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   [5167] In the Matter of Donald A. Kary, Severn Savings Bank, FSB, Annapolis, Maryland, Docket No. FDIC-90-229L (8-1-91).

   Board denies Section 19 application of a convicted felon to serve as a bank director. Applicant had pleaded guilty to antitrust conspiracy in 1983 for participation in a bid-rigging scheme.

   [.1] FDI Act Section 19—Application—Convicted Individual—"Dishonesty or Breach of Trust"
   Bid rigging on public contracts is a "criminal offense involving dishonesty or a breach of trust." An individual who has pleaded guilty to such a crime may serve as a bank director only with the prior consent of the FDIC.

{{10-31-91 p.A-1767}}
   [.2] FDI Act Section 19 — Application — Factors for Consideration
   FDIC focuses on, but is not limited to, five factors in considering Section 19 applications: nature and circumstances of the offense, evidence of rehabilitation, age at time of conviction, position sought, and fidelity bond coverage.

   [.3] FDI Act Section 19 — Application — Burden on Applicant
   It is the applicant's responsibility to come forward with all relevant information concerning his conviction at the time he submits his application. Failure to disclose aggravating circumstances (e.g., additional offenses charged, subsequent state civil fraud action) reflects unfavorably upon applicant's fitness to serve as a bank director.

   [.4] FDI Act Section 19 — Factors for Consideration — Position
   Section 19 applications from prospective directors, who will be in a position of control or able to influence the disposition of large sums of money, receive more detailed analysis than do applications from prospective employees whose jobs have less authority.

   [.5] FDI Act Section 19 — Factors for Consideration — Age
   That applicant was a mature and successful businessman at the time of his crime raises questions as to his judgment and weighs against him.

   [.6] FDI Act Section 19 — Factors for Consideration — Rehabilitation
   Applicant's failure to disclose the full and complete facts is indication that he has not faced the criminality of his prior activities and their adverse impact on society, and may be considered in FDIC's evaluation of his rehabilitation.

In the Matter of
DONALD A. KARY,
in his
Application for Consent to
Application for Consent to
Participate in the Conduct of
the Affairs of
SEVERN SAVINGS BANK, FSB
ANNAPOLIS, MARYLAND
(Insured Federal Savings Association)
DECISION AND ORDER
FDIC-90-229L

I. INTRODUCTION

   This proceeding arises out of an application,1 dated November 21, 1989, submitted to the Federal Deposit Insurance Corporation's ("FDIC") New York Regional Office by Severn Savings Bank, FSB, Annapolis, Maryland ("Severn" or the "Bank"), pursuant to section 19 of the Federal Deposit Insurance Act, as amended, 12 U.S.C. § 1829 ("FDI Act"), seeking the FDIC's consent to the appointment of Donald A. Kary ("Kary") as a director thereof. The FDIC's consent to Kary's appointment to Severn's board of directors is required because Kary had pleaded guilty in 1983 of conspiring to restrain trade in violation of the antitrust provisions of section 1 of the Sherman Act, 15 U.S.C. § 1, for his participation in a bid rigging scheme — a felony conviction.
   On November 27, 1990, John W. Stone, then Associate Director of the FDIC's Division of Supervision, acting pursuant to delegated authority, denied the application,2 on the basis of the specific nature of the crime, the circumstances surrounding the crime, and


1 Throughout these proceedings, Kary has been referred to as the applicant. However, the actual applicant is Severn, since section 19 prohibits an institution from permitting participation in its affairs by a person convicted of an offense involving dishonesty or a breach of trust. For purposes of this decision the term applicant(s) will refer to both Kary and Severn jointly or individually as the context indicates.

2 The FDIC's regulations provide that authority for approving or denying applications submitted pursuant to section 19 is delegated to the Director of the FDIC's Division of Supervision. 12 C.F.R. § 303.7(e). The Director of the Division of Supervision may delegate this authority to the Associate Director of the Division of Supervision where the Director confirms the delegation in writing. Id. Furthermore, the Director may delegate, if confirmed in writing, the authority to approve applications submitted under section 19 to the Regional Director of the Division of Supervision in each of the FDIC's regional offices. Id. However, the regulations do not provide for delegation of authority to the Regional Director to deny such applications.
{{10-31-91 p.A-1768}}the position to be held at Severn in relationship to the conduct of Severn's affairs.
   Severn and Kary requested a hearing pursuant to 12 C.F.R. § 308.102(a). A hearing was held before Presiding Officer Richard A. White on May 1, 1991. In a decision dated May 30, 1991, the presiding officer found that the evidence presented at the hearing did not support the denial of Severn's application for consent. The presiding officer recommended that the FDIC's Board of Directors approve the appointment of Kary to serve as a director at Severn. Enforcement Counsel requested leave to file exceptions to the presiding officer's recommended findings, which was permitted over the objection of counsel for Kary.
   After a review of the entire record of this proceeding, the Board of Directors ("Board") of the FDIC rejects the presiding officer's recommended decision and affirms the denial of the section 19 application for the reasons set forth herein.

II. BACKGROUND

A. The Section 19 Application
   On November 21, 1989, Severn Savings Bank, FSB, Annapolis, Maryland, submitted to the FDIC's New York Regional Office an "Application Pursuant to Section 19 of the Federal Deposit Insurance Act" requesting the FDIC's consent for Donald A. Kary to serve as a member of Severn's board of directors.3 See Application, FDIC Ex. No. 1.4
   The application, signed by Severn's Executive Vice President and by Kary, indicated that Kary and The Asphalt Service Company, Inc., a company of which he was President and sole owner, had "pleaded guilty to violations of the Federal Sherman Anti-Trust Act" [15 U.S.C. § 1] on March 16, 1983 in the U.S. District Court for the District of Maryland. FDIC Ex. No. 1 at 1. The application further indicated that The Asphalt Service Company, Inc. was fined $100,000 and Kary sentenced to incarceration for 60 days. Id.
   Following an investigation, the Regional Director of the FDIC's New York Regional Office determined not to approve Severn's section 19 application. As indicated in the record of the proceedings before the presiding officer, the Regional Director recommended denial of the application and forwarded it to the FDIC's Washington Office on July 20, 1990 for appropriate action. FDIC Ex. No. 4.
   On November 27, 1990, the Associate Director of the FDIC's Division of Supervision, acting pursuant to delegated authority, denied the application in a letter addressed to Kary. FDIC Ex. No. 5. The denial letter informed Kary that he or the Bank could request a hearing on the application by a written request filed within 30 days of receipt of the letter. The letter also stated that any request for a hearing was to state the relief sought and be accompanied by the available evidence which supported the relief. Id.
   Severn and Kary requested a hearing by letter dated January 2, 1991, asserting that Associate Director Stone's denial letter stated no facts to support his conclusion that Kary's service as a director may impair public confidence in Severn and represented a potential risk to Severn's safety and soundness. Counsel for Kary and Severn also attached copies of letters previously submitted to the New York Regional Office, discussed the passage of time since Kary was convicted and the support he had received from certain people in the community since that time, and argued that Kary would have little influence on Severn's board. The Board granted the request for a hearing in its Order dated February 28, 1991. FDIC Ex. No. 7.
B. The Hearing Before the Presiding Officer
   The hearing was held on May 1, 1991, before Presiding Officer Richard A. White


3 Severn had previously filed a similar application dated May 8, 1989 with the Federal Home Loan Bank Board ("Bank Board"). However, while that application was pending, the Bank Board was abolished and responsibility for authorizing participation in the affairs of institutions formerly supervised by the Bank Board, such as Severn, by persons convicted of crimes involving dishonesty or breach of trust, was transferred to the FDIC. Financial Institutions Reform, Recovery, and Enforcement Act of 1989, See Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub.L. 101-73, Title IV, §§ 401, 407 (Aug. 9, 1989) ("FIRREA").

