnote 21 of the Recommended Decision, the ALJ excludes from consideration the 23 violations of the ten percent lending limit of section 23(a)(1)(A) because he finds that these violations were raised by Enforcement Counsel for the first time in their reply brief which deprived Respondent of the opportunity to respond to the allegations of these violations. The Board's careful review of the record indicates the ALJ's conclusion in this regard is incorrect.
   Enforcement Counsel point out in their Exceptions that these 23 violations were alleged in the Notice of Assessment, and thus, the suggestion that Respondent did not have notice of these charges is unfounded. While Enforcement Counsel is correct that these violations were alleged in the Notice of Assessment, that fact alone would be insufficient to modify the ALJ's conclusion. The burden here rests with Enforcement Counsel to prove each of the allegations. The Board finds, however, that the record does contain sufficient evidence to prove these allegations. Recommended Findings of Fact 11–14, 16–17, 19–21, 26–29, 32–35, 41–42, 47, 52–53 and 54. R.D. at 17–24.
   These violations are not "additional" violations. They are violations which arose out of the extensions of credit described in detail at pages 12–35 of Enforcement Counsel's initial brief and set forth in FDIC hearing exhibits 18, 19A, 20A and 20B. In their brief, however, Enforcement Counsel discuss the aspects of these transactions which resulted in violation of the lending limitations of section 22(h) and Regulation O. Admittedly, they did not discuss these extensions of credit to *** as exceeding the section 23A limitation on extensions of credit to any single affiliate of a bank. Nonetheless, the underlying facts which show that these transactions did exceed the limitation are set forth.
   The evidence and proof regarding these violations is derived from the same hearing exhibits (FDIC Ex. 18, 19A, 19B, 20A and 20B) that were relied upon by the ALJ in determining the other violations of law that gave rise to this action and which the ALJ characterized as being "undisputed and unchallenged" by the Respondent. R.D. at 6. While the evidence regarding these 23 violations perhaps could have been emphasized in a clearer manner and earlier, the evidence proving violations of the ten percent lending limit in connection with loans and extensions of credit to *** is contained in the record of the hearing before the ALJ and is, therefore, appropriately considered in calculating the total number of violations and the maximum statutory penalty.

B. Amount of the Penalty

[.3] Section 18(j)(4)(A) of the FDI Act authorizes the FDIC to impose a maximum civil penalty for each violation of $1,000 per day for each day during which a violation of section 22(h) or 23A of the Federal Reserve Act, or any lawful regulation promulgated thereunder, continues. In determining the amount of the assessment, section 18(j)(4)(B) requires that certain factors be considered by the FDIC when it assesses civil penalties. Section 18(j)(4)(B) provides:

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In assessing a civil money penalty, a significant factor that should be considered is the financial or economic benefit the Respondent obtained from the violation(s). In some circumstances, it is also appropriate that the penalty reflect some additional amount beyond the economic benefit derived as punishment for the offense and as a deterrent to similar future conduct. FDIC Ex. 1, Tab J, Interagency Policy Regarding the Assessment of Civil Money Penalties by the Federal Financial Institutions Regulatory Agencies.
The ALJ has made findings based upon a detailed analysis of the evidence and the statutory and regulatory factors. The Board adopts these findings, except as discussed below. To summarize, the ALJ found that Respondent knowingly engaged in related loan transactions intended to circumvent the lending limit prohibitions of section 22(h) and section 23A of the Act. These transactions did violate the lending limit prohibitions and the prior approval requirement of the Act and Regulation O, and these violations were not committed in good faith. R.D. at 31. The Bank's board of directors was unaware of the total amount of credit that had been extended by the Bank to Respondent and his related interests. R.D. at 30. Respondent had a prior history of violations and acknowledged in writing that he received a copy of the 1979 FDIC Report of Examination of the Bank which contained specific references to violations of sections 22(h) and 23A of the Act and Regulation O and which violations were specifically discussed at a meeting of the Bank's board of directors. R.D. at 31. The ALJ's Findings of Fact numbers 128–131 provide a picture of the serious danger these loans presented to the Bank:

   The ALJ based his recommended penalty upon the amount of loss to the Bank and a factor for deterrence. In reliance on the testimony of FDIC expert witnesses ***, the ALJ found that the Bank had sustained an aggregate net loss of principal and interest as of April, 1985, the date Respondent requested a hearing in this matter, totalling $390,000 as a result of the 13 subject loans, and that a deterrence penalty factor was justified. Tr. at III/194, 233. He recommended assessment of a total penalty in the amount of $530,400 R.D. at 14, 16. A close examination of Mr. ***'s testimony indicates, however, that Mr. *** was expressing an opinion regarding the calculation of the amount of loss reflected in the loans to Respondent and his related interests that were adversely classified by the FDIC as of its June 24, 1984, examination Tr. at III/ 233-34. This is approximately one year before Respondent requested a hearing. Thus, the factual basis for the ALJ's recommended penalty is flawed and the Board is compelled to conclude that the record does not support the ALJ's recommendation of $530,400.
   The record clearly substantiates that between December 1985, and December 1987, the Bank's losses ranged between approximately $900,000 and $966,000 R.D. at 13, fn. 23; FDIC Ex. 5, 6, 7A, 7B, 8, 9, 10A, 11, 12, 13, 14, 15, 16 and 17. Therefore, the Board finds on the basis of this record that the Bank's losses were at least $900,000 and that, in violation of applicable law and regulation, the Respondent received a corresponding economic benefit as a result of the numerous loans and extensions of credit that are the subject of this action.⁸
   In determining the amount of the civil money penalty to be assessed the Board has carefully reviewed the evidence presented and the ALJ's findings. The Board evaluated, among the other factors, the loss to the Bank, the large number of violations involved, the significant negative impact of

⁸ The ALJ found this figure to be well supported and the Board concurs with this finding. R.D. at 13, fn.23. Giving Respondent the benefit of doubt, this figure is net of a potential recovery by the Bank on its purchase (without recourse to the selling bank) of a $500,000 participation in a loan made to ***, Respondent's business lawyers and two business associates. Tr. at III/30, 32.
{{5-31-91 p.A-1328}}these loans on the Bank, the history of prior violations, Respondent's "highly imprudent disregard of his legal and ethical obligations," R.D. at 12–13, and the appropriateness of a deterrence factor. On the basis of these factors and the record as a whole, the Board finds that the appropriate amount of civil money penalty to be assessed is a total of $1,200,000.

ORDER TO PAY CIVIL MONEY
PENALTIES

   The Board of Directors of the FDIC, having considered the entire record in this proceeding, including briefs filed by each party, the ALJ's Recommended Decision and Order, Exceptions to the Recommended Decision and Order filed by each party, and after taking into consideration the appropriateness of the penalties with respect to the financial resources and good faith of respondent, the gravity of the violations, the history of previous violations, and such other matters as justice may require, makes the following findings. The Board finds on the record before it that Respondent violated sections 22(h) and 23A of the Federal Reserve Act (12 U.S.C. §§ 375b and 371(c) and section 215.2(f), 215.4(c), and 215.4(b) of Regulation O, promulgated thereunder (12 C.F.R. §§ 215.2(f), 215.4(c), and 215.4(b)).
   ACCORDINGLY, IT IS HEREBY ORDERED, that by reason of the violations set forth above, a penalty of $1,200,000 be, and hereby is, assessed against ***, pursuant to section 18(j)(4) of the FDI Act (12 U.S.C. § 1828(j)(4)).
   IT IS FURTHER ORDERED, that this Order shall be effective and the penalty shall be final and payable twenty (20) days from the date of this Order. The provisions of this Order shall remain effective and enforceable except to the extent that, and until such time as, any provision of this Order shall have been modified, terminated, suspended or set aside by the Board.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 13th day of September, 1988.
Hoyle L. Robinson
Executive Secretary
In the Matter of ***, individually and
as a chairman of the board, director
and principal shareholder, and ***
BANK
(INSURED STATE NONMEMBER
BANK)
RECOMMENDED DECISION

CHARNO, Administrative Law Judge:

   A Notice of Assessment of Civil Money Penalty was issued by the Federal Deposit Insurance Corporation ("FDIC" or "Petitioner") on April 3, 1985, alleging that *** ("Respondent") violated sections 22(h) and 23A of the Federal Reserve Act ("Act"), 12 U.S.C. §§ 375b and 371c, and Federal Reserve regulation O ("Regulation O"), 12 C.F.R. Part 215.
   Respondent requested a hearing on April 15, 1985. Because of the pendency of two other actions initiated by Petitioner against Respondent, the parties agreed to defer the hearing in this proceeding. On October 15, 1987, Respondent moved to dismiss this proceeding on the ground that he had been prejudiced by Petitioner's failure to convene a hearing within 60 days of his request that the case be heard. See 12 C.F.R. § 308.71. Respondent's motion was argued during a prehearing conference on November 10, 1987. At that time, Petitioner made certain evidentiary concessions to cure the thenperceived prejudice resulting from the delay in prosecution.¹ By Order of November 23, 1987, I denied Respondent's motion on the grounds that I did not have authority to grant a motion to dismiss, Respondent's objection had not been raised in a timely fashion, the regulatory requirement of a speedy hearing was not jurisdictional and, most significantly, Petitioner's evidentiary concessions had eliminated any indication of prejudice sufficient to require dismissal.
   This case was heard before me in ***, beginning on December 1 and concluding on December 10, 1987.² Initial briefs were filed by Petitioner and Respondent under extended due date of March 28, and reply briefs were filed by both parties under extended due date of May 2, 1988.

¹ Specifically, Respondent was allowed to supplement the trial record with evidence which would have been introduced through two witnesses who were no longer available to testify.

