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FDIC Enforcement Decisions and Orders |
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Board assesses civil money penalty of $10,000 against bank director for participating in violations of the FDI Act and Regulation O in the extension of credit to a fellow director.
[.1] Directors Duties and Obligations Regulation O
[.2] Regulation O Extension of Credit Purchase of Nonperforming Asset
In the Matter of
This proceeding was initiated on September 28, 1989, pursuant to the Federal Deposit Insurance Corporation's ("FDIC") Notice Of Assessment Of Civil Money Penalties, Findings of Fact and Conclusion of Law, Order to Pay, and Notice of Hearing ("Notice") against J.J. Silagy, individually and as a director of The Olla State Bank, Olla, Louisiana. The Notice alleged, inter alia, that Respondent J.J. Silagy violated sections 215.2(f), 215.4(a), and 215.4(c) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§215.2(f), 215.4(a), and 215.4(c), and sections 22(h)(1) and 22(h)(3) of the Federal Reserve Act ("the Act"), 12 U.S.C. §§375b(1) and (3), and that a civil money penalty should be assessed against Respondent Silagy under section 18(j)(4) of the Federal Deposit Insurance Act (the "FDI Act"), 12 U.S.C. §1828(j)(4). The proposed amount of the penalty against Respondent Silagy was $10,000. Respondent requested a hearing.
The Board of the FDIC, have considered the entire record in this proceeding, including the ALJ's Recommended Decision dated July 3, 1991, and the exceptions of the parties thereto, makes the following findings. The Board finds on the record before it that Respondent J. J. Silagy caused, brought about, participated in, counseled, or aided or abetted violations of section 22(h) of the Act, 12 U.S.C. §375b, and sections 215.2(f), 215.4(a), and 215.4(c) of Regulation O, 12 C.F.R. §§215.2(f), 215.4(a), and 215.4(c).
/s/ Hoyle L. Robinson
In the Matter of
This matter was tried before me at Shreveport, Louisiana, on January 28 and 29, 1991, upon a Notice of Assessment of Civil Money Penalties against J.J. Silagy, and others.
The Respondent, J.J. Silagy, had been a member of the Board of Directors of the Olla State Bank (herein the Bank) since 1974. He also was a paid consultant for the Bank. Along with the other directors he was assessed a civil money penalty in connection with the Bank's purchase of a credit to the Central Bank of Louisiana from W. Scott Maxwell, approved on January 13, 1988, and originating on January 18, in the amount of $557,464.85.
[.1] Nevertheless, insider transactions are so serious and have had such a devastating effect on the banking industry, I conclude that if board members know nothing else,
{{12-31-91 p.A-1825}}they know that Section 375b and Regulation O limits the amount which can be loaned to an executive officer. If Silagy did not know that the limit was an aggregate amount in excess of 15 percent of the bank's unimpaired capital and surplus, he was charged with finding out. I conclude that Bowker's statement was insufficient, primarily because it was so far off and "understood" was equivocal. If Bowker had simply miscalculated the lending limit, such would have been a technical matter on which board members could reasonably rely. But such was not the case. The calculation of the Bank's unimpaired capital and surplus was accurate. The percentage which Bowker is reported to have thought could be lent to an executive officer was not, nor was his statement reported in such a way that a reasonable person would rely on it. See Fitzpatrick v. FDIC, 765 F. 2d 569 (6th Cir. 1985) for a director's duty to investigate the propriety of an insider transaction such as the one here.
[.2] From all these facts the conclusion is inescapable that the Bank's purchase of the Central Bank credit was primarily an attempt to help Maxwell avoid foreclosure on his home and other land. Clearly he benefited from the transaction. And he was an insider. This precisely the type of risk to a bank's assets with 12 U.S.C. §375b and Regulation O seek to prevent.
As written, and applicable, at the time of the events in this matter, 12 U.S.C. §1828(j) (4) (as to non-member state banks) provided that a civil money penalty assessment could be levied against one violating Section 375b of not more than $1,000 for each day the violation occurred. In determining how much of an assessment to levy, the FDIC is to consider five factors: size of the financial resources of the person charged, his good faith, gravity of the violation, history of previous violations, and such other matters as justice may require.
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The parties stipulated that the financial resources of the Respondent is not an issue herethat he has sufficient resources to pay an assessment of $10,000.
B. Good Faith
In support of his good faith argument, the Respondent testified that he did not know of the Regulation O limit and that Bowker told the directors there was no problem with lending limits. Even crediting this testimony, I do not believe the Respondent did enough. First, as noted above, the Respondent cannot pick and choose among the opinions of management of which to place his reliance, at least absent some persuasive reason. There is no reasonable basis on this record to conclude that Silagy could rely on Bowker on the limit question but ignore him on the issue of whether Maxwell could service the debt.
C. Gravity of the Violation
"Problem banks and insider abuses have been virtually synonymous. Nothing appears more often on the fever charts of sick financial institutions than self-dealing ailments." H.R.Rep. No. 1383, 95th Cong., 2d Sess. 1012, reprinted in 1978 U.S.Code Cong. & Ad. News 9273.
D. History of Previous Violations
At the examination as of October 1987 (FDIC Ex. 19), Regulation O violations as to Maxwell and his father were noted. At the FDIC meeting with the board on December 16, 1987, this was discussed. Yet less than a month later, the Respondent and the board embarked on a course of action which would again violate the insider lending proscriptions. There was a history, and it was recent, such was at least sufficient so that this would not be a factor to mitigate the assessment.
E. Other Factors as Justice May Require
There are no additional factors which I believe would tend to lower the amount assessed in the Notice.
1. At all times material the Bank was a corporation existing and doing business under the laws of the State of Louisiana, having its principal place of business of Olla, Louisiana. It was insured by the FDIC and not a member of the Federal Reserve. (JE-1, No. 8)
1. At all times pertinent to the proceeding, the Bank was an insured state nonmember bank subject to the Act, 12 U.S.C. §§1811, et seq., the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III and the laws of the state of Louisiana.
IT IS HEREBY ORDERED THAT a civil money penalty of $10,000 be, and the same hereby is, assessed against J.J. Silagy, pursuant to section 18(j)(3) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(j)(3).
/s/ James L. Rose |
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Last Updated 9/10/2003 | legal@fdic.gov |