4 Citations to the record in this decision shall be as follows:
Recommended Decision — "R.D. at ____."
Transcript — "Tr. at ____."
FDIC's Exhibits — "FDIC Ex. No. ____."
Applicant's Exhibits — "Applicant's Ex. No. ____."
{{10-31-91 p.A-1769}}in Washington, D.C. As discussed in the presiding officer's recommended decision, in addition to Kary, seven witnesses testified in his behalf. This testimony presented evidence on the background of the Bank, the origin of its relationship with Kary, Kary's reputation and character, communications between Severn and the New York Regional Office during the section 19 application process, background about Kary's proposed role and involvement on Severn's board (See Tr. generally at 10–44), evidence concerning Kary's career in the asphalt and paving industries, the bid rigging and his involvement in it, his 1983 Sherman Act conviction for bid rigging (See Tr. generally at 45–56; 70–82), and his character, reputation, honesty, integrity and fitness to serve on Severn's board of directors.
   In addition to documentary evidence, the FDIC presented testimony from two witnesses who testified as to the nature and seriousness of a conviction under section 1 of the Sherman Act, the circumstances under which service on a bank's board of directors by one convicted of a crime involving dishonesty or breach of trust might threaten the safety and soundness of the bank (Tr. at 153-57), the effect that the facts and circumstances surrounding the conviction and evidence of rehabilitation of the applicant have an approval of a section 19 application, the necessity for obtaining additional information relevant to Kary's rehabilitation as well as the facts and circumstances surrounding the conviction from Severn (Tr. at 156-59; 164-68; 177-79), the failure of the applicants to bring many of the facts and circumstances surrounding Kary's conviction and sentencing to the attention of the New York Regional Office and the lack of knowledge of such facts until just before the hearing (Tr. at 159-61), the belief that Kary's service as a director would constitute a threat to the safety and soundness of Severn (Tr. at 162), the procedures followed in Washington and the standards used by the FDIC's Division of Supervision in considering a section 19 application (See Tr. generally at 182–203), and the effect that the age of the applicant at the time of conviction has in applications under section 19 and the impact of Kary's maturity at the time of his conviction (Tr. at 195-96).
   After receiving all the testimony, the presiding officer held the record open for five days after receipt of the transcript for the parties to submit closing arguments. On May 30, 1991, the presiding officer issued his recommended decision. The presiding officer found that "the evidence does not provide a nexus which will support disapproval but to the contrary requires approval" of Kary's participation in Severn's affairs. See Recommended Decision of Presiding Officer Richard A. White dated May 30, 1991 at 13. The presiding officer identified various factors that he concluded weighed in favor of his finding that Kary had been rehabilitated and should be allowed to serve on Severn's board: the passage of eight years since Kary's conviction; his agreement to plead guilty and subsequent cooperation with federal and state authorities investigating bid rigging schemes; the testimony and letters going to Kary's character and reputation; the lack of any indication of recidivism; and the representation by Severn's management that Kary would not be active in the Bank's day-to-day activities. R.D. at 12–13.5

III. DISCUSSION

A. The Statute, Governing Regulations, and Guidelines
   At the time that Kary's application was filed, Section 19 of the FDI Act provided that:

       Except with the prior written consent of the [Federal Deposit Insurance] Corporation —
       (1) any person who has been convicted of any criminal offense involving dishonesty or a breach of trust may not participate, directly or indirectly, in any manner in the conduct of the affairs of an insured depository institution; and
       (2) an insured depository institution may not permit such participation....

5 The presiding officer also found that, although Kary and Severn bore responsibility for not diligently complying with the application process under section 19 and failed to fully disclose all required information, they apparently had no prior experience completing such an application, and he noted that there may be a question as to whether certain information was required to be disclosed. R.D. at 12–13. The presiding officer concluded that under these circumstances, such matters "do not reflect unfavorably on applicant's fitness for the position of director." Id.
{{10-31-91 p.A-1770}}12 U.S.C.A. § 1829 (1989 Ed.).6

   [.1] The statute does not define what constitutes a "criminal offense involving dishonesty or a breach of trust." In the FDIC's "Corporation Guidelines and Policies with Respect to Section 19," the term "dishonesty" is defined to mean "to cheat or defraud for monetary gain or its equivalent, directly or indirectly, or to wrongfully take from any person, property lawfully belonging to that person in violation of any statute or code." See Guidelines, FDIC Ex. No. 1. The guidelines also state that dishonest acts include acts which distort, deceive, or involve a lack of integrity. Id. There is no doubt that bid rigging on public contracts falls within the category of crimes contemplated by section 19. Indeed, there was no dispute over this fact in the proceedings below, and Enforcement Counsel and counsel for Kary and Severn stipulated at the outset of the hearing that bid rigging is an offense involving dishonesty or breach of trust.
   The FDIC's regulations, at 12. C.F.R. § 308, Subpart M, set forth the procedures and standards applicable to section 19 applications. The regulations provide that the relevant considerations on applications to participate in the conduct of the affairs of a bank are:
   (1) Whether the conviction is for a criminal offense, either misdemeanor or felony, involving dishonesty or breach of trust;
   (2) Whether service of the individual in the proposed bank constitutes a threat to the safety or soundness of the bank or the interests of its depositors, or threatens to impair public confidence in the bank;
   (3) Evidence of the applicant's rehabilitation;
   (4) The position to be held by the applicant;
   (5) The amount of influence and control the applicant will be able to exercise over the affairs and operations of the insured bank;
   (6) The ability of the management at the bank to supervise and control the activities of the applicant;
   (7) The level of ownership which the applicant will have at the insured bank;
   (8) Applicable fidelity bond coverage for the applicant;
   (9) Additional factors in the specific case that appear relevant.
12 C.F.R. § 308.100 (1991).7

   [.2] In the FDIC's "Corporation Guidelines and Policies with Respect to Section 19," the FDIC indicates that it will focus on five (5) factors in considering the application, although review of the application will not be limited to those five factors. The factors set out in the guidelines are: 1) the nature and circumstances of the offense; 2) evidence of rehabilitation of the person for whom consent is sought to participate in the bank's affairs; 3) age of the person at the time of conviction; 4) position to be held in the bank; and 5) fidelity bond coverage applicable to the person. See Guidelines, FDIC Ex. No. 1. In the proceedings below, except for the issue of fidelity bond coverage, which was mentioned but not disputed, disagreement as to the effect of these factors forms the basis for this controversy.
B. The Nature and Circumstances of the Offense
   Enforcement Counsel forcefully argues that the crime for which Kary was convicted is a very serious felony offense, and points out that both Kary and Severn admit that bid rigging is a crime involving dishonesty or a breach of trust.