² Petitioner's unopposed motion to correct the transcript is granted; transcript corrections appear in Appendix A.
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DISCUSSION

I. Alleged Violations

   Petitioner is empowered to assess a civil money penalty for certain violations of the Act committed by insured banks that are not members of the Federal Reserve System ("nonmember insured bank"). 12 U.S.C. §1828(j). In this proceeding, Petitioner alleges that the Respondent has committed three types of violations of the Federal Reserve Act: (1) violations of the lending limits of section 22(H) of the Act and Regulation O, (2) violations of the prior approval requirements of section 22(h) of the Act and Regulation O and (3) violations of the lending limits of section 23A of the Act.
   In substance, section 22(h) of the Act, as implemented by Regulation O, establishes a limit on the aggregate extensions of credit which a nonmember insured bank may make to an executive officer or principal shareholder and to such a person's related interests ("insider"). 12 C.F.R. §215.4(c). Generally, an "extension of credit" to an insider takes place when (1) a loan is made or renewed to an insider; (2) a non-recourse participation is acquired in a loan to an insider; (3) a loan is made which is assumed or guaranteed by an insider or (4) a loan is made, the proceeds of which are "used for the tangible economic benefit of, or are transferred to," an insider. 12 C.F.R. §215.3. If an insider receives an economic benefit from the proceeds of a loan, it is immaterial to the existence of an "extension of credit" that a third party may also benefit from the loan.
   The aggregate lending limit imposed by Regulation O on unsecured extensions of credit to an insider is 15 percent of a bank's unimpaired capital and surplus; extensions of credit equaling an additional 10 percent of capital and surplus may be made where the extensions are fully secured by "readily marketable collateral," the current market value of which may be ascertained through a regularly published listing or an electronic reporting service. 12 C.F.R. §32.4(b). "Readily marketable collateral" is defined as bullion and financial instruments; the definition of the latter term includes only those stocks which are traded on a national securities exchange or are defined as "OTC margin stocks," i.e., stocks appearing in the Federal Reserve Board's periodically published list of OTC margin stocks. 12 C.F.R. §§32.4(c), 221.2(j).
   Regulation O also prohibits extensions of credit greater than five percent of a bank's capital and surplus to insiders or to directors and their related interests unless the extension is approved in advance by a vote of a majority of a bank's board of directors in which the insider or director did not participate. 12 C.F.R. §215.4(b). Under section 215.4(b)(2) of Regulation O, separate drawdowns of a line of credit need not be individually approved if (1) the line of credit itself received advance approval, (2) the drawdown was made within 14 months of such an approval and (3) the drawdown complied with the requirements of 12 C.F.R. §215.4(a). Section 215.4(a) requires, in part, that loans to insiders be made on the same terms, including interest rates and collateral, as those prevailing in loans to non-insiders. Petitioner argues that the incorporation by reference of the requirements of section 215.4(a) by the last sentence of section 215.4(b)(2) indicates that prior approval of a line of credit must be based on a review of information pertaining to the terms of such a credit, including interest rates and collateral. Since the incorporation of section 215.4(a) by reference would be redundant if its only purpose were to insure that each individual drawdown complied with its requirements, I accept Petitioner's argument.
   Section 23A of the Act limits the amount of credit a bank may extend a single affiliate to 10 percent of the bank's capital and surplus. 12 U.S.C. §371c(a)(1)(A). A bank's aggregate loans to affiliates may not exceed 20 percent of capital and surplus. 12 U.S.C. §371c(a)(1)(B). Section 23A further provides that these lending limits apply to the extent that "the proceeds of the transaction are used for the benefit of, or are transferred to," an affiliate. 12 U.S.C. §371c(a)(2).
   A. Background
   *** ("Bank") is an insured nonmember commercial bank chartered by ***. As relevant, Respondent was a director of the Bank, was Chairman of its Board of Directors and controlled more than 75 percent of its stock. Respondent was thus a director, an executive officer and a principal shareholder of the Bank. See 12 C.F.R. §215.2. During the same period, Respondent {{4-1-90 p.A-1330}}owned or controlled the following corporations: ***, ***, ***, ***, and ***. Respondent also controlled one-half of the stock of ***. All of the foregoing corporations are related interests of Respondent, see 12 C.F.R. §215.2(k); *** and *** are affiliates of the Bank, see 12 U.S.C. §371c(b)(1).
B. Direct Extensions of Credit
   The Bank's loan documentation establishes the following direct extensions of credit to Respondent: (1) the origination and five quarterly renewals of a $100,000 note between April 20, 1983 and October 31, 1984, (2) the origination on October 14, 1983 and renewal on November 26, 1984 of a note for $60,032, (3) the October 18, 1983 origination and November 9, 1984 renewal of a $72,000 note, (4) a March 20, 1984 note for $115,400 and (5) an April 16, 1984 note in the amount of $65,000. All of these transactions appear to have been secured by real estate and to have been made as drawdowns on a line of credit approved by the Bank's Board of Directors on March 10, 1983. The minutes of the Board of Directors' meeting on that date indicate that "a line of credit was set for *** up to the maximum amount that *** Bank *** can loan and is to be secured." There is no indication that the Board of Directors was apprised of or approved the interest rates or collateral associated with the line of credit.
   The Bank's loan documentation also establishes the following direct extensions of credit to *** : (1) eight quarterly renewals of a $100,000 note between February 16, 1983 and November 26, 1984, (2) the November 23, 1983 origination and November 26, 1984 renewal of a $40,000 note and (3) the November 28, 1983 origination and November 29, 1984 renewal of a note in the amount of $65,000. The $100,000 note is secured by stock of *** Bank ***, while the remaining loans appear to be secured by real estate. The stock in question is not traded on a national securities exchange, but the record contains credited testimony that its price was quoted in a newspaper at intervals of uncertain frequency. The record contains no indication that this stock appears on the Federal Reserve Board's list of OTC margin stocks.³
   C. Indirect Extensions of Credit
   On January 21, 1983, the Bank loaned $400,000 to ***. *** received $104,321.09 of the proceeds of that loan, while the remainder was transmitted to *** Bank to pay an outstanding loan from that institution which was guaranteed by Respondent. The loan to *** was collateralized by real estate which was leased back to *** in exchange for rental payments equaling interest on the loan and expenses of maintaining the property. There is no evidence that the Bank had a security interest in this lease. The loan was renewed semiannually on August 5, 1983 and February 16, 1984. While the transaction involving this loan was initiated by Respondent,⁴ the record does not establish that he structured the loan in order to obtain operating funds that could not be obtained from other lending sources.⁵
   By note dated January 25, 1983, the Bank loaned *** $55,000. By letter of the same date, *** guaranteed the loan's payment. The loan was secured by real estate, the disposition of which is not of record. The entire proceeds of the loan were transferred to the account of ***, which *** immediately issued checks for $27,500 to *** and ***; both checks were cleared by the paying institution on the date of issue. On February 24, 1984, *** made an interest payment on the note. The preponderance of the evidence does not demonstrate that *** received tangible economic benefit from the proceeds of this loan.⁶ The note was renewed on February 27, 1984.

³ Given the prima facie showing by Petitioner's expert witnesses that the stock of *** Bank *** was not "readily marketable collateral," I find that the burden of persuasion shifted to Respondent to establish the contrary. Respondent did not meet this burden.

⁴ Because of the precise and detailed recollection of this matter by Respondent's associate ***, I credit his testimony over *** and Respondent's generally unreliable memories of the loan.

⁵ Respondent testified that credit was available from sources other than the Bank, while *** demurred. ***'s testimony on this point was vague, speculative, confused and without corroborative detail. When pressed by the bench as to the basis for his statement that Respondent was unable to secure credit, *** referred to a $700,000 loan which had purportedly been denied Respondent by the Bank of *** in 1984; this testimony was controverted by both Respondent and the then-president of the Bank ***. ***'s testimony did not directly address the unavailability of other funds, and there is no reason to believe that he had direct knowledge relating to this question. Similarly, Respondent's bad debt write-offs beginning in 1984 are of little relevance to his ability to secure credit in January of 1982.

⁶ On cross-examination, *** recanted his earlier testimony that the proceeds of the *** loan were used by Respondent to purchase an undivided interest in real estate from *** and admitted that he had no direct knowledge of the circumstances surrounding the *** loan. The record contains no documentary evidence demonstrating that real estate passed from *** to Respondent, and Petitioner's experts did not interpret the loan documentation as showing
(Continued)

{{4-1-90 p.A-1331}}    On April 29, 1982, the Bank loaned $82,000 to ***. This transaction was recorded on the Bank's note form, and it employed the other documentation normally used by the Bank. By letter of April 29, *** assumed the debt. The entire proceeds of the loan were disbursed to ***. The loan was secured by real estate which was leased by *** to *** in exchange for rental payments, which equaled the interest due on the loan and were made by *** directly to the Bank. There is no evidence that the Bank had a security interest in this lease. The loan was renewed quarterly on eight occasions, six of which occurred between February 7, 1983 and April 30, 1984.⁷
   By note executed July 1, 1983, *** Bank loaned $1,305,560.22 to ***, *** and ***. On the same day, the Bank entered a nonrecourse participation in this loan in the amount of $500,000. Proceeds of the loan were distributed to individuals unrelated to Respondent. The loan was collateralized by real estate which was leased to *** under a July 1, 1983 agreement which required *** to make interest payments on the loan. The lease further provided that ***, either at its instance or at that of the *** group, would purchase the pledged real estate by paying the balance due on the loan. Since this provision required *** to pay the loan if requested to do so by the *** group, I find that *** effectively guaranteed the loan. Conversely, since *** had the option to acquire title to the property purchased with the proceeds of the loan, I find that those proceeds were indirectly used for ***'s tangible economic benefit. The loan was renewed quarterly on seven occasions between October 6, 1983 and January 21, 1985.
   On February 29, 1984, the Bank loaned $498,318.97 to ***. The proceeds of the loan were disbursed to retire *** indebtedness on two notes secured by the same real estate which served as collateral for the loan to ***. That real estate was leased back to *** on uncertain terms and conditions, and there is no evidence that the Bank had a security interest in the lease. The loan was renewed on June 25, 1984.

