Federal Deposit
Insurance Corporation

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   [¶5181] In the Matter of Ronald J. Grubb, Bank of Hydro, Hydro, Oklahoma, Docket Nos. FDIC-88-282k and FDIC-89-111e (8-25-92).

   In a consolidated action, the FDIC Board finds that repeated extensions of credit to respondent and his related interests warrant his removal from banking and assessment of a $50,000 civil money penalty. This decision affirms the administrative law judge's recommendation regarding the civil money penalty, but rejects his recommendation as to removal and prohibition.

   [.1] Practice and Procedure—Recommended Decision—Exceptions—Oral Argument
   The grant of a request for oral argument is within the discretion of the Board. Where the factual and legal arguments are fully set forth in the parties' submissions and the lack of oral argument will not prejudice the respondent, the Board denies the request.

   [.2] Regulation O—Related Interests
   An entity in which respondent has a one third interest is an affiliate for purposes of Regulation O. Letters of credit and loan to it are not exempt as indebtedness to the bank for the purpose of protecting the bank against loss.

   [.3] Regulation O—Lending Limitations—Collateral
   It is a violation of the requirement that insider loans be secured for respondent to treat his unsecured guaranty as collateral for extension of credit to his business interests.

   [.4] Regulation O—Lending Limitations—Security Interest
   A judgment as to which appeal rights have not expired and which is not a perfected security interest cannot qualify as collateral with an ascertainable market value for purposes of FDI Act Section 23A.

   [.5] Regulation O—Overdrafts—Offsets
   The right of offset, created by the text of the bank's checking account signature card, does not constitute collateral for purposes of Section 23A.

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   [.6] Cease and Desist Order—Violation—Civil Money Penalty
   Failure to document reasons for purchasing loan participation and for extensions of credit to borrowers with classified loans, as required by cease and desist order, are violations of the order whether or not losses to the bank result.

   [.7] Civil Money Penalty—Factors Determining—Good Faith
   An attitude of treating the bank's resources as if they were his own funds to enjoy without restraint does not reflect well on respondent's good faith for purposes of determining a civil money penalty.

   [.8] Civil Money Penalty—Factors Determining—Gravity of Violation
   For purposes of quantifying the gravity of violation, loans which have been charged off can be considered even if they are later repaid. Also counted, in addition to direct losses to the bank, are unpaid interest and the benefit to respondent of below-market interest and prohibited overdrafts.

   [.9] Civil Money Penalty—Factors Determining—Other Matters
   Improvement in the bank's financial condition is not a matter required by justice to be considered in determining the amount of a civil money penalty.

   [.10] Removal—Factors Determining Liability—Fiduciary Duty
   Respondent breached his fiduciary duty to the bank by failing to see that it operated in compliance with law and regulations, and by ignoring conflicts created by transaction which he devised for his own benefit.

   [.11] Removal—Factors Determining Liability—Unsafe and Unsound Practices
   Loans in violation of Regulation O, without collateral or with unperfected security interests, to borrowers with negative net worth or with outstanding classified loans are abusive insider transactions constituting unsafe or unsound banking practices.

   [.12] Removal—Factors Determining Liability—Losses to Bank
   Determination whether a bank has suffered, or probably would suffer, a substantial loss is to be made as of the time of issuance of the removal notice; subsequent redemptive acts are irrelevant to a removal action.

   [.13] Removal—Factors Determining Liability—Prejudice to Depositors
   Repeated violations, breaches of fiduciary duty and unsafe or unsound practices, with their resulting losses to the bank, subjected depositors to the risk of serious prejudice.

   [.14] Removal—Factors Determining Liability—Disregard for Safety and Soundness
   Continuing or repetitive violations constitute willful disregard for the safety and soundness of the bank.

   [.15] Neither respondent's banking skills and experience nor his conduct at other banks he owns should be considered mitigating factors in a removal and prohibition action.