   [.3] Enforcement Counsel also argues that certain aggravating circumstances attended the conviction, and that Kary failed to disclose those circumstances at the time the section 19 application was submitted, including that Kary failed to disclose the full nature and circumstances of the conviction — that he pleaded guilty to a single felony count as part of a plea agreement to avoid the


6 Section 19 was amended in 1990 to make more explicit the types of participation prohibited by persons convicted of crimes involving dishonesty or breach of trust, and to set forth a minimum 10-year prohibition period for certain offenses, without exception, unless the sentencing court grants an exception upon the FDIC's motion and the exception is in the interest of justice. 12 U.S.C.A. § 1829 (1991 Supp.). While Severn's application was filed prior to the 1990 amendments to section 19, the amendments do not change the substantive prohibitions of section 19. The impact of these amendments are procedural and in the nature of clarification. Therefore, amended section 19 will be applied in this proceeding. The Board notes, however, that application of the pre-amended section 19 would have no effect on the outcome of this proceeding.

7 The presiding officer found that the pre-1990 section 19 procedures apply to Kary's and Severn's application. However, since no substantive changes were made in either the statute or the governing regulations while the application was pending which would affect its review or the Board's determination, the Boar chooses to apply the current regulations.
{{4-30-92 p.A-1771}}threat of prosecution for additional bid rigging counts and other, separate federal offenses, including violations of 18 U.S.C. §§ 1341 or 1343 (mail fraud); that ten (10) construction projects worth $2.1 million to Kary or his companies were involved; that the bid rigging scheme netted contracts to other contractors who were parties to the conspiracy which were valued at $6-$8 million; that Kary paid $200,000 in restitution to the State of Maryland to settle antitrust and fraud claims brought by Maryland's Attorney General separately from the federal criminal proceedings; and that Kary and his company, The Asphalt Service Company, Inc., were suspended from bidding on state contracts for three months.
   The bid rigging prosecutions in the State of Maryland apparently received widespread media attention at the time Kary pleaded guilty. See FDIC's Post-Hearing Memorandum at 2–3. Some of the facts were discovered independently by the FDIC's New York Regional Office. However, other facts were unknown until counsel for Kary and Severn disclosed them just prior to the hearing. See Dionne testimony, Tr. at 159-61. These facts were not provided to the FDIC at the time of submission of the application, and the burden is on the applicants to come forward with all relevant information.
   Kary and Severn argue that section 19 and the application form require only that information directly pertaining to a conviction for an offense covered by the statute be disclosed, that the remaining information pertained to civil proceedings or other information not relevant nor required to be disclosed, and that they had complied with applicable procedures in making the application. See Closing Argument on Behalf of Applicant, Donald A. Kary at 2; Kary testimony, Tr. at 93–96. As the presiding officer properly noted, the section 19 application form expressly requested "[a]ny other pertinent facts relative to the crime which are not disclosed in the indictment." R.D. at 11. The presiding officer stated that, if uncertainty exists as to what information is required, the principle of full disclosure applies. The Board not only agrees, but finds that the procedures which apply under section 19, including the questions on section 19 applications, the governing regulations and the guidelines, taken separately or together, clearly manifest such a full disclosure policy. To interpret the statute and regulations otherwise would invite the type of evasion or lack of candor that has occurred here. This would increase the difficulty, if not render impossible, the effective regulation of the banking industry and protection of the insurance fund. See FDIC-87-5g, 2 P-H FDIC Enf. Dec. ¶5121 (November 8, 1988). In sum, the Board concludes that the extremely serious nature and extent of the crimes committed by Kary,8 the lack of candor displayed by him in failing to disclose forthrightly all of the pertinent facts surrounding his criminal activities and the subsequent civil fraud action by the State of Maryland reflect very unfavorably upon his fitness to serve as a director of a federally insured financial institution.
C. Position to be Occupied

   [.4] Little discussion is warranted regarding the fact that Kary seeks to occupy an important position of trust at Severn. Directors of a bank have a fiduciary relationship to the bank and its stockholders. They should exercise the utmost good faith in the discharge of their duties and give the bank the benefit of their best judgment. FDIC-83-21k, 1 P-H FDIC Enf. Dec. ¶5013 (December 5, 1983), citing Briggs v. Spaulding, 141 U.S. 132, 165-66 (1981); Lane v. Chouning, 610 F.2d 1385 (8th Cir. 1979).

       As the Board has previously stated:
       The board of directors is legally responsible for the sound direction of a bank. It is obliged to select and maintain capable management and see that the bank operates in compliance with law and regulations. The board must formulate specific bank goals and policies.... The board is also obliged to avoid self-serving practices.
FDIC-85-192k, 1 P-H FDIC Enf. Dec. ¶5091 (June 9, 1987). See also, generally, The Director's Book, The Role of a National Bank Director, Office of the Comptroller of the Currency, August 1987. That a director may be but one of a board of eleven or

8 The Board views crimes of the nature of price fixing and bid rigging, a form of fraud that is very difficult to detect and to deter and which preys on the innocent consumer and taxpayer, as extremely serious in the context of a section 19 application. Any person who is employed as an officer or director of an insured financial institution must have the highest level of integrity as befitting someone charged with the level of trust that is incident to the handling of other people's savings.
{{4-30-92 p.A-1772}}twelve, as the bank claims, is neither unusual nor significant. The FDIC's guidelines respecting section 19 applications illustrate that applications pertaining to the participation of directors, officers and certain other employees in a bank will not receive routine treatment of the sort accorded other employees:
    [M]any applications can be routinely approved because the prospective employee will not be in a position to constitute any substantial risk to the safety and soundness of the bank. Employees who will occupy clerical, maintenance or service positions or, in many banks, administrative or teller positions, generally pose no such risk, and on application from the board of directors of the bank, normally will be able to be routinely approved. A more detailed analysis will be required in the case of directors, officers, or other employees in a position to control or influence the disposition of sums of money large in relation to the size of the bank.
Guidelines, FDIC Ex. No. 1. The representations of the Severn and Kary notwithstanding, the Board finds, to a degree sufficient to constitute regulatory concern under section 19, that Kary, if approved, would be in a position to influence Severn. That he would occupy the position of director is thus an important factor in the Board's consideration of this application.
D. Kary's Age at the Time of His Conviction

   [.5] Kary was 57 years old at the time he pleaded guilty to the bid rigging charge. Application, FDIC Ex. No. 1. The presiding officer observed that "[a]nti trust (sic) crimes like bid rigging or crimes in restraint of trade are, as opposed to the more direct or vicious forms of theft, generally committed by mature experienced people who have risen over time to positions of leadership and influence in their business." R.D. at 12–13. How this observation led the presiding officer to conclude that Kary's age when he pleaded guilty to the bid rigging charge is not necessarily a critical factor is curious. FDIC witness Krichbaum testified that his office contrasts the situation of a mature person who commits a crime with that of a younger individual who might be in his first job or position. The inference, obviously, is that the younger individual may not be experienced enough to realize the true magnitude of his deeds, although there are certainly exceptions.
   One would expect, however, that after a businessperson reaches a point in his career where he is respected by peers and those who deal with him as successful and perhaps as a leader, he would have a much more profound recognition and sound judgement as to what is acceptable conduct and what is illegal. Assuming, arguendo, that most antitrust crimes, such as bid rigging, are committed by mature and experienced individuals (a conclusion which the Board finds totally unsupported, if not otherwise dubious), this may only suggest that society is pervaded by the same motive which has caused such upheaval in the banking and thrift industries — greed. Unfortunately, the short truth of the matter is that the motive to profit invites many to break the law. Kary was a mature and experienced businessperson who should have realized the seriousness consequences and criminal nature of his actions. In the Board's view, his age at the time of the criminal activity raises questions as to his judgment and weighs against Kary.
D. Evidence of Rehabilitation