D. Analysis

   Proceeds of the loans to ***, ***, the *** group and *** were used for the tangible economic benefit of Respondent's related interests, and the loans to ***, *** and the *** group were either assumed or guaranteed by such interests. Accordingly, I find these five transactions to be indirect extensions of credit to Respondent's related interests and to be subject to the lending limits of Regulation O. It is uncontested that the eight direct extensions of credit discussed above are also subject to these lending limits. Because none of the security held by the Bank in connection with either the direct or indirect extensions of credit falls within the regulatory definition of "readily marketable collateral," all of these loans are subject to the 15 percent unsecured lending limit of Regulation O.
   The record contains tabular summaries which show the aggregate amounts of these loans, as well as the Bank's total capital and surplus, at the time each extension of credit was originated or renewed. The validity of the capital and surplus calculations in these summaries and the arithmetic accuracy of the summaries themselves is undisputed. Based on this evidence, I find that all of the direct and indirect extensions of credit made to Respondent and his related interests from January 21, 1983 to January 21, 1985 constitute violations of the lending limits established by section 22(h) of the Act and Regulation O. As is obvious, these are precisely defined, technical violations of law, and Respondent's good faith is wholly immaterial to the question of his liability. Fitzpatrick v. FDIC, 765 F.2d 569, 578 (6th Cir. 1985).
   It is uncontested that neither the direct extensions of credit to nor any of the indirect extensions received prior approval by a majority of the Bank's Board of Directors. In the absence of any evidence that the Board considered the rate of interest or the type and amount of collateral applicable to Respondent's line of credit, approval of that line does not constitute "prior approval" within the meaning of Regulation O. I therefore find that each of the extensions of

^{6 Continued:} such a transfer. In addition, the record is clear that *** would have testified that he received "all" the economic benefit engendered by the loan. While ***'s subsequent interest payment is suggestive, it is consistent with a guarantee of the loan. Mere suggestion does not meet Petitioner's burden of proof on this issue.

⁷ Specifically, the loan was renewed on February 7, April 28, July 25 and October 31 during 1983 and on January 30 and April 30 during 1984.
{{4-1-90 p.A-1332}} Bank's affiliates between July 1, 1983 and December 31, 1985 violate the 20 percent lending limit of section 23A.

II. Amount of the Penalty

Because Respondent committed violations of the Federal Reserve Act which render him liable for payment of a civil money penalty, the size of that penalty must be determined. The maximum penalty which may be imposed is limited by statute to $1,000 for each day during which a violation continues. 12 U.S.C. §18(j)(3)(A). In determining the actual penalty to be imposed, Congress has mandated that:

shall

The relative weight to be given each of these statutory factors is within the agency's discretion, which cannot be exercised arbitrarily and must be based on reasoned analysis and substantial evidence. See Butz v. Glover Livestock Co., 411 U.S. 182, 185 (1973).
The Board of Directors of the FDIC has adopted the "Interagency Policy Regarding the Assessment of Civil Money Penalties by the Federal Financial Institutions Regulatory Agencies" ("Interagency Policy") which provides:

In determining the amount

This emphasis on deterrence accurately reflects the legislative history of the statutory scheme authorizing the imposition of civil money penalties. See S. Rep. No. 95-323, 95th Cong., 1st Sess. 9 (1977); H. Rep. No. 95-1383, 95th Cong., 2d Sess. 17 (1978). The removal of any economic benefit received by Respondent may appropriately be considered in the context of the statutory factor concerning the gravity of Respondent's offense, while the deterrent aspect of the penalty is clearly relevant as a matter which "justice may require."
The Interagency Policy also lists thirteen elements which an agency should consider in determining whether to initiate a civil money penalty assessment proceeding. Since these elements explicitly relate only to the decision to initiate a proceeding, they cannot be concluded to control the amount of the penalty ultimately set in such a proceeding. As relevant, these elements will be considered in the context of the five statutorily mandated factors set out above.

[.4] A. Size of Financial Resources

   Any consideration of Respondent's financial resources must be prefaced by two legal principles. Respondent's ability to pay a civil money penalty is not limited by his net worth. See [1986] F.D.I.C. Enf. Dec. (P-H) ¶5063. Moreover, it is appropriate to take Respondent's future earning capacity into account in determining the size of such a penalty. See Raney v. Honeywell, Inc., 540 F.2d 932, 936 (8th Cir. 1976); [1987] F.D.I.C. Enf. Dec. (P-H) ¶5082.
   Respondent has controlled at least twenty corporate entities over the past two decades, and he and these entities have engaged in an extensive series of complex transactions among themselves involving numerous loans and sales of assets. Petitioner's 1984 Report of Examination establishes that its employees were not unaware of this situation at the time of that Report.⁸
   Respondent contends that he has a personal negative net worth of $2,880,620, but the evidence does not begin to support this contention. Respondent's unaudited statement of liabilities dated September 28, 1987 is incomplete and does not accurately reflect his true net worth. The statement confuses direct and contingent liabilities, omits at least one significant asset and ov-

⁸ Over 29 months elapsed between the time Petitioner became aware that this case would go to trial and the time it initiated discovery. At the hearing, counsel for Petitioner indicated his belief that Respondent had fully complied with Petitioner's subpoenas for financial records. The record also indicates that Respondent's personal and corporate accountant was made available to explain what Respondent's records meant and how they were kept. Under these circumstances, Petitioner cannot be heard to argue that Respondent's financial affairs were too complex to allow analysis.
{{4-1-90 p.A-1333}}lishes that its employees were not unaware of this situation at the time of that Report.
Respondent contends that he has a personal negative net worth of $2,880,620, but the evidence does not begin to support this contention. Respondent's unaudited statement of liabilities dated September 28, 1987 is incomplete and does not accurately reflect his true net worth. The statement confuses direct and contingent liabilities, omits at least one significant asset and overstates direct liabilities. Petitioner's expert witness suggested modifying Respondent's statement by (1) adding Respondent's anticipated tax refund, (2) adjusting the amount of direct liability attributable to the *** loan to conform to Respondent's prior financial statements, (3) excluding the *** and *** loans which were not shown to be personal obligations of Respondent⁹ and (4) excluding the contingent liabilities represented by claims in unlitigated lawsuits. Adopting these modifications, which appear to be both reasonable and supported by the record, Respondent's balance sheet may be recast as follows:

Assets
Residence	$240,000
Tax refund	$104,000
Other asset (pledged
on loans purportedly
equalling or exceed-
ing asset value)	$794,000
	_________
	$1138000
Liabilities
	$188,000
FDIC	$670,000
	$300,000
	$542,000
IRS	$86,000
	$75,000
Attorneys	$44,000
	$60,000
	_________
	$1,965,000

The $827,000 negative net worth derived from this revision is not a realistic figure because Respondent valued a "significant portion" of his assets at depreciated original cost, rather than fair market value.¹⁰ Accordingly, Respondent's indication that "liabilities exceed assets" of five of his corporations is meaningless in determining his true net worth. Similarly, the reported value of pledged assets on the September 28 statement ($1,173,000) may significantly understate their actual value.
Petitioner's calculation of Respondent's financial resources is of equally marginal utility in determining Respondent's ability to pay a civil money penalty. ***, Petitioner's principal expert witness, testified that Respondent had a present net worth (i.e., sources of value "realizable" within one year) of $1.7 million and a capacity to generate income over the next 15 years amounting to $4.8 million. Mr. ***'s net worth figure does not take into account any of the direct liabilities noted in the recast balance sheet set out above and his potential future income figure was reached without making any offset for Respondent's potential future liabilities of $4,138,589.¹¹
Virtually the only element of Mr. ***'s calculations which is not at issue is a tax refund claim in the amount of $104,000; unfortunately, this amount was separately included in both the present net worth and future income figures, a logical impossibility. The remaining elements of Mr. ***'s calculations were drawn from the income tax returns of Respondent and his related interests and consist of bad debt recoveries, corporate loss tax carryforwards, personal capital loss tax carryforwards and personal investment interest tax carryforwards.¹²

⁹ In any event, these loans are secured by properties with values at least equal to the loan balances.

¹⁰ *** credibly so testified.

¹¹ This is the total amount of contingent liability set forth in Respondent's September 28 statement but excluded from the recast balance sheet. It does not include $800,000 of the liability attributed by Respondent to this proceeding nor a $750,000 loan from the *** which was assumed by ***, an entity unrelated to Respondent.

¹² Mr. ***'s testimony also identified "gains" from the sale of real estate as a potential source of value for Respondent. While Petitioner has not requested a finding of fact on this matter, it should be noted that the record does not establish whether such gains were merely paper profits caused by depreciation or were gains accompanied by
(Continued)

{{4-1-90 p.A-1334}}    Mr. *** identified inter-company notes receivable which had been written off amounting to $5,579,000. Based on a 10 percent recovery rate "used in banking," Mr. *** testified that Respondent could recover $560,000 in one year. Reviewing inter-company loans of $4.4 million written off by Respondent's related interests ***, ***, *** and ***, Mr. *** opined that Respondent could recover $2.2 million over 15 years based on the ability of these companies to generate income in the future. The record does not support either of these estimates. First, there is no indication that, if all the loans among Respondent and his related interests were netted out, a positive cashflow would result. Second, past recoveries do not support the possibility of significant future recoveries because the former were generally very small in relation to the associated write-offs; exceptions to this observation involved liquidation of the borrower's principal asset, an obviously nonrecurring situation. Third, the profit-making ability of the four companies chosen by Mr. *** is questionable. Based on 1984 commissions of $335,000 and consulting fees of $217,000, Mr. *** opined that *** had the capacity to generate $500,000 in income each year (presumably before expenses). This projection unaccountably fails to take into account the financial collapse of Respondent's corporate holdings; in 1986, *** generated gross income of $1,000 from commissions and $28,000 from consulting fees. Mr. *** also testified that the two real estate developers, *** and ***, as well as ***, could once again generate income if they secured a "source of financing." Given the undisputed existing liabilities of these three companies, the imminent discovery of a source of financing seems relatively unlikely. Finally, Respondent's actual cash recoveries on bad debts have averaged $3,000 a month¹³ or $36,000 a year, and I find that this figure provides a reasonable basis for measuring his future income potential from bad debt recoveries.
   Mr. *** also identified $5,875,000 in corporate loss tax carryforwards available to Respondent's related interests. Using a 34 percent corporate tax rate, Mr. *** indicated that these losses represented a potential tax saving of $1,960,000. He estimated that this saving had an immediately realizable value of $1 million on the theory that a profit-making corporation might acquire Respondent's related interests in order to avoid taxes. Mr. *** also indicated that these carryforwards represented $2 million in future income to Respondent. Clearly, if the carryforwards were "sold," thereby generating present net worth, they cannot also generate future income. More significantly, the Internal Revenue Code disallows the use of loss carryforwards by an acquiring corporation when the acquisition is made for the principal purpose of avoiding taxes. 26 U.S.C. §269. Section 621 of the tax Reform Act of 1986, 26 U.S.C. §382, further severely restricts the use of tax loss carryforwards.¹⁴
   Respondent has a personal capital loss carryforward of $248,000. Mr. *** noted that this would generate tax savings of $840 annually and stated "scratch that. . .it is too minor." He then opined that this carryforward would generate $60,000 in income over a 15-year period. The latter opinion must be premised on an implicit assumption that Respondent would realize $3,000 in taxable income annually for 15 years and a total of $169,285 in taxable capital gains during the period; ¹⁵ the latter possibility was not discussed by Mr. *** and is without record support. In the absence of such report, I must reject Mr. ***'s $60,000 estimate.
   Finally, Respondent has a personal "investment interest" carryforward of $852,000. Mr. *** stated that this could be used to offset a maximum of $25,000 in ordinary income annually, which would increase Respondent's net worth within one year by a tax saving of $7,000. Mr. *** also opined that the interest carryforward would generate future income over 15 years of $240,000 or $16,000 per year. The failure of the latter annual income figure to meet the explicit annual limit of $7,000 used to

^{12 Continued:} cashflow. In any event, there is no evidence of significant remaining assets which might be used to generate similar "gains" in the future.