In the Matter of
RONALD J. GRUBB,
individually and as a director and/or person
participating in the conduct
of the affairs of
BANK OF HYDRO
HYDRO, OKLAHOMA
(Insured State Nonmember Bank)
DECISION AND ORDERS
FDIC-88-282k and
FDIC-89-111e

   This proceeding is a consolidated action brought by the Federal Deposit Insurance
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Corporation ("FDIC" or "Petitioner") against Ronald J. Grubb ("Respondent"), individually and as a director and/or person participating in the conduct of the affairs of Bank of Hydro, Hydro, Oklahoma ("Bank"), seeking civil money penalties pursuant to former sections 18(j)(3) and 18(j)(4) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §§ 1828(j)(3) and 1828(j)(4), and the FDIC Rules of Practice and Procedure, 12 C.F.R. Part 308; and also seeking removal pursuant to former section 8(e)(1) of the FDI Act, 12 U.S.C. § 1818(e)(1) and the FDIC Rules of Practice and Procedure, 12 C.F.R. Part 308.¹ Respondent is charged with violations of section 23A of the Federal Reserve Act ("Act"), 12 U.S.C. § 371c, as made applicable to insured State nonmember banks by section 18(j)(1) of the FDI Act; section 22(h) of the Act, 12 U.S.C. § 375b, and sections 215.4(a), (b), and (c) of Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O"), 12 C.F.R. Part 215, as promulgated thereunder and made applicable to insured State nonmember banks by section 18(j)(2) of the FDI Act, 12 U.S.C. § 1828(j)(2), and section 337.3(a) of the FDIC Rules and Regulations, 12 C.F.R. § 337.3(a); and a Cease-and-Desist Order issued by Petitioner.
   The Decision of the Board of Directors ("Board") of the FDIC finds that the repeated extensions of credit to Respondent and his related interests which are alleged in the Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of law, Order to Pay and Notice of Hearing ("Assessment Notice") and Notice of Intention to Remove and/or Prohibit From Further Participation ("Removal Notice") involved over forty violations of section 23A of the Act and Regulation O, resulted in substantial financial loss to the Bank totalling $606,033, of which Respondent subsequently repaid $484,607; that these transactions constituted breaches of Respondent's fiduciary duty of the Bank, involved unsafe or unsound practices, and resulted in economic benefit to Respondent; and that such violations, practices, and breaches demonstrate Respondent's willful or continuing disregard for the safety or soundness of the Bank.
   As Administrative Law Judge Steven M. Charno ("ALJ") found, Respondent continually used the Bank as his own "personal purse that he might employ without regard to regulatory constraints." R.D. at 18.² Furthermore, the violations and prohibited loans continued even after similar violations cited in the 1986 Report of Examination were discussed with Respondent.
   The Board orders Respondent to pay a civil money penalty of $50,000 and further orders that Respondent is removed as a director of the Bank and prohibited from serving or acting as an institution-affiliated party and/or from participating in any manner in the conduct of the affairs of any insured depository institutions.

   Respondent's Exceptions include a request for oral argument before the Board. Respondent argues that this case presents some unique characteristics because of the "Grubb Lawsuit" discussed at page 22 below, and that the FDIC Dallas Regional Office has exhibited a prejudicial attitude toward him; hence, Respondent's briefs cannot adequately present Respondent's position, and Respondent will be prejudiced if the Board fails to grant oral argument.

   [.1] The grant of a Request for Oral Argument is an extraordinary matter within the discretion of the Board. 12 C.F.R. § 308.17. The Board has previously discussed those circumstances in which it would grant such a request. See In the Matter of Harold Hoffman, 2 P-H FDIC Enf. Dec. ¶5140; FDIC Docket No. FDIC-85-42b, 1 P-H FDIC Enf. Dec. ¶5062. After considering Respondent's request, the Board finds none of those circumstances in the instant case. The factual and legal arguments are fully set forth in the parties' submissions. As to the assertions of prejudice against Respondent by the