   [.6] Applicants have presented evidence in the form of letters and testimony from members of the local community supporting Kary and attesting to his character. In addition, Kary presented testimony on his own behalf that would seem to indicate that he learned some lessons from his crime and the resulting punishment. The Board believes that this is some evidence of Kary's rehabilitation. In addition, conditions of a sentence serve not only penal goals, but seek to deter and reform as well. See 21 Am. Jur. 2d, Criminal Law, § 588 at 977. Rehabilitation is clearly an aspect of punishment and is invariably one of the factors considered by a court in imposing a sentence. See, e.g., Kelly v. Robinson, ____ U.S. ____, 107 S.Ct. 353, 362-63, 93 L.Ed.2d 216 (1986) (restitution debt not discharged in bankruptcy proceeding, because it was imposed following criminal conviction to serve State's [Connecticut] rehabilitative interests in punishment and rehabilitation). Kary's successful completion of the conditions of his sentence also serves as positive evidence of his rehabilitation.
   However, there are elements of the proceedings below which trouble the Board and serve, in its view, as evidence that Mr. Kary is not yet ready to assume the type of position of trust and responsibility that being a
{{4-30-92 p.A-1773}}director of a federally insured financial institution entails. Kary testified that he feels as though he has been rehabilitated but that he has a problem with the term "rehabilitation," because rehabilitation is something he views as applying to criminals and he never felt that he was a criminal even though the law said that he was. Tr. at 92. This failure to recognize the significance and criminal nature of his actions indicates to this Board that Mr. Kary has not yet come to grips with or accepted responsibility for his crime. The failure of Mr. Kary to fully disclose to the board of directors of Severn and to the FDIC Regional Office the full and complete facts and circumstances of his criminal conviction and the subsequent civil fraud action, are further indications of his refusal to face the criminality of his prior activities and their adverse impact on society. The fact that much relevant information had to be obtained independently by FDIC investigators raises questions as to the possibility of the existence of additional adverse information concerning Kary's conviction or his rehabilitation which he has also failed to disclose. The receipt and analysis of all available data is critical to a meaningful assessment of Kary's background, and whether he has been rehabilitated. In this case, the failure to timely submit all of the available information relevant to the section 19 application certainly hampered the FDIC's investigation of the application.9 Until the Board is satisfied that the concerns expressed in this decision regarding Kary's rehabilitation have been properly addressed, consent to Kary's participation in Severn's affairs as a director must be withheld.
   Further, the Board seeks to impress upon the applicants in this proceeding, and future applicants under section 19 and other provisions (see, e.g., section 32 of the FDI Act, 12 U.S.C. § 1831i), its expectations and the importance of full disclosure of all relevant facts and circumstances when information is to be submitted for regulatory purposes.

CONCLUSION

   For the reasons set forth herein, the Board declines to adopt the recommended decision of the presiding officer and sustains the denial of Severn's and Kary's application under section 19.

ORDER

   The Board of Directors of the Federal Deposit Insurance Corporation, having considered the entire record in this proceeding, including the documentary and testimonial evidence and the briefs and other submissions of the parties, rejects the recommendation of the presiding officer to approve the section 19 application.
   ACCORDINGLY, IT IS HEREBY ORDERED that the Application Pursuant to Section 19 of the Federal Deposit Insurance Act submitted by Severn Savings Bank, FSB and Donald A. Kary on November 21, 1989, be and the same is denied.
   IT IS FURTHER ORDERED that the Executive Secretary, or his designee, is instructed to execute and serve copies of this Decision and Order on all parties and on the presiding officer.
   By direction of the Board of Directors.
   Dated at Washington, D.C. this 1st day of August, 1991.
   /s/ Robert E. Feldman
   Deputy Executive Secretary

_________________________________________
RECOMMENDED DECISION

Frederick S. Mittleman, Esq., and Stephen Miller, Esq.,
   Federal Deposit Insurance Corporation.
Alan Hyatt, Esq., and John F. Robbert, Esq., for applicant.
Recommended decision that the Section 19 application be approved.
By: Richard A. White, Presiding Officer

Introduction

   On November 31, 1989, Severn Savings Bank (Bank) submitted an application to the Federal Deposit Insurance Corporation (FDIC or agency) seeking the latter's approval under Section 19 of the Federal Deposit Insurance Act (ACT) 12 U.S.C. section 1829, for the appointment of Donald A. Kary (Applicant) to the Bank's board of directors. Section 19 provides in pertinent part that no person shall serve as director of an insured bank who has been convicted of a criminal offense involving dishonest or breach of trust


9 Furthermore, if there were any evidence that this failure to disclose was intentional, that fact would be sufficient in itself to demonstrate applicant Kary's lack of honesty and integrity and would require a denial of this application. The record here does not establish an intentional failure, however.
{{4-30-92 p.A-1774}}except with the written consent of the agency. The application (FDIC No. 1) indicates that on March 16, 1983 Asphalt Service Company and applicant pleaded guilty and were convicted of violating Section 1 of the Sherman Act, Title 15 of the U.S. Code, in the United States District Court for the District of Maryland. On March 29, 1983, the company was directed to pay a fine of $100,000 while applicant was sentenced to 60 days of imprisonment. Under Section C Paragraph 3 of the application in space set aside for describing applicant's rehabilitation, if any, there appears the following "This occurred six years ago. Since that time, I have worked hard to overcome the mistake I made, and have been active in my business and in the trade association. I am also an active member of my church and have served, and am currently serving, on numerous church committees." The application stated that applicant will serve as director on a board that comprises eleven members, and that in this position he will attend board meetings and assist in the formulation of bank policy and in promoting the Bank in Annapolis and the Anne Arundel County Communities. On November 27, 1990 John W. Stone, Associate Director, Division of Supervision, denied the application because of (1) the specific nature of the crimes committed and the circumstances surrounding them, and (2) the position to be held by applicant in the conduct of the Bank's affairs. It was felt that approval of the appointment may impair public confidence in the Bank and represent a potential risk to the safety and soundness of the Bank. The Bank and applicant were advised that they may request a hearing within 30 days of receipt of the order of denial. By a letter dated January 2, 1991, the Bank and applicant jointly requested a hearing. On February 28, 1991, the Board of Directors of the agency granted the request for hearing. Subsequently, counsel for the agency and the applicant agreed on a May 1, 1991 hearing date. The hearing was held as scheduled at Washington, D.C., with counsel for both the agency and applicant present. At the outset of the hearing the parties stipulated that the crime of which applicant was convicted is an offense involving dishonesty or breach of trust. The record remained open for five days, following receipt of the transcript, for the parties to submit closing arguments. Both parties submitted closing arguments. In addition, FDIC offered a copy of the January 26, 1983 Settlement Agreement between the State of Maryland and applicant. The document is received in evidence as FDIC No. 10.