¹³ I credit the testimony of Respondent's accountant to this effect.

¹⁴ Mr. *** candidly admitted that he was not fully conversant with the tax laws. Since there is little reason to acquire a presently inoperative corporation whose liabilities exceed its assets except for tax avoidance, I reject the legal basis for Mr. ***'s calculation of this element of Respondent's net worth. Similarly, the preponderance of the evidence does not establish that Respondent's related interests are likely to generate future taxable income totalling $5.9 million, the minimum amount necessary to permit conversion of the carryforwards to tax savings.

¹⁵ Capital losses may not be used to offset more than $3,000 of ordinary income in a single year. 26 U.S.C. §1211(b).
{{4-1-90 p.A-1335}}establish Mr. ***'s net worth figure is unexplained. Far more important than this conceptual inadequacy is the fact that Mr. *** gave no consideration to Section 511(a) of the Tax Reform Act of 1986, 26 U.S.C. §163(d), which severely limits the deductibility of both investment and passive activity interest.¹⁶ Absent such consideration, Mr. ***'s analysis must be concluded to be without probative value.
In sum, Petitioner's presentation on the question of Respondent's financial resources amounts to good faith estimates unsupported by substantial evidence and formulated without taking into account a number of crucial considerations. The only additions to Respondent's net worth which may legitimately be based on Petitioner's evidence are $36,000 in bad debt recoveries and an $840 capital loss tax saving. Given Respondent's failure to carry many of his assets at fair market value, it cannot be ascertained whether his present net worth is positive or negative. In contrast, Respondent's potential net income over the next 15 years would amount to at least $1 million, based primarily on bad debt recoveries of $540,000 (made possible in part by corporate loss carryforwards) and consulting fees of $450,000. The remaining possibilities for income generation asserted by Petitioner are too speculative to quantify and any benefit therefrom could easily be offset by Respondent's contingent liabilities and the outstanding liabilities of his related interests.

B. Good Faith

   Mr. *** reviewed and evaluated the record in this case in the context of a number of regulatory criteria relating to the issue of Respondent's good faith. Mr. *** found no evidence of agreements, commitments or orders intended to prevent the subject violations; no evidence of a compliance program and no evidence that Respondent had failed to cooperate with Petitioner. He accordingly rated the impact of these criteria as "neutral." Because Respondent's inability to repay his loans left "not much that could have been done," Mr. *** rated Respondent's continuation of the instant violations after becoming aware of them as only "slightly negative." Mr. ***'s evaluation of these factors is supported by the record, and I adopt it.
   The most significant conclusions reached by Mr. *** regarding Respondent's good faith concern the question of the latter's intent. Mr. *** testified that he could not say that there was "hard evidence of concealment," although he concluded that Respondent had engaged in a "pattern of circumvention" and "clouding the issue."¹⁷ Indeed, the record shows Respondent to be accomplished at creating misleading impressions without actually telling a lie.¹⁸ In response to a question of whether Respondent's violations evidenced criminal intent or a disregard for the law, Mr. *** replied "I definitely think that the violations were done with disregard for the law and the quality of the loans that are not on the book would indicate a disregard for consequences to the institution."¹⁹ Mr. *** found the lack of evidence of concealment to be "neutral" but characterized Respondent's demonstrated disregard for the law as a "very negative" factor in determining the size of a penalty.
   The record supports Mr. ***'s conclusion that Respondent acted with complete disregard for the law. Respondent is an intelligent, sophisticated businessman with over a decade of experience as a director, executive officer and principal shareholder of a number of banks supervised by Petitioner. In matters relating to the instant violation, Respondent effectively controlled the actions of the Bank's President, ***. The latter reported daily to Respondent, took instructions from Respondent on making loans and disbursing proceeds and signed Respondent's name to promissory notes. Respondent initiated the transactions leading to each of the indirect extensions of

¹⁶ It is uncertain from the record how Respondent's interest carryforward would be classified.

¹⁷ Petitioner's apparent contention on brief that Respondent attempted to hide an interest in the five indirect extensions of credit from state and federal bank examiners is untenable. Virtually all of the documentary evidence relating to those loans was obtained by Petitioner's examiners from the Bank's loan files. Full documentation does not constitute concealment.

¹⁸ The check used to make a $40,000 principal payment on the *** loan and Respondent's November 30, 1987 disclaimer of the genuineness of his signature on certain notes are illustrative.

¹⁹ In response to a series of leading questions from Petitioner's counsel, Mr. *** thereafter testified that there were "strong indications that there was intent and disregard for the law, intent to violate it." There is no direct evidence of criminal intent on the part of Respondent, and I find Mr. ***'s earlier, unprompted testimony to be the more reliable.
{{4-1-90 p.A-1336}}credit. He structured the resulting loans, was responsible for their origination by the Bank and was fully aware of the manner in which the proceeds of those loans were disbursed. Respondent never informed the Bank's Board of Directors that corporations he controlled had an economic interest in these indirect extensions of credit. Finally, Respondent initiated at least one of these loans specifically to circumvent the lending limits of Regulation O.²⁰

[.5] While the preponderance of the evidence does not demonstrate that Respondent knowingly violated the relatively complicated statutory and regulatory provisions involved here, there can be no question that he was aware of the existence of legal limitations on his activities and did nothing to explore the parameters of those limitations. Instead, he repeatedly acted in his own interest in highly imprudent disregard of his legal and ethical obligations. Accordingly, I find that Respondent's violations were not committed in good faith.

C. Gravity of the Violation

   The record discloses 82 lending limit violations which were in effect for 3,063 days and 45 violations of the prior approval requirements of Regulation O.²¹ Accordingly, the maximum civil money penalty which may be imposed in this case is $3,108,000.
   The number and duration of violations set out above are due in part to the fact that all of the indirect and most of the direct extensions of credit were automatically renewed by the Bank on numerous occasions. Thus, thirteen loans resulted in sixty extensions of credit. Mr. *** viewed the Bank's failure to correct these violations when loans were renewed as a "somewhat negative" factor. The record, however, contains no indication that Respondent requested, instigated, directed or controlled any of these renewals. The number and duration of violations are also magnified by the fact that each of the sixty extensions of credit may have caused as many as five different statutory violations. Petitioner concedes on brief that the fact that a single transaction may cause multiple violations may be taken into account as a mitigating factor. For the foregoing reasons, I find that the gravity of the violations in this case cannot accurately be gauged by focusing on the number of violations or upon their cumulative duration.
   In contrast, the financial or economic benefit enjoyed by Respondent is a wholly appropriate measure of the gravity of his violations, and removal of that benefit is the focus of the central injunction of the Interagency Policy on civil money penalties. In this case, Mr. *** equated benefit to Respondent with loss to the Bank and believed the combined factor was entitled to "significant" weight in determining the size of a penalty. Pursuant to Petitioner's instructions to calculate loss as of the date of the hearing, ²² Mr. *** estimated loss to the Bank as $900,000.²³ His use of methodology notwithstanding, Mr. *** went on to testify that the amount of loss is usually determined when a loan is charged off a bank's books or is formally identified in a report of examination. The loans in this case were identified in Petitioner's June 22, 1984 Report of Examination and were charged off by the Bank on December 17, 1985.
   There are several considerations which gainsay a December 1987 calculation of loss to the Bank. First, Petitioner's expert indicated that the calculation of loss 2½ years after the associated loans appeared in a report of examination and two years after they were charged off is not Petitioner's normal practice. Far more significant is the fact that it would be impossible to calculate loss as of December 1987 if this case had been litigated when Respondent requested a hearing on April 15, 1985. While Respondent acquiesced in the delay, the adverse consequences of his acquiescence were never suggested to him and he was without counsel during the year preceding the hearing. I therefore find that Respondent would be severely prejudiced by Petitioner's failure to promptly litigate this case (as required by its regulations) if a 1987 calcula-

²⁰ Respondent testified that he initiated the *** loan after a prior direct loan to *** was criticized in a November 4, 1983 bank examination. The report of that examination scheduled the loan to *** as violative of the 15 percent lending limit of Regulation O and the 20 percent limit of Section 23A.

²¹ In its reply brief, Petitioner raises for the first time 23 additional violations of the 10 percent lending limit of section 23A(a)(1)(A) of the Act, which were in effect for 1,076 days. Consideration of these additional violations is precluded by Respondent's inability to respond.

²² Mr. *** testified that he used "today's figures" because he "was asked" to do so.

²³ This figure, which constitutes a 25 percent reduction of the amount set forth in Respondent's documentary exhibits, was well supported by Mr. ***.
{{4-1-90 p.A-1337}}tion of loss were adopted.²⁴ This conclusion is not weakened by the fact that this case was delayed during a period when the market for and, therefore, the value of Respondent's collateral was precipitously declining.²⁵
Accordingly, I find that loss to the Bank and, consequently, benefit to Respondent should be calculated as of the time Respondent requested a hearing in this case.²⁶ Mr. ***'s expert opinion of loss to the Bank at that time was $390,000, and I accept that determination.