I. STATEMENT OF THE CASE

   A. DESCRIPTION OF THE CHARGES

   On December 22, 1988, the FDIC issued the Assessment Notice against Respondent³ for the alleged violations of section 23A of the Act and of Regulation O cited above. The Assessment Notice, as amended, alleged (1) violations of the lending limits of section 23A(a)(1)(A) of the Act, the collateral security requirements of section 23A(c)(1) of the Act, and the creditworthy requirements and lending limits of sections 215.4(a)(2) and 215.4(c), respectively, of Regulation O, with respect to the issuance and subsequent renewals of a letter of credit on behalf of MGM Production Company ("MGM"), an alleged "affiliate" of the Bank and "related interest" of Respondent, as those terms are defined in section 23A(b)(1) of the Act and section 215.2(k) of Regulation O, respectively; (2) violations of the creditworthy requirements of section 215.4(a)(2) of Regulation O, the lending limits of section 215.4(c) of Regulation O, and the prior approval requirements of section 215.4(b) of Regulation O, with respect to overdrafts on checking accounts maintained at the Bank on behalf of Respondent and certain of his "related interests," namely MGM, Falcon Management Company ("Falcon Management"), and Ron Grubb Investments ("RGI"); (3) violations of the overdraft prohibition of section 215.4(d) of Regulation O with respect to overdrafts on Respondent's personal account; (4) violations of the collateral requirements of section 23A(c)(1) of the Act with respect to the overdrafts of MGM and Falcon Management; (5) violations of the creditworthy requirements of section 215.4(a)(2) of Regulation O with respect to the issuance and renewal of a loan to Falcon Production Company ("Falcon Production"), an alleged "related interest" of Respondent, and violation of the lending limits of section 215.4(c) of Regulation O with respect to the renewal of that loan; (6) violations of sections 215.4(a)(2) and 215.4(c) of Regulation O with respect to certain payments to Respondent in connection with the so-called Falcon Production ORE transaction; (7) violations of sections 215.4(c) and 215.4(a)(2) of Regulation O with respect to four extensions of credit made to Respondent during 1986 and 1987; (8) violations of the November 29, 1985 Cease-and-Desist Order issued by the FDIC to the Bank by (a) capitalizing uncollected interest on two occasions, (b) twice failing to document the reasons for extensions of credit to classified borrowers, (c) failing to document the reasons for purchasing a loan participation, and (d) failing to amend the loan policy to reflect changes required by the FDIC Pursuant to former section 18(j)(4) of the FDI Act, 12 U.S.C. § 1828(j)(4), Respondent was assessed a $50,000 civil money penalty for participation in the alleged violations of the Act, Regulation O, and the Cease-and-Desist Order.
   On July 13, 1989, Petitioner issued the Removal Notice to Respondent pursuant to section 8(e)(1) of the FDI Act, 12 U.S.C. § 1818(e)(1).⁴ The Removal Notice realleged that Respondent violated section 23A of the Act and various provisions of Regulation O as described above. It further alleged that Respondent's illegal conduct resulted in Respondent's engaging or participating in unsafe or unsound banking practices and breaches of his fiduciary duty to the Bank, and demonstrated his willful or continuing disregard for the safety or soundness of the Bank; and that as a result of Respondent's acts, omissions and/or practices, the Bank has suffered or will probably suffer substantial financial loss or other damage in the amount of approximately $606,033, and resulted in Respondent's receiving financial

   B. SUMMARY OF PROCEEDINGS

   Following prehearing conferences on October 3, 1989, December 28, 1989, and April 10–11, 1990, and the submission by the parties of a Joint Stipulation of Facts and prehearing briefs together with proposed findings of fact and conclusions of law, a four-day evidentiary hearing was held in the matter before the ALJ on December 3–6, 1990 in Oklahoma City, Oklahoma. The parties submitted initial post-hearing briefs, together with proposed findings of fact and conclusions of law, on June 24, 1991, and simultaneous reply briefs on July 12, 1991. In December 1991, the ALJ allowed Respondent to file three late-filed exhibits and proposed supplemental findings of fact and conclusions of law based thereon. Petitioner filed a brief opposing receipt of the exhibits. The ALJ received the late-filed exhibits in evidence, R.D. at 2.