Applicant's Evidence

   Witness Meekins, Executive Vice President and Managing Officer of the Bank testified. The Bank has assets of $92 million, maintains two offices, does most of its business in and around Anne Arundel County, and accepts no brokered deposits. It has 70 common stockholders and about 170 preferred stockholders holding 311,000 non voting shares in the aggregate of which 3000 shares or less than one per cent is owned by applicant. The witness came to be acquainted with applicant in late 1985 when the latter was placed on the advisory board serving the Glen Burnie office. Applicant served capably providing business advice and soliciting deposits.
   In April 1989 applicant, along with two other members of the advisory board, was invited to join and was elected director of the main board. A short biographical sketch of applicant was included in the 1989 Annual Report but no mention was made of the criminal conviction. The witness learned of the conviction when he examined the biographical data developed in connection with the April 1989 appointment to the board. He and Attorney Hyatt told the board that applicant had been convicted in 1983 of a violation of the Sherman Anti-Trust Act, that he served a jail term of 60 days, and paid a fine. The Board discussed the matter and approved the nomination after considering applicant's reputation subsequent to the conviction, his business experience, and his work ethic. The board did not ask for more details or to be furnished a copy of the Criminal Information Charging Paper. Applicant did not inform the witness that in a related State of Maryland civil proceedings he was barred from bidding on State contracts for three months and was ordered to make restitution. The witness did not inquire and was not told of the number of contracts on which "rigged bids" were submitted and he does not consider this to be important.
   On May 8, 1989 and later, an application was filed with the Federal Home Loan Bank Board, under Section 407 (p)(2) of the National Housing Act, seeking approval of applicant's appointment to the board. (FDIC No. 6A,B,C,D, and E). On September 26, 1989, the Bank was advised by the Office of
{{10-31-91 p.A-1775}}Thrift Supervision that by reason of enactment of "FIRREA" jurisdiction in this matter now lies with the FDIC. (FDIC No. 6E). Subsequently on November 21, 1989, the Bank and applicant filed a Section 19 application with FDIC. (FDIC No. 1). The witness has no present recollection of the documents submitted with the application, but concedes that page 1, Section II,A,1, states that among the factors to be considered by the agency are "The specific nature of the offense involved and the circumstances surrounding it." The witness is somewhat uncertain but in balance believes the document headed "Defendant Information Relative to Criminal Action" (FDIC No. 2) was submitted to the New York Regional Office sometime subsequent to November 21, 1989 in response to an agency request for additional information. The witness agrees that applicant's No. 1, the January 12, 1983 Plea Agreement, provides a more detailed account of the circumstances surrounding the crime than does the documents "Defendant Information Relative to a Criminal Action" and that it was never submitted to the Agency's New York office. The witness was in contact with the Agency's New York Regional office on several occasions. Some of the contacts were originated by the agency seeking additional information relating to the circumstances of the crime and conviction while others were originated by the Bank seeking to learn when the application would be acted upon. With respect to inquiries by the agency the witness conveyed the request for information to applicant.
   The witness does not know whether the New York office sought information on rehabilitation as is provided for in the Section 19 application form, Section II,A,2, but he believes the agency suggested that letters of endorsement might be helpful in this regard.
   Applicant's role as a director, one of eleven, will be to help formulate Bank policy and oversee management. He will have no input in day-to-day Bank operations. Members of the board are each covered by a two million dollar fidelity bond. The witness is not aware of any concerns, on behalf of the public, over applicant's appointment. Applicant is not a highly visible person and the appointment will not impair public confidence in the Bank. In the experience of the witness applicant is hard working and is knowledgeable in business affairs.
   Applicant Donald A. Kary testified. He is married, has three children and holds a degree in civil engineering. He began his professional career in 1949 working for the City of Baltimore in testing construction materials. In 1950 he joined Mexican Petroleum Company where he was engaged in marketing asphalt and oils. Beginning in 1958 he began working as a sales engineer with Asphalt Service Company. Later, in 1976, he acquired a 50 per cent ownership interest in the Company. In 1986 the remaining interest was acquired. In 1967 he commenced doing business, with two partners, under the name American Paving Company with an office in Salisbury, MD. As of the hearing he was sole owner. In 1985 applicant purchased Delmarva Paving. The three companies specialize in providing paving services for state, counties and local governments in Maryland and Southern Delaware. Some eight or nine years ago applicant began a business identified as Kary Asphalt Company which is engaged in the manufacture of hot asphalt mixes for sale to the three aforementioned companies as well as independent paving contractors.
   Bid rigging is a practice where a group of contractors agree among themselves as to which one of the group will receive a particular contract. The favored contractor submits the "low bid" while the others agree to make higher bids and are thus excluded from consideration and the project is awarded to the so-called "low bidder". The practice was common during the late 1970's in the middle Atlantic group of States. In the early 1980's there was a concerted federal/state effort to combat the practice and applicant was implicated. He agreed with the United States Department of Justice on January 12, 1983, to plead guilty to a one-count information charging a violation of Section 1 of the Sherman Act involving a conspiracy to rig a bid on a highway construction project awarded to Asphalt Service Company in the State of Maryland. Applicant agreed to be sentenced to 60 days of imprisonment. Asphalt Service Company was fined $100,000. (Applicant No. 1). American Paving Corporation was named as a party to the plea agreement, but it was not the subject of a charge though the tenor of the agreement, particularly paragraph 3, tends to connect the company to the conspiracy. The agreement further provides that applicant and the two companies shall cooperate with the De-
{{10-31-91 p.A-1776}}partment of Justice during the grand jury investigation and any subsequent litigation. As noted in the criminal information document (FDIC No. 2) applicant was given a 60 day jail term, placed on probation for three years, and ordered to provide 100 hours of community service.
   In early 1986 applicant was approached by his friend H. Erle Schafer about serving on the Bank's advisory board serving the Glen Burnie branch. Applicant accepted the appointment though he did not inform the Bank of his conviction knowing that Mr. Schafer was aware of the incident. Mr. Schafer joined the advisory board about the same time as the applicant. Advisory board meetings were held monthly and applicant served about three years. Applicant did not inform the board of directors of the conviction at the time of his appointment to the main board in April 1989 because six years had elapsed since the conviction, and he was of the belief that if the conviction was an impediment he would not have been asked to join.