D. History of Previous Violations

   The *** Bank *** was criticized for apparent violations of section 23A during Respondent's tenure as a principal shareholder and director. Thus, a 1978 FDIC Report of Examination scheduled one loan to an affiliate of Respondent as a violation of the collateral requirements of section 23A. Petitioner's 1979 Report of Examination scheduled three loans to Respondent's affiliates as violations of the collateral requirements and of the 10 and 20 percent lending limits of section 23A. Finally, Petitioner's 1980 Report of Examination scheduled a loan to one of Respondent's affiliates as a violation of the collateral requirements of section 23A.²⁷
   Criticisms and warnings of violations of Regulation O and section 23A are also found in reports of examinations of the Bank during the period Respondent was a principal shareholder and director of that institution. The FDIC's 1978 Report of Examination scheduled three loans to Respondent's affiliates as violations of the collateral requirements of section 23A²⁸ Petitioner's 1979 Report of Examination scheduled two loans to Respondent's affiliates as violations of the collateral requirements of Section 23A and the prior approval requirements of Regulation O. In 1981, a Report of Examination by the FDIC scheduled a loan to one of Respondent's affiliates as a violation of the collateral requirements of section 23A and the prior approval requirements of Regulation O. Finally, ***'s 1982 Report of Examination of the Bank scheduled a loan to Respondent as a violation of Regulation O's prohibition of preferential terms and scheduled three loans to Respondent's related interests as violations of (1) the collateral requirements of section 23A, (2) the 20 percent lending limit of section 23A and (3) the 15 percent lending limit of Regulation O.
   Mr. *** opined that Petitioner's criticisms of the Bank in 1979 and 1981 should be weighed "very heavily" in assessing a penalty. He went on to testify that Respondent's history of violations was not as extensive as the violations revealed by the 1984 examination and characterized Respondent's history as a "slightly negative" factor in determining the size of a penalty. I find that Respondent's prior history, while it generally chronicles offenses factually dissimilar to the violations involved in this case, demonstrates a continuing failure on Respondent's part to exercise reasonable prudence in his role as a principal shareholder, executive officer and director of the Bank.

E. Other Matters As Justice May Require

Three further matters must be considered which bear on the appropriate size of the penalty to be assessed in this case: the tendency of Respondent's violations to create an unsafe or unsound banking practice or condition, Respondent's failure to make restitution and the deterrent emphasis of the legislative policy underlying the statutory authorization of civil money penalties.
The FDIC's 1984 Report of Examination establishes that the total extensions of credit by the Bank to Respondent and his related interests equaled approximately 14 percent of the Bank's total loans. Moreover, these extensions of credit amounted to more than 120 percent of the Bank's total

²⁴ This finding constitutes a rejection of Mr. ***'s testimony on this issue only insofar as (1) he did not consider the due process implications of a 1987 calculation of loss and (2) such consideration would have been outside his field of expertise.

²⁵ Petitioner concedes that there is substantial testimony regarding "declining real estate values and the depressed *** economy;" I credit this testimony.

²⁶ This ruling moots the issue of the effect of a bank's failure to promptly liquidate collateral during a period in which the market for such collateral was declining.

²⁷ The record and my copies of Petitioner's 1983 Report of Examination of the *** Bank are missing pages 6-b-1, 6-b-2 and 6-b-3, making it impossible to ascertain whether Respondent's affiliates were cited for violations during this examination.

²⁸ The record and my copies of the relevant exhibit are incomplete, making it impossible to ascertain if the cited loans also violated section 23A's lending limit prohibitions.
{{4-1-90 p.A-1338}}equity capital and reserves. Petitioner's expert witness *** indicated that these loans had caused a declining capital position with a large volume of low-quality assets which "almost resulted in the bank's failure." Similarly, Mr. *** found that the unsafe and unsound banking condition created by Respondent's violations was "very severe" and should be given "very heavy weight" in assessing a penalty. I find the judgment of both experts on this matter to be wellfounded.
The record demonstrates that, rather than make restitution to the Bank, Respondent transferred certain assets to his children after the commencement of this proceeding. On August 5, 1986, Respondent transferred the stock of *** and *** to ***, a corporation controlled by his children, for consideration amounting to $500. On February 17, 1987, *** sold the assets of *** and *** for aggregate consideration of $1,045,324; this resulted in a net profit to of $128,892.²⁹ Mr. *** believed that Respondent's failure to use these assets to make restitution to the Bank was a "negative" factor in determining the amount of the penalty to be posed in this case. I accept this judgment.
Finally, both the legislative history cited above and Mr. ***'s testimony clearly establish that deterrence is a crucial factor in determining the size of a civil money penalty. Mr. *** indicated that the need for punishment and deterrence in this case justified assessment of a fine which was 36 percent greater than the loss suffered by the Bank.³⁰

F. Analysis

The Interagency Policy mandates that a civil money penalty must, at a minimum, remove the economic benefit flowing from an offender's violations. Since that benefit in this case may be measured by loss to the Bank, an appropriate penalty can be no less than $390,000. Taking into account the mitigating and aggravating circumstances discussed above,³¹ as well as the deterrent objective of the underlying statutory scheme, I find that Mr. ***'s recommendation of a penalty 36 percent larger than the Bank's losses is justified in this case. Accordingly, I shall order Respondent to pay a civil money penalty of $530,400. While this amount may exceed Respondent's net worth, it is within his projected earning capacity over the next 15 years.

FINDINGS OF FACT³²

   1. At all times relevant to this proceeding, the Bank was a commercial bank organized and chartered under the laws of ***, having its principal place of business in ***.
   2. At all times relevant to this proceeding, the Bank was insured by the FDIC and was not a member of the Federal Reserve System.
   3. At all times relevant to this proceeding, Respondent was a director and served as Chairman of the Board of Directors of the Bank.
   4. At all times relevant to this proceeding, including and continuing through the end of calendar year 1985, Respondent directly or indirectly owned or controlled more than 75 percent of all of the stock of the Bank.
   5. At all times relevant to this proceeding, all of the stock of ***, a *** corporation, was owned and controlled by Respondent.
   6. At all times relevant to this proceeding, all of the stock of ***, a *** corporation, was owned and controlled by Respondent.
   7. At all times relevant to this proceeding, one-half of all of the stock of ***, a *** corporation, was controlled by Respondent.
   8. At all times relevant to this proceeding, all of the stock of ***, a *** corporation, was owned and controlled by Respondent.
   9. The FDIC conducted regular examinations of the Bank as of October 19, 1979, April 30, 1981 and June 22, 1984; written reports of examinations were prepared reflecting the results of such FDIC examinations.
   10. FDIC examinations of the Bank were conducted for the purpose of determining, inter alia, whether the Bank is being oper-

²⁹ I find the most reliable evidence of the size of ***'s profit to be Mr. ***'s notes of his conversation with Respondent's accountant.

³⁰ Specifically, Mr. *** assumed a loss of between $900,000 and $975,000 and recommended a fine of $1,225,000.

³¹ I have also considered those factors bearing on mitigation and an offender's subjective pain level, such as the size of attorneys' fees and possible future professional restrictions, which are discussed in the article cited by Petitioner on brief. See Diver, The Assessment and Mitigation of Civil Money Penalties by Federal Administrative Agencies, 79 Colum. L. Rev. 1435 (1979).