   C. SUMMARY OF THE TRANSACTIONS
ON WHICH THE PARTIES BASE
THEIR CHARGES AND DEFENSES

   The alleged violations set forth in the Assessment Notice and the Removal Notice occurred from December 1985 through February 1988. Transactions both previous and subsequent to this period are relied on by Respondent in defense. Because of the number and complexity of transactions involved in this proceeding, they are summarized below.⁵

   1. General Background.

   (a) The Bank had total assets of $27.7 million and total capital of $2.328 million as of the April 27, 1990, Examination. FDIC Ex. 335 at 2.
   (b) Respondent Ronald J. Grubb owns 94 percent of the Bank through his control of Hydro Bancshares, Inc., and is a director and person participating in the affairs of the Bank. He bought his first bank in 1974 and has owned controlling interests in 17 banks in Oklahoma and Texas. He purchased an interest in the Bank in 1977, Tr. at 580-83, and obtained control of the Bank in 1981, FDIC Ex. 3. In 1985, respondent owned more than 50 percent of nine banks, and 35 percent of another, FDIC Ex. 1. At of 1990, he owned controlling interests in 6 banks, FDIC Ex. 335.
   (c) The 1985 Report of Examination of the Bank stated that the Bank's condition reflected a serious deterioration from the last examination; that loan classifications had doubled; that 53 percent of all classified loans were originated by Respondent; that it was recommended that Respondent refrain from further lending and completely divorce himself for the loan area. Consequently, Respondent resigned as chairman of the board of the Bank, but continued to serve as a director. The president of the Bank also resigned, although he also continued to serve as a director.
   (d) Fred Schamburg, who graduated from college in 1981 and immediately went to work for the Bank as a trainee, was promoted to president of the Bank during the 1985 Examination, Tr. at 917. He served in that position at least until November 1991, Resp. Late-filed Ex. 330.
   (e) On November 29, 1985, an FDIC Cease-and-Desist Order became effective against the Bank, based on the results of the 1985 Examination.⁶
   (f) During the period 1985 through 1988, the Bank had but one outside director, who

   While he does not appeal ever to have engaged in a transaction with the intention of securing a profit which would cause a loss to the Bank, he has often treated the Bank's resources as if they were his personal purse which he might employ without regard to regulatory constraints.

   After receiving the report of the July 18, 1986 examination, Respondent and his related interests committed the following new violations: (1) overdrawing accounts on eight occasions, each of which was "corrected" by voluntary repayment within one week of the overdraft and none of which was shown to have exposed the Bank to a possibility of "abnormal risk or loss," (2) failing by virtue of inaction to insure the Bank's compliance with the Cease and Desist Order on five occasions, none of which was alleged to have exposed the Bank to a possibility of "abnormal risk or loss," and (3) the Falcon Production ORE transaction. (Footnotes omitted.)

   First, the violations engendered in significant part by the deterioration in Respondent's financial condition were not duplicated at the five other banks which he controlled. Second, Respondent brings to banking an unquestioned array of aptitudes, skills and experience which the industry can ill-afford to lose at this juncture.

II. SUMMARY OF THE BOARD OF
DIRECTORS' DECISION

   The Board has carefully reviewed the record, the parties' briefs, exceptions, and other pleadings on the merits and the Recommended Decision. The Board's review of the Recommended Decision was unnecessarily made more difficult by the ALJ's failure to include complete findings of fact and conclusions of law.¹⁴ Nevertheless, the Board finds that the ALJ's statement of the facts and legal conclusions, except as to the appropriate remedies, are supported by the evidence in the record as a whole with certain exceptions which will be noted later. Specifically, the Board agrees with and adopts the statutory and regulatory violations set forth in the Summary of the Recommended Decision, supra.
   The Board also agrees that the imposition of a civil money penalty is appropriate in this proceeding, although it disagrees with certain of the findings and conclusions of the ALJ in his analysis.
   The Board has determined that the ALJ erred by not addressing all of the allegations in the Assessment Notice and Removal Notice and that he should have made findings of fact and conclusions of law as to each such allegation. The ALJ having failed to do so, the Board has undertaken an