   In a related State of Maryland civil proceeding also involving bid rigging on state highway construction projects, in which applicant neither admitted nor denied criminal acts, Asphalt Service Company agreed to forfeit $200,000 and was banned for 90 days from bidding on State projects. In the plea agreement applicant admitted to collusive bidding on ten State Highway projects beginning in 1976 which had an aggregate cost of $2.1 million and on which he was the successful "low bidder". He also conceded to participating in collusive bidding on other projects whose total cost exceeded $6 to $8 million, but on which he was the designated "high bidder". Applicant conceded he did not tell the Bank of the State of Maryland proceeding and made no mention of this matter in the Section 19 November 21, 1989 application (FDIC-1) nor in the earlier Federal Home Loan Bank Board forms (FDIC 6A-D). He points out that all the inquiries in the Section 19 application related to "Criminal Offense" and the same is true with respect to the Federal Home Loan Bank Board forms though one of the questions in the biographical section (FDIC No. 6D, p.9) asks whether a civil suit has ever been filed against applicant alleging fraud, breach of trust, or violation of a fiduciary duty? Applicant's answer was "NO". Applicant further concedes he did not tell the Bank of his charitable work and association work at the time the Section 19 application was initially filed nor did he advise the agency's New York office of his professional associations or community service.
   Applicant testified that the "bid rigging" practices which ceased in 1979 or 1980 were wrong. He served 60 days of confinement and performed 100 hours of community service assisting his wife in arranging transportation of cancer patients from their residences to treatment centers. Since the conviction he has had no contact with his competitors except at trade association meetings. He requires his employees to follow the same practice and there are annual reminders of the companies' policy. Subsequent to release from prison applicant has been active at the local and national chapters of the trade group Associated Builders and Contractors, the Maryland Asphalt Association where he was president 1986–1987, the Anne Arundel County Trade Council, a neighborhood community organization, and his church. In the fall of 1982 when he came to realize that the "bid rigging" investigation and scandal would become public he informed his Pastor and resigned as a trustee. His companies are bonded and have never been refused or defaulted on bonds. Even during the 90 day suspension, Asphalt Service Company was permitted to continue work on existing projects. Applicant is currently active in State, County, and local government construction projects.
   Applicant believes that because of his background as a construction contractor he has a unique opportunity to attract deposits and bring in loan business. He conceded that if appointment to the Board was "headlined" by the leading Baltimore or Washington newspapers it might hurt the Bank.
   Witness Kellenberger, a retired railroad financial officer, has known applicant since the late 1940's. Since about 1951, he has been associated with applicant in activities supporting their church. The witness has had no professional or financial contact with applicant. He considers a violation of the Sherman Anti Trust Act to be a serious infraction but he does not believe the behavior responsible for the 1983 conviction can be imputed to applicant today. Applicant served capably on the church finance committee and has a good reputation in the church. The witness has heard no comments pro or con regarding applicant in the Glen Burnie Community. The church maintains an account in the Bank.
   Witness Herndon has been pastor of the
{{10-31-91 p.A-1777}}Glen Burnie United Methodist Church since July 1988 during all of which time he has known applicant who is chairman of the Stewardship Committee. He has heard no derogatory comments, believes applicant has a good reputation and integrity, and is honest. The witness came to know of applicant's legal problems from a former pastor. The witness would define rehabilitation as the restoration to a condition that preexisted a problem. He would define personal reputation as the way a person is known and perceived by others. Rehabilitation includes more than reputation, but one way to measure the former is by the way a person is perceived.
   Witness Laws, a practicing attorney in Salisbury, MD., first met applicant in 1967 in connection with a zoning proceeding. Since then he has had a professional relationship with applicant and the latter's three companies, and has personal contact with applicant as many as 25 to 30 times a year. He is aware of the conviction for bid rigging and considers it a serious infraction, but he believes the crime must be weighed in the context of an industry practice that had been going on for many years. To the best of the witness' knowledge, none of applicant's companies were ever prosecuted for bid rigging in the Eastern Shore. At the time the investigation was unfolding, applicant informed the witness that several years prior thereto he told a colluding participant that he would no longer go along with the industry bid rigging practice.
   Witness Yumkas, an attorney with an office in Baltimore, MD., who specializes in the practice of construction law, testified. As executive director of the Baltimore Chapter of the American Subcontractors Association and its legal counsel, he came to be acquainted with applicant who was president of the Anne Arundel Chapter of Associated Builders and Contractors. American Subcontractors is a trade group whose membership comprises subcontractors in various construction trades. Occasionally during the 1970's and more recently since 1985 the witness has represented Asphalt Service Company in construction disputes. He also advises the board of directors of Asphalt Service Company on construction, labor, insurance, and OSHA laws and regulations. Since about 1985 he sees applicant between six and eight times a year and has telephone conversations on even more occasions. In all his contacts with applicant both at the association level and as an attorney he has found him to be honest. The witness comes in contact with people who are acquainted with applicant and believes the latter is highly regarded in the construction community. The witness is aware of applicant's conviction, though he was not told by applicant. He has heard no derogatory comments relating to applicant arising out of the conviction.
   Because of applicant's astuteness as a businessman, his knowledge of a segment of the construction business, and his inclination for fair dealing the witness believes he would be of benefit to the Bank's board of directors.
   Witness Athey, a Delegate to the Maryland Legislature from the Glen Burnie- Jessup area and a retail businessman, testified. The witness is chairman of the Ways and Means Committee and also serves on the Policy and Rules Committees. He has known applicant for about 25 years in both a social milieu and from official appearances before the Ways and Means Committee. He believes applicant has integrity, is aware of applicant's criminal conviction, but has not heard derogatory sentiments.