³² The findings of fact requested by the parties have been modified, supplemented or deleted as required by the preceding discussion. Proposed findings hereinafter omitted but not discussed previously are either redundant or irrelevant.
{{4-1-90 p.A-1339}}ated in compliance with applicable laws and regulations.
   11. On January 21, 1983, the Bank extended indirect credit to Respondent and *** in the aggregate amount of $400,000 by making a new loan to *** in the same amount ("*** loan") and by transferring all of the proceeds of such loan to the tangible economic benefit of Respondent and ***; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent and *** equaled $582,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $255,300, and exceeded 25 percent of such capital and surplus by $37,600.
   12. On January 25, 1983, the Bank extended indirect credit to *** in the amount of $55,000 by making a new loan to *** in the same amount (`*** loan") which was fully guaranteed by ***; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent and equaled $637,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $310,300, and exceeded 25 percent of such capital and surplus by $92,500.
   13. On February 7, 1983, the Bank extended indirect credit to *** in the amount of $82,000 by renewing a loan previously made by the Bank to *** in the same amount ("*** loan") which was assumed by *** and the proceeds of which had been transferred to the tangible economic benefit of ***; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent and *** equaled $637,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $310,300, and exceeded 25 percent of such capital and surplus by $92,500.
   14. On February 16, 1983, the Bank extended direct credit to *** in the amount of $100,000 by renewing a loan previously made by the Bank to *** in the same amount (`"*** I loan"); as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent and *** equaled $637,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $310,000, and exceeded 25 percent of such capital and surplus by $92,500.
   15. On April 20, 1983, the Bank extended direct credit to Respondent in the amount of $100,000 by making a new loan to Respondent in the same amount ("*** I loan"); as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent and *** equaled $727,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $380,500, and exceeded 25 percent of such capital and surplus by $149,500.
   16. On April 28, 1983, the Bank extended indirect credit to *** in the amount of $72,000 by renewing the unpaid balance of the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent and *** equaled $727,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $380,500, and exceeded 25 percent of such capital and surplus by $149,500.
   17. On May 13, 1983, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent and equaled $727,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $380,500, and exceeded 25 percent of such capital and surplus by $149,500.
   18. On July 1, 1983, the Bank extended indirect credit to *** in the amount of $500,000 by purchasing (without recourse {{4-1-90 p.A-1340}}to the selling bank) a participation in the same amount in a new loan made by selling bank to ***, *** ("*** loan") which was indirectly guaranteed by *** and in which all of the proceeds of such loan (including the proceeds of the participation interest purchased by the Bank) were transferred indirectly to the tangible economic benefit of ***, as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,227,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $862,800, and exceeded 25 percent of such capital and surplus by $620,000.    19. On July 25, 1983, the Bank extended indirect credit to *** in the amount of $72,000 by renewing the unpaid balance of the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,227,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $862,800, and exceeded 25 percent of such capital and surplus by $620,000.
   20. On August 5, 1983, the Bank extended indirect credit to Respondent and *** in the aggregate amount of $400,000 by renewing the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,227,000, which aggregate amount credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $862,800, and exceeded 25 percent of such capital and surplus by $620,000.
   21. On August 25, 1983, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,227,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $862,800, and exceeded 25 percent of such capital and surplus by $620,000.
   22. On October 6, 1983, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,227,000, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $865,050, and exceeded 25 percent of such capital and surplus by $623,750.
   23. On October 14, 1983, the Bank extended direct credit to Respondent in the amount of $60,032 by making a new loan to Respondent in the same amount ("*** II loan"); as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,287,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $925,082, and exceeded 25 percent of such capital and surplus by $683,782.
   24. On October 18, 1983, the Bank extended direct credit to Respondent in the amount of $72,000 by making a new loan to Respondent in the same amount ("*** III loan"); as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,359,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $997,082, and exceeded 25 percent of such capital and surplus by $775,782.
   25. On October 20, 1983, the Bank extended direct credit to Respondent *** in the amount of $100,000 by renewing *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,359,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and {{4-1-90 p.A-1341}}surplus of the Bank as of the end of the previous calendar quarter by $997,082, and exceeded 25 percent of such capital and surplus by $755,782.
   26. On October 31, 1983, the Bank extended indirect credit to *** in the amount of $72,000 by renewing the unpaid balance of the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,359,032, which aggregate amount of credit exceeded 5 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $997,082, and exceeded 25 percent of such capital and surplus by $755,782.
   27. On November 14, 1983, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,359,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $997,082, and exceeded 25 percent of such capital and surplus by $755,782.
   28. On November 23, 1983, the Bank extended direct credit to *** in the amount of $40,000 by making a new loan to *** in the same amount ("*** loan"); as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,399,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,037,082, and exceeded 25 percent of such capital and surplus by $795,782.
   29. On November 28, 1983, the Bank extended direct credit to *** in the amount of $65,000 by making a new loan to *** in the same amount ("*** III loan"); as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,464,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,102,082, and exceeded 25 percent of such capital and surplus by $860,782.
   30. On January 4, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,464,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,111,532, and exceeded 25 percent of such capital and surplus by $876,532.
   31. On January 20, 1984, the Bank extended direct credit to Respondent in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,464,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,111,532, and exceeded 25 percent of such capital and surplus by $876,532.
   32. On January 30, 1984, the Bank extended indirect credit to *** in the amount of $72,000 by renewing the unpaid balance of the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,464,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,111,532, and exceeded 25 percent of such capital and surplus by $876,532.
   33. On February 14, 1984, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,464,032, which aggregate amount of credit exceeded 15 percent of the {{4-1-90 p.A-1342}}unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,111,532, and exceeded 25 percent of such capital and surplus by $876,532.
   34. On February 16, 1984, the Bank extended indirect credit to Respondent and *** in the aggregate amount of $400,000 by renewing the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank of Respondent, *** and *** equaled $1,464,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,111,532 and exceeded 25 percent of such capital and surplus by $876,532.
   35. On February 27, 1984, the Bank extended indirect credit to *** in the amount of $55,000 by renewing the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, *** and *** equaled $1,464,032, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,111,532, and exceeded 25 percent of such capital and surplus by $876,532.
   36. On February 29, 1984, the Bank extended indirect credit to *** in the amount of $498,319 by making a new loan to *** in the same amount ("*** loan") and by transferring all of the proceeds of such loan to the tangible economic benefit of ***; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $1,962,351, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,609,851, and exceeded 25 percent of such capital and surplus by $1,374,851.
   37. On March 20, 1984, the Bank extended direct credit to Respondent in the amount of $115,400 by making a new loan to Respondent in the same amount; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $2,077,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,725,251, and exceeded 25 percent of such capital and surplus by $1,490,251.
   38. On April 3, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $2,077,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,709,151, and exceeded 25 percent of such capital and surplus by $1,461,751.
   39. On April 16, 1984, the Bank extended direct credit to Respondent in the amount of $65,000 by making a new loan to Respondent in the same amount; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $2,142,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,773,151, and exceeded 25 percent of such capital and surplus by $1,526,751.
   40. On April 20, 1984, the Bank extended direct credit to Respondent in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $2,142,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,773,151, and exceeded 25 percent of such capital and surplus by $1,526,751.
   41. On April 30, 1984, the Bank extended indirect credit to *** in the amount of $72,000 by renewing the unpaid balance of the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Re- {{4-1-90 p.A-1343}}spondent, ***, *** and *** equaled $2,142,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,773,151, and exceeded 25 percent of such capital and surplus by $1,526,751.
   42. On May 16, 1984, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $2,142,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,773,151, and exceeded 25 percent of such capital and surplus by $1,526,751.
   3. On June 25, 1984, the Bank extended indirect credit to *** in the amount of $498,319 by renewing the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $2,142,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,773,151, and exceeded 25 percent of such capital and surplus by $1,526,751.
   44. On July 2, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $2,142,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,764,751, and exceeded 25 percent of such capital and surplus by $1,512,751.
   45. On July 16, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $2,102,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,724,751, and exceeded 25 percent of such capital and surplus by $1,472,751.
   46. On July 20, 1984, the Bank extended direct credit to Respondent in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $2,102,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,724,751, and exceeded 25 percent of such capital and surplus by $1,472,751.
   47. On August 29, 1984, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $1,780,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,402,751, and exceeded 25 percent of such capital and surplus by $1,150,751.
   48. On October 4, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent ***, ***, *** and *** equaled $1,780,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,390,751, and exceeded 25 percent of such capital and surplus by $1,130,751.
   49. On October 31, 1984, the Bank extended direct credit to Respondent in the amount of $100,000 by renewing the *** I loan; as of the same date and following such {{4-1-90 p.A-1344}}extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $1,780,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,390,751, and exceeded 25 percent of such capital and surplus by $1,130,751.
   50. On November 9, 1984, the Bank extended credit to Respondent in the amount of $72,000 by renewing the *** III loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $1,780,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,390,751, and exceeded 25 percent of such capital and surplus by $1,130,751.
   51. On November 26, 1984, the Bank extended credit to Respondent in the amount of $60,032 by renewing the *** II loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $1,780,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,390,751, and exceeded 25 percent of such capital and surplus by $1,130,751.
   52. On November 26, 1984, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $1,780,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,390,751, and exceeded 25 percent of such capital and surplus by $1,130,751.
   53. On November 26, 1984, the Bank extended direct credit to *** in the amount of $40,000 by renewing the *** II loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $1,780,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,390,751, and exceeded 25 percent of such capital and surplus by $1,130,751.
   54. On November 29, 1984, the Bank extended direct credit to *** in the amount of $65,000 by renewing the *** III loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $1,780,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,390,751, and exceeded 25 percent of such capital and surplus by $1,130,751.
   55. On January 21, 1985, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** equaled $1,780,751, which aggregate amount of credit exceeded 15 percent of the unimpaired capital and surplus of the Bank as of the end of the previous calendar quarter by $1,390,751, and exceeded 25 percent of such capital and surplus by $1,130,751.
   56. Following the date of the extension of credit identified in Finding of Fact 11, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** *** continued to exceed 25 percent of the unimpaired capital and surplus of the Bank through the end of calendar year 1985.
   57. All of the loans, renewals of loans and other extensions of credit reflected in Findings of Fact 11 through 55, which total 54 transactions, were funded and otherwise consummated by the Bank without prior approval by a majority of the entire Board of Directors of the Bank of the more significant terms of such loans and extensions of credit.
   58. On July 1, 1983, the Bank extended indirect credit to *** in the amount of {{4-1-90 p.A-1345}}$500,000 by purchasing (without recourse to the selling bank) a participation in the same amount in the *** loan; as of the same date the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and surplus of the Bank by $267,762, and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $831,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $366,844.
   59. On July 25, 1983, the Bank extended indirect credit to *** in the amount of $72,000 by renewing the unpaid balance of the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $831,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $370,999.
   60. On August 5, 1983, the Bank extended indirect credit to *** in the amount of $104,321 by renewing the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $831,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $365,091.
   61. On August 25, 1983, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $831,321, which aggregate amount credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $358,732.
   62. On October 6, 1983, the Bank extended indirect credit to *** in the amount of $500,000, by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and surplus of the Bank by $262,636, and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $831,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $356,594.
   63. On October 31, 1983, the Bank extended indirect credit to *** in the amount of $72,000 by renewing the unpaid balance of the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $831,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $348,190.
   64. On November 14, 1983, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $871,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $349,568.
   65. On November 23, 1983, the Bank extended direct credit to *** in the amount of $40,000 by renewing the *** II loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $871,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $407,456.
   66. On November 28, 1983, the Bank extended direct credit to *** in the amount of $65,000 by renewing the *** III loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $936,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $441,251.
   67. On January 4, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date {{4-1-90 p.A-1346}}the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and surplus of the Bank by $263,233, and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $936,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $462,787.
   68. On January 30, 1984, the Bank extended indirect credit to *** in the amount of $72,000 by renewing the unpaid balance of the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $936,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $460,371.
   69. On February 14, 1984, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $936,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $460,115.
   70. On February 16, 1984, the Bank extended indirect credit to *** in the amount of $104,321 by renewing the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $936,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $462,454.
   71. On February 27, 1984, the Bank extended indirect credit to *** in the amount of $55,000 by renewing the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** equaled $936,321, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $460,835.
   72. On February 29, 1984, the Bank extended indirect credit to *** in the amount of $498,319 by making the *** loan; as of the same date the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and surplus of the Bank by $256,400, and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to *** and *** and *** equaled $1,434,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $950,801.
   73. On April 3, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and surplus of the Bank by $253,823, and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,434,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $942,286.
   74. On April 30, 1984, the Bank extended indirect credit to *** in the amount of $72,000 by renewing the unpaid balance of the *** loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,434,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $932,458.
   75. On May 16, 1984, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,434,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $933,731.
   76. On June 25, 1984, the Bank extended indirect credit to *** in the amount of $498,319 by renewing the *** loan; as of the same date the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and sur- {{4-1-90 p.A-1347}}plus of the Bank by $243,151, and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,434,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $924,305.
   77. On July 2, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and surplus of the Bank by $247,818, and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,434,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $930,277.
   78. On July 16, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and surplus of the Bank by $250,061, and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,394,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $894,762.
   79. On August 29, 1984, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,072,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $556,592.
   80. On October 4, 1984, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and surplus of the Bank by $240,436, and following such extension of credit, and total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,072,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $553,512.
   81. On November 26, 1984, the Bank extended direct credit to *** in the amount of $100,000 by renewing the *** I loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,072,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $551,893.
   82. On November 26, 1984, the Bank extended direct credit to *** in the amount of $40,000 by renewing the *** II loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $1,072,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $551,893.
   83. On November 29, 1984, the Bank extended direct credit to *** in the amount of $65,000 by renewing the *** III loan; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** equaled $11,072,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $537,964.
   84. On January 21, 1985, the Bank extended indirect credit to *** in the amount of $500,000 by renewing a previously purchased participation interest in the same amount in the *** loan; as of the same date the amount of credit extended by the Bank in this transaction exceeded 10 percent of the unimpaired capital and surplus of the Bank by $266,829, and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** {{4-1-90 p.A-1348}}equaled $1,072,640, which aggregate amount of credit exceeded 20 percent of the unimpaired capital and surplus of the Bank as of such date by $606,299.
   85. Following the date of the extension of credit identified in Finding of Fact 58, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** continued to exceed 20 percent of the unimpaired capital and surplus of the Bank through the end of calendar year 1985.
   86. Following the date of the extension of credit identified in Finding of Fact 58, the total amount of credit extended by the Bank indirectly to *** continued to exceed 10 percent of the unimpaired capital and surplus of the Bank through the end of calendar year 1985.
   87. Following the date of the extension of credit identified in Finding of Fact 72, the total amount of credit extended by the Bank indirectly to *** continued to exceed 10 percent of the unimpaired capital and surplus of the Bank until August 3, 1984.
   88. An unaudited and self-prepared financial statement dated March 31, 1984 showed that Respondent had a net worth of $13.5 million.
   89. An unaudited and self-prepared financial statement dated December 31, 1984 showed that Respondent had a net worth of $3.8 million.
   90. An unaudited and self-prepared financial statement dated September 28, 1987 ("1987 financial statement") showed that, as of such date, Respondent had a negative net worth of $2,880,620; however, such statement is incomplete and does not accurately reflect Respondent's true net worth.
   91. Respondent's 1987 financial statement failed to include a federal income tax refund claim totalling $104,000.
   92. Respondent's 1987 financial statement failed to include recoveries totalling $36,000 per year.
   93. The record does not allow a determination of whether Respondent's present net worth is positive or negative.
   94. Respondent has the capacity to generate future earnings and income over the next 15 years of approximately one million dollars.
   95. Respondent deliberately directed and engaged in a series of related loan transactions at the Bank in order to circumvent the lending limit prohibitions of section 22(h) of the Federal Reserve Act and Regulation O.
   96. Between 1972 and 1985, Respondent was a director and principal shareholder of a total of five insured commercial banking institutions (including the Bank) located in ***, *** and *** that were examined and supervised by the FDIC.
   97. Respondent exercised a significant degree of influence and control over Bank President ***.
   98. Respondent asked for and received a daily report from *** concerning the lending activities of the Bank.
   99. Respondent was responsible for initiating the transactions that resulted in ***, ***, ***, *** and *** loans.
   100. The ***, ***, *** and *** loans were originated outside of the Bank by Respondent, were not a product of the regular loan application and approval procedures of the Bank and did not use note forms and other documentation normally used by the Bank.
   101. The five loans made directly to Respondent and the three loans made directly to *** were instituted at the direction of Respondent pursuant to an arrangement with *** whereby Respondent instructed *** to execute Respondent's signature on promissory notes to the Bank.
   102. Respondent directed *** to make and disburse all thirteen of the loans that are the subject of this action.
   103. At the time each of the following named loans were made, Respondent knew (a) that the proceeds of the *** loan were used for the tangible economic benefit of ***, (b) that the proceeds of the *** loan were used for the tangible economic benefit of Respondent and ***, (c) that the proceeds of the *** loan were used indirectly for the tangible economic benefit of *** and (d) that the proceeds of the *** loan were used for tangible economic benefit of ***.
   104. Respondent did not provide any advance disclosure to the Board of Directors of the Bank that the ***, ***, ***, *** and *** loans were extensions of credit to him or his related interests; nor did Respondent explicitly disclose to the Board of Directors of the Bank the extent and nature of his economic interest in such loans after such loans had been made and funded by the Bank.
{{4-1-90 p.A-1349}}
   105. During the course of a meeting between FDIC examiners and the Board of Directors of the Bank on July 24, 1984, and after the extent of the credit extended to Respondent and his related interests in the ***, ***, ***, *** and *** loans had been fully disclosed, the Board of Directors expressed genuine surprise; the Board of Directors of the Bank was unaware of the total amount of credit that had been extended by the Bank to Respondent and his related interests.
   106. Respondent structured the *** loan to include (a) a lease back to *** that was intended to make loan interest payments for the benefit of *** and (b) an assumption of the debt by ***.
   107. Respondent structured the *** loan to include a lease back to *** that was intended to make loan interest payments for the benefit of ***.
   108. Respondent structured the *** loan to include a lease back to *** that was intended to make loan interest payments for the benefit of ***, ***, *** and ***.
   109. Respondent structured the *** loan to include a lease back to *** that was intended to make loan interest payments for the benefit of ***.
   110. Respondent structured the *** loan to include a direct guarantee or "takeout" commitment by *** for the benefit of ***.
   111. Respondent knew at the time all of the loans that are the subject of this action were made that there was a maximum lending limit provided in Regulation O that was equal to 25 % of the unimpaired capital and surplus of the Bank.
   112. Respondent acknowledged in writing that he received a copy of the 1979 FDIC Report of Examination which contained specific references to violations of sections 22(h) and 23A of the Act and Regulation O, which violations were factually dissimilar to those in this case; the report also noted that "the criticisms contained in the report were discussed" at a meeting of the Board of Directors of the Bank.
   113. Respondent's violations of Sections 22(h) and 23A of the Act and Regulation O were not committed in good faith.
   114. At all times between January 21, 1983 and December 31, 1985, a period of 1,076 days, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent, ***, *** and *** continuously exceeded 25 percent of the unimpaired capital and surplus of the Bank.
   115. At all times between July 1, 1983 and December 31, 1985, a period of 915 days, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to ***, *** and *** continuously exceeded 20 percent of the unimpaired capital and surplus of the Bank.
   116. At all times between July 1, 1983 and December 31, 1985, a period of 915 days, the total amount of outstanding credit extended indirectly by the Bank to *** continuously exceeded 10 percent of the unimpaired capital and surplus of the Bank.
   117. At all times between February 29, 1984 and August 3, 1984, a period of 157 days, the total amount of outstanding credit extended indirectly by the Bank to *** continuously exceeded 10 percent of the unimpaired capital and surplus of the Bank.
   118. Respondent and his related interest *** received the loan proceeds totaling $617,432 from the eight loans made by the Bank directly to the Respondent and ***.
   119. Respondent received the tangible economic benefit of proceeds totalling $295,679 from the *** loan that were transferred to the *** to pay off a loan made by that bank that had been guaranteed by Respondent.
   120. *** received the tangible economic benefit of proceeds totalling $82,000 from the *** loan.
   121. *** received the tangible economic benefit of proceeds totalling $104,321 from the *** loan.
   122. *** indirectly received the tangible economic benefit of proceeds totalling $500,000 from the *** loan.
   123. *** received the tangible economic benefit of proceeds totalling $498,319 from the *** loan.
   124. The Bank sustained an aggregate net loss of principal and interest as of April of 1985 totalling approximately $390,000 as a result of the thirteen loan transactions that are the subject of this action.
   125. Beginning in 1979, there was extensive publicity concerning the authority of the FDIC and the other Federal bank regulatory agencies to impose civil money pen- {{4-1-90 p.A-1350}}alties for violations of sections 22(h) and 23A of the Act and Regulation O; the efficacy of this publicity in informing bankers of the intricacies of these provisions is questionable.
   126. The FDIC Reports of Examination of the Bank conducted in 1978, 1979 and 1981, and the 1982 Report of Examination of the Bank by the Office of Financial Institutions, State of ***, contain specific criticisms and discussions of violations of sections 22(h) and 23A of the Act and Regulation O in reference to extensions of credit by the Bank to Respondent and his related interests.
   127. FDIC Reports of Examination of the *** Bank, *** conducted in 1978, 1979 and 1980, when Respondent was the principal shareholder and a director of such bank, contain specific criticisms and discussions of violations of sections 22(h) and 23A of the Act and Regulation O in reference to extensions of credit to Respondent's related interests.
   128. The aggregate total of all outstanding extensions of credit made directly and indirectly by the Bank to Respondent and his related interests equaled more than $2.1 million as of June 22, 1984.
   129. The aggregate total of all outstanding extensions of credit made directly and indirectly by the Bank to Respondent and his related interests equaled more than 120 percent of the total equity capital and reserves of the Bank as of June 22, 1984.
   130. The aggregate total of all outstanding extensions of credit made directly and indirectly by the Bank to Respondent and his related interests equaled almost 14 percent of the total volume of all loans and extensions of credit made by the Bank to all other borrowers and loan customers of the Bank as of June 22, 1984.
   131. The aggregate total of all outstanding extensions of credit made directly and indirectly by the Bank to Respondent and his related interests equaled more than 48 percent of all loans and extensions of credit made by the Bank that were subject to adverse classification by FDIC examiners as of as of June 22, 1984.
   132. Subsequent to the issuance of the Notice of Assessment by the FDIC, Respondent (on or about August 5, 1986) sold 100 percent of the stock he owned in *** and *** to *** for the nominal consideration of $500; at the time of such sale, *** was owned by Respondent's children.
   133. At the time of the sale of the stock in *** and *** to *** by Respondent, the only asset owned by *** was comprised of real estate known as the "*** property" and the only asset owned by *** was comprised of real estate known as the "*** property."
   134. On or about February 17, 1987, the *** and *** properties were sold by *** for total consideration of more than $1,045,000, which resulted in an aggregate net profit and gain of $128,892 to the children of Respondent.