FDIC Evidence

   Witness Dionne, Assistant Regional Director of the New York Regional office, testified. He is college educated with a graduate degree in banking and has attended many professional level courses with a banking emphasis. He has been with the agency 23 years beginning as a bank examiner. The witness is in charge of the section responsible for all matters relating to savings banks including Section 19 applications. The considered application was received, reviewed, and finally evaluated in terms of whether to recommend approval or denial. Pursuant to delegated authority a decision to approve can be made at the regional level in the person if the Deputy Regional Director acting on behalf of the Regional Director. If the regional office believes denial is warranted then the dispute must be referred to the Washington office of the Division of Supervision. Between the time the application was submitted in November 1989 to July 1990 when it was referred to Washington (FDIC 4) there were discussions concerning the adequacy of the information in the application relating
{{10-31-91 p.A-1778}}to the crime and applicant's rehabilitation. The information disclosed in the application was deemed sketchy and minimal and it was decided to contact the Bank to obtain more background material in order to make an informed recommendation. The record is not entirely clear but it appears (Tr-152) that the initial November 21, 1989 filing included not only the application as such (FDIC No. 1) but also a copy of the document headed "Defendant Information Relative to a Criminal Action-In U.S. District Court" (FDIC No. 2). This was the only information available to the agency at the time of the November filing other than the earlier application filed with the Home Loan Bank Board. (FDIC 6A,B,C,D, and E).
   The Bank was contacted on more than one occasion for additional information. The New York office has processed a number of other Section 19 applications and it is unusual to have to seek out additional information in order to make an informed recommendation. Section 19 places on applicant the burden of making a complete showing. The witness did not see applicant's No. 1 (January 1983 Plea Agreement) until the day before the hearing. He believes the exhibit contains embellishments relating to the crime which were not provided at the initial November 1989 filing of the Section 19 application. Also the witness did not learn of the Maryland civil forfeiture proceeding until about mid April 1991 when the January 28 and March 17, 1983, newspaper accounts became available. (FDIC 9,p.1,8). He concedes that the Section 19 application form (FDIC 1) does not specifically request disclosure of civil suits or settlement agreements, but Section C, block 2 states "Briefly describe the nature of the offense and the circumstances surrounding it.", and this clearly signals the agency's request for full disclosure. Information supplied by applicant in block 2 refers to the Anti Trust conviction, the $100,000 fine, the jail term, and applicant's age, but there is no mention of the State proceeding. The final page of the Section 19 application (FDIC No. 1) has a block headed "Any other pertinent facts relative to the crime which are not disclosed in the indictment." There are no entries in the block. The witness further points out that the Federal Home Loan Bank Board application (FDIC No. 6D, page 9), the predecessor to Section 19, inquires " Have you ever had a civil suit filed against you alleging that you committed fraud, a breach of trust of violated a fiduciary duty?" Applicant checked the "NO" space. The witness states that the facts and circumstances surrounding a criminal conviction are an important element in deciding whether to approve or deny a Section 19 application.
   The witness read the seven letters of endorsements sent by the Bank on April 11, 1990 concerning applicant's standing in the community. There were letters from Messrs. Childs, Goldstein, Laws, Smith, Herndon, Yumkas, and Congresswoman Holt. (FDIC No. 3) The letters were a positive or plus factor in the analysis of the application but their weight is directed to applicant's character and not his rehabilitation. Evidence of rehabilitation should be related to the crime under scrutiny. For example, a speech decrying the evils of "bid rigging" before an industry trade group would be indicative of a new attitude. Applicant's testimony at the hearing that he avoids association with contractors except at trade association meetings is indicative of rehabilitation but this evidence was not offered during the period prior to July 1990 and in fact was not offered until the date of hearing.
   During the process of examining the application prior to July 1990 consideration was given to the fact that in 1983 applicant was 57 years old with many years of experience as a paving contractor, a circumstance to be distinguished from a situation involving a less mature and less experienced contractor. The witness does not believe the eight years lapsed since the 1983 conviction is a positive or plus factor for approval because at the time of conviction in 1983 applicant was a mature individual and the passage of eight years is less critical than would be the case if the incident occurred when he was a young man. The witness concedes that applicant's cooperation with both the Federal and State governments is a positive element in evaluating the application.
   The intent of Section 19 is to enable the agency to encourage and maintain a high level of integrity in the banking business. There is concern that unfavorable publicity concerning approval of appointment of a board member with a criminal conviction will impair public confidence in the Bank with a resultant decline in Bank business and/or liquidity. A director's role is to set and implement policy and to sit on committees which evaluate loan applications. If there are concerns about a director's integrity then
{{10-31-91 p.A-1779}}
there may be questions concerning any bank actions made or suggested by the director. Such actions could have an adverse impact on the safety and soundness of the Bank and in the final analysis of the insurance fund. Also failure to approve the application would not seem to have an adverse impact on the Bank because it already has ten directors which is rather large for an institution of this size.
   In conclusion, the witness believes the application, as it was initially filed in November 1989 and supplemented prior to the July 1990 referral to Washington, should be denied. Furthermore he has heard or seen nothing at the hearing which would change that opinion.
   Witness Kirschbaum, Chief of the Special Situations and Applications Branch within the Division of Supervision, Washington, D.C., testified. He has been employed by the agency for 16 years beginning as a field examiner. He is college educated with a graduate degree in banking and has attended numerous professional level schools whose curriculum is oriented toward banking. The witness is responsible for the processing of Section 19 applications in instances where the regional offices have recommended denial. When the considered application was received in Washington it was assigned to a review examiner who upon completion of his analysis passed it on to the witness and the Associate General Counsel for Compliance and Enforcement for review. From there it was routed to the Assistant Director in charge of the Special Situations and Applications Branch for review prior to being passed on the deciding official, the Associate Director, Division of Supervision. The application was considered at each level with emphasis on the five factors considered by the agency in evaluating Section 19 applications. (FDIC No. 1, page 1). The recommendation at each level of review was to deny which was confirmed but the Associate Director in his decision to deny of November 27, 1990 (FDIC No.5).
   Section 19 has been a law for many years (since 1950) and is unique in its impact in that without agency consent no one with a criminal conviction may serve as a director, officer, or employee of an insured bank. The statute's scope was broadened in 1989 and again in 1990 with an increase in the penalty for violation of the statute and a requirement that a person convicted of a financial institution related crime is barred for 10 years from participating directly or indirectly in the affairs of an insured institution.
   In evaluating a Section 19 application consideration is given to the facts and circumstances surrounding the conviction. Crimes involving dishonesty or breach of trust range in seriousness and the witness believes the considered "bid rigging" lies at the serious end of the scale though not as grievous as embezzlement from a financial institution. Also to be weighed would be the pattern of the offense, that is frequent violations would be viewed more unfavorably than an isolated instance. In the considered case the decision was based on a one-count violation of the Sherman Act. At the time the application arrived at the Washington office the agency had a reprint of a March 17, 1983 newspaper item which referred to the plea bargain between applicant and the State of Maryland whereby the former was suspended from bidding on State contracts for three months and paid $200,000 in restitution for admitted "bid rigging". This was information which was not contained in the Section 19 application file received form the New York office.
   Another factor weighed in reviewing the application was the position to be filled. A directorship is viewed as an important post and demands a person of integrity whose actions are beyond reproach and who would install public confidence in the bank. Each position of director is viewed as important and the importance of the position is not lessened by the fact that the occupant under consideration will fill only one of the eleven positions. No consideration was given to the fact that applicant owns no voting stock.
   Still another element to be weighed is the age of the applicant who was a mature 57 in 1983. This is to be contrasted with a younger person who has neither the experience not maturity of a person of applicant's age.
   Yet another criteria by which an application is measured is evidence of rehabilitation, one example of which is cited in the Agency's Policy Statement (FDIC No. 1,page 1), while another was referred to by Witness Dionne. Still another example would be occupation by the applicant in a position of trust. Letters such as those contained in FDIC No. 3 are directed at applicant's character rather than rehabilitation. The witness
{{10-31-91 p.A-1780}}believes the evidence of rehabilitation was not adequate. The application as received from the regional office did not indicate that applicant was continuing to work on State of Maryland contracts, but should there be evidence to this effect it would be a matter to be considered. The same would be true if it were established that applicant was entrusted with church funds. The witness can recall no reference to fidelity bond coverage in the application.
   The agency's overall standard of review is to determine whether applicant poses a threat to the safety and soundness of the bank and/or whether approval of the appointment would impair public confidence in the bank. The witness knows of no occasion where the agency has approved an application for appointment to a bank's board of directors where the applicant was convicted of violating the Sherman Anti Trust Act.