CONCLUSIONS OF LAW

   1. The FDIC has jurisdiction over Respondent under 12 U.S.C. §1828(j) to impose a civil money penalty for violations of sections 22(h) and 23A of the Act and Regulation O.
   2. In an action for the assessment of a civil money penalty for violations of the prohibitions of sections 22(h) and 23A of the Act and Regulation O, liability for the payment of such a penalty is predicated solely upon proof and establishment of the violations of law without regard to the intent or good faith of the person charged, and the FDIC has the burden of proving all of the elements of such violations of law by a preponderance of the evidence.
   3. The term "violates" as used in 12 U.S.C. §1828(j) includes, without any limitation, any action taken by a person, either individually or with one or more other persons, for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation of law.
   4. Section 22(h)(1) of the Act and section 215.4(c) of Regulation O prescribe maximum aggregate limitations on the amount of secured and unsecured credit that may be extended, either directly or indirectly, by the Bank to a principal shareholder of the Bank and to the related interests of such person, as those terms are defined in section 215.2 of Regulation O.
   5. Section 23A(a)(1) of the Act prescribes a maximum limitation on the amount of covered transactions between the Bank and one of its affiliates equal to 10 percent of the capital and surplus of the Bank at the time of such transaction, and a maximum aggregate limitation on the amount of all covered transactions between the Bank and all of its affiliates equal to 20 percent of the {{4-1-90 p.A-1351}}capital and surplus of the Bank at the time of such transactions.
   6. At all times relevant to this proceeding, including and continuing through the end of calendar year 1985, Respondent was a "principal shareholder" of the Bank within the meaning of section 215.2(j) of Regulation O.
   7. At all times relevant to this proceeding, ***, ***, *** and *** were "related interests" of Respondent within the meaning of Section 215.2(k) of Regulation O.
   8. At all times relevant to this proceeding, ***, ***, and *** were "affiliates" of the Bank within the meaning of section 23A(b)(1) of the Act.
   9. The maximum aggregate amount of unsecured credit that may be extended by the Bank under section 215.4(c) of Regulation O to Respondent and his related interests is an amount equal to 15 percent of the unimpaired capital and surplus of the Bank ("the 15 percent unsecured lending limit of Regulation O"), and the maximum aggregate amount of secured credit that may be extended by the Bank to Respondent and his related interests is an additional amount equal to 10 percent (resulting in a total of 25 percent) of the unimpaired capital and surplus of the Bank ("the 25 percent secured lending limit of Regulation O"), provided that such additional credit (i.e., that portion equal to 10 percent of the unimpaired capital and surplus of the Bank) is fully secured by readily marketable collateral.
   10. Loans and other extensions of credit made by the Bank to Respondent and his related interests that were secured by real estate or unlisted securities, which were not "readily marketable collateral" within the meaning of 12 C.F.R. §§32.4 and 221.2(j), were subject to the 15 percent unsecured lending limit of Regulation O and not the 25 percent secured lending limit of Regulation O.

   [.6] 11. For purposes of applying the secured and unsecured lending limits of Regulation O, an "extension of credit" to Respondent within the meaning of section 215.3 of Regulation O includes (a) any loan or other extension of credit or any renewal thereof made by the Bank to Respondent or to any of his related interests, (b) any loan or other extension of credit or renewal thereof made by the Bank to any third party for which Respondent or any of his related interests is obligated as endorsor or guarantor, (c) any loan or other extension of credit or renewal thereof made by the Bank to any third party to the extent that the proceeds of such loan or extension of credit are transferred to or used for the tangible economic benefit of Respondent or any of his related interests and (d) the total of any loan participation purchased by the Bank or the renewal thereof where the proceeds of the loan from the originating (selling) bank were transferred to or used for the tangible economic benefit of Respondent or any of his related interests.
   12. For purposes of applying the individual and aggregate transaction limitations provided in section 23A of the Act, a "covered transaction" within the meaning of section 23A(b) of the Act includes (a) any loan or other extension of credit or renewal thereof made by the Bank to any related interest of a principal shareholder of the Bank and, therefore, includes any loan or other extension of credit to any related interest of Respondent, (b) any loan or other extension of credit or renewal thereof made by the Bank to any third party for which any related interest of Respondent is obligated as endorsor or guarantor and (c) any loan or other extension of credit or renewal thereof made by the Bank to the extent that the proceeds of such loan or extension of credit are transferred to or are used for the tangible economic benefit of any related interest of Respondent.
   13. All of the loans and extensions of credit made or renewed by the Bank directly or indirectly to or for the tangible economic benefit of Respondent and/or his related interests, as such loans and extensions of credit are more particularly described in Findings of Fact 11 through 55, were made and/or renewed in violation of both the 15 and 25 percent lending limit prohibitions provided in section 22(h)(1) of the Act and section 215.4 of Regulation O.
   14. Respondent caused, brought about and participated in the violations of the Act and Regulation O identified in Conclusion of Law 13.
   15. All of the loans and extensions of credit made or renewed by the Bank directly or indirectly to or for the tangible economic benefit of Respondent and/or his {{4-1-90 p.A-1352}}related interests, as such loans and extensions of credit are more particularly described in Findings of Fact 11 through 55, were made and/or renewed without the prior approval of a majority of the Board of Directors of the Bank in violation of section 22(h)(2) of the Act and section 215.4(b) of Regulation O.
   16. Respondent caused, brought about and participated in the violations of the Act and Regulation O identified in Conclusion of Law 15.
   17. All of the loans and extensions of credit made or renewed by the Bank directly or indirectly to or for the tangible economic benefit of the related interests of Respondent, as such loans and extensions of credit are more particularly described in Findings of Fact 58 through 84, were made and/or renewed in violation of the 20 percent aggregate lending limit prohibition provided in section 23A(a)(1)(B) of the Act.
   18. Respondent caused, brought about and participated in the violations of the Federal Reserve Act identified in Conclusion of Law 17.
   19. The loans and extensions of credit made or renewed by the Bank indirectly for the tangible economic benefit of *** as such loans and extensions of credit are more particularly described in Findings of Fact 58, 62, 67, 73, 77, 78, 80 and 84, were made and/or renewed in violation of the 10 percent lending limit prohibition provided in section 23A(a)(1)(A) of the Act.
   20. Respondent caused, brought about and participated in the violations of the Act identified in Conclusion of Law 19.
   21. The loans and extensions of credit made and renewed by the Bank indirectly for the tangible economic benefit of ***, as such loans and extensions of credit are more particularly described in Findings of Fact 36 and 43, were made and/or renewed in violation of the 10 percent lending limit prohibition provided in section 23A(a)(1)(A) of the Act.
   22. Respondent caused, brought about and participated in the violations of the Act identified in Conclusion of Law 21.

[.7] 23. In an action for the assessment of a civil money penalty under 12 U.S.C. §1828(j) for violations of the prohibitions of sections 22(h) and 23A of the Act and Regulation O, the determination of the appropriate amount of penalty to be imposed for such violations must take into account the five statutory factors provided in 12 U.S.C. §1828(j)(3)(B) ("statutory factors") pertaining to (a) the good faith of the offender, (b) the size of financial resources of the offender, (c) the gravity of the violations that occurred, (d) any history of prior violations involving the offender and (e) any other matters that may be required by justice.

   [.8] 24. In an action for the assessment of a civil money penalty under 12 U.S.C. §1828(j) for violations of the prohibitions of sections 22(h) and 23A of the Act and Regulation O, the FDIC has the burden of proving and otherwise establishing that the amount of the penalty to be imposed is appropriate taking into account the statutory factors, except that the offender has the burden of proving any allegation or assertion that the size of financial resources of such offender are insufficient or otherwise do not warrant the assessment of a penalty because of the proprietary and subjective nature of such information.
   25. The statutory purpose and scheme of the enabling legislation authorizing the imposition of a civil money penalty under 12 U.S.C. §1828(j) for violations of the prohibitions of sections 22(h) and 23A of the Act and Regulation O is designed and intended to serve a strong deterrent objective of preventing abusive and self-serving practices and violations of law that are harmful to banks and otherwise prejudicial to the best interests of their depositors.
   26. The central injunction contained in the Interagency Policy pertaining to the removal of economic benefit is consistent with the legislative purpose and statutory scheme authorizing the imposition of a civil money penalty under the provisions of 12 U.S.C. §1828(j) for violations of sections 22(h) and 23A of the Act.
   27. In establishing the appropriate amount of a civil money penalty to be assessed under 12 U.S.C. §1828(j) for violations of the prohibitions of sections 22(h) and 23A of the Act and Regulation O, (a) it is appropriate to give significant consideration and weight to the removal of any economic benefit the offender received as a result of such violations; (b) the FDIC has the discretionary authority, on an ad hoc basis in each individual case, to determine the amount of weight and degree of importance to be accorded each of the statutory factors, provided that such discretion is not exercised arbitrarily, is premised upon rea- {{4-1-90 p.A-1353}}soned analysis and substantial evidence and is consistent with and promotes the statutory purpose and scheme of the enabling legislation; (c) no single statutory factor is controlling in determining the appropriate amount of a civil money penalty to be imposed and (d) the imposition of a civil money penalty is not prohibited as a matter of law solely on the basis that evaluation and consideration of the statutory factor pertaining to the size of financial resources of the offender, standing alone, would not warrant or otherwise support such penalty.
   28. In establishing the appropriate amount of a civil money penalty to be assessed under 12 U.S.C. §1828(j) for violations of the prohibitions of sections 22(h) and 23A of the Act and Regulation O, the statutory factor pertaining to the size of financial resources of the offender (a) includes consideration of future earnings capacity of the offender, (b) does not require that the offender possess sufficient cash or other liquid assets to immediately pay the penalty, (c) does not require a finding that the offender have a positive net financial worth at the time the penalty is imposed, (d) should be interpreted to refer to a level of subjective pain or penalty tolerance of the offender and (e) is not affected by the fact that an offender might declare bankruptcy (either voluntarily or involuntarily).
   Upon the foregoing findings of fact and conclusions of law, and upon the entire record in this case, I hereby issue the following recommended order:

ORDER TO PAY

   After taking into account the appropriateness of the penalty with respect to the financial resources of Respondent, the good faith of Respondent, the gravity of the violations by Respondent, the history of previous violations by Respondent, and such other matters as justice may require, it is:
   ORDERED, that by reason of the violations of law and regulation evidenced in the hearing record of this action and after taking into account the foregoing considerations required by law, a civil money penalty in the amount of $530,400 be, and hereby is, assessed against *** pursuant to section 18(j)(4) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(j)(4).
   IT IS FURTHER ORDERED, that this Order shall be effective upon service on *** and that the penalty ordered shall be final and payable after 20 days from the date of such service unless an appeal from this Order is filed within such period.
   Done at Washington, D.C., this 12th day of May, 1988.
Steven M. Charno
Administrative Law Judge

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