Discussion and Conclusion

   Before considering the application on its merits a preliminary matter must be resolved. Because the Bank is a savings and loan institution the application seeking approval of applicant to the Bank's board of directors was filed first with the Federal Home Loan Bank Board on May 8, 1989. Because of the passage of FIRREA which became effective August 9, 1989, 12 U.S.C. 1829, jurisdiction of the matter was transferred to FDIC. Subsequently on November 21, 1989, the considered application was filed. At the time of filing, Section 19 applications were processed pursuant to the guidelines and policies as set forth in page 1 of FDIC No. 1. Subsequently the procedure and standards to be applied to Section 19 cases were changed effective December 31, 1989. I conclude that the application should be considered pursuant to the procedure which were in effect at the time the application was filed even though additional information such as the letters of endorsements and perhaps other materials were forwarded to the New York Regional Office subsequent to December 31, 1989.
   The Section 19 application form lists five standards which are to be considered in evaluating the application. The first refers to the specific nature of the offense and the circumstances surrounding it. The application form filed November 21, 1989 (FDIC No. 1) described the crime as being a violation of the Anti Trust Act and clearly this failed to apprise the agency's New York Regional office of the actual offense "bid rigging", or the scope of the offense. The document "Defendant Information" (FDIC No. 2) provided data which gave an outline of the actual crime "bid rigging", but it was mainly directed at applicant's role in the conspiracy and his punishment. It was not until shortly before the hearing when the "Plea Agreement" (applicant No. 1) surfaced. This fleshed out the charge against applicant and Asphalt Service Company.
   Clearly applicant and the Bank treated the application process much to cavalierly. The application form, Section C, block 2 states "Briefly describe the nature of the offense and the circumstance surrounding it.xxx". The response typed in was clearly inadequate and in effect thwarted the agency's mission of making an informed judgement promptly at the administrative level. Applicant and Asphalt Service Company were also involved in a companion "bid rigging" dispute with the State of Maryland. This was resolved through a settlement agreement dated January 26, 1983, whereby the defendants agreed to pay the State $200,000 for restitution and compensatory damages. (FDIC No. 10). In an adjunct proceeding the Maryland Department of Transportation suspended applicant from bidding on state contracts for a three month period. The Section 19 application made no mention of this and applicant/Bank submit that the application made no mention of this and applicant/ Bank submit that the application form as well as the language of Section 19 only require that information of a "conviction" be disclosed and that because the State case was a civil settlement agreement, it was outside the reach of Section 19. This is much too narrow a position in consideration of the fact that both the federal and state proceedings relate to collusive bidding on State highway projects. Banks and their officials hold fiduciary positions and ought not quibble over a matter which is clearly pertinent to agency determination of applicant's fitness. Page three of the application form calls for "Any other pertinent facts relative to the crime which are not disclosed in the indictment." A careful prudent person might well conclude that information about the Settlement Agreement should be mentioned. Furthermore, the predecessor application filed with the Bank Board inquired whether applicant was ever the subject of civil suit alleging fraud or breach of trust. Applicant's
{{4-30-93 p.A-1781}}
response was "NO". Clearing again he was less than careful.
   In summary the record shows that both applicant and the Bank were less than diligent in completing the application form and providing all the information called for by the guidelines and policy statement and the form itself. In the important task of deciding the fitness of a person with a criminal conviction to serve on the board of an insured institution every effort should be made to supply at the time of initial filing all the information called for and if there is uncertainty as to what should be included it is best to follow the principle of full disclosure. The Bank appears to suggest that the New York Regional office was less than proficient in processing the application, but any significant delay must rest on applicant/ Bank which have the burden of supplying the information on which an informed decision can be made.
   There is a question whether failure of applicant/Bank to furnish, or refer to the Maryland Settlement Agreement and the failure to supply a copy of the Plea Agreement until shortly before the hearing reflect unfavorably on applicant's fitness. Though these documents should have been part of the initial presentation, as explained above, I take note that the initiating parties apparently had no prior experience completing a Section 19 application, that the completed application form and the Criminal Information document provided a bare bones outline of the offense, and that there may be some questions concerning whether reference to the Maryland Settlement Agreement is a Section 19 requirement, and therefore conclude that these matters do not reflect unfavorably on applicant's fitness for the position of director.
   As the record now stands the nature of the offense and its dimensions are apparent. Applicant was convicted in early 1983 and now eight years has passed. His infraction was serious and its adverse impact on the community may not be excused by noting that bid rigging was a widespread practice. But in applicant's favor it is noted that he opted not to contest the charges by trial and that he cooperated with both federal and state authorities.
   The second criteria for weighing a Section 19 application is evidence of rehabilitation. In the application form, Section C, block 3, applicant stated he worked hard to overcome the mistake and has been active in business, trade associations, and church affairs. In his testimony at the hearing, he admits to having done wrong though he shrinks from believing himself to have been a criminal. Applicant avoids associating with his fellow contractors except at trade association functions, has a company policy against "bid rigging" which he conveys to his employees, and continues to be active in government paving contracts. It is true that he could have but did not speak against bid rigging at trade association meetings, but rehabilitation in the context of this proceeding may be defined as restored to good standing in the community. Five witnesses testified to applicant's character and reputation. FDIC No. 3 includes seven letters of like effect, one of which was written by Maryland's Comptroller of the Treasury, and refers to applicant's business with the State. Now eight years older than he was in 1983 and with no indication of recidivism, I conclude that applicant is rehabilitated.
   The third standard by which a Section 19 application is measured is the age of the person at the time of conviction. Applicant was a mature 57 in 1983 and at that time had many years of experience in the paving business. The FDIC witnesses consider this a negative factor contrasting applicant's maturity and experience with that of a younger person with but little business experience and whose failure might be explained, in part, by youthful indiscretion. This distinction is too facile. Antitrust crimes like bid rigging or crimes in restraint of trade are, as opposed to the more direct or vicious forms of theft, generally committed by mature experienced people who have risen over time to positions of leadership and influence in their business. It is not at all clear that applicant's age in 1983, taking into account the type of crime for which he was convicted should be a critical factor in the disposition of this proceeding.
   The fourth yardstick by which the application is to be analyzed is the position to be held in the bank. Applicant has had no banking experience and his role will be to offer the Bank advice in attracting business from construction contractors. As pointed out by witness Dionne, a director is responsible for setting bank policy and direction, assisting management in implementing bank policy
{{4-30-93 p.A-1782}}and procedure, and may occupy a position on the loan review committee. Applicant will be only one of eleven directors, owns no voting stock, and will have no voice in the Bank's day-to-day operations. That he might compromise loan review procedures, or approve a loan which later becomes non performing and thereby impair public confidence in the Bank is a worse case supposition. To argue that the appointment ought not be approved because of possible negative publicity resulting in potential adverse impact on the Bank would amount to abdication of the agency's obligation to regulate on the basis of a reasoned analysis of the evidence presented. Furthermore the evidence shows that applicant is a respected businessman with a high level of energy, both of which are qualities which can serve the Bank's interest.
   The last of the specifically enumerated criteria is fidelity bond coverage. The application makes no mention of this subject but the Bank's witness testified that board members are covered by a $2 million policy.
   In its Statement of Policy the agency states that it does not view Section 19 as punitive. It further states that the essential criterion is whether approval of the directorship constitutes a significant risk to the safety and soundness of the bank. As the agency's closing argument points out the opinions of experienced FDIC personnel are entitled to deference and they are justified in making predictive judgments, but there must be a connective link between the opinions/judgments and the evidence. Here the conviction occurred eight years ago, applicant has admitted the wrongness of his actions, has abstained from similar actions since his conviction, and has been active in professional, community, and religious affairs. I find that the evidence does not provide a nexus which will support disapproval but to the contrary requires approval. Accordingly, I recommend that the Board of Directors of the Federal Deposit Insurance Corporation approve the appointment of Donald A. Kary to the Board of Directors of Severn Savings Bank, FSB, Annapolis, MD.
   /s/ Richard A. White
   Presiding Officer
   Washington, D.C.
   May 30, 1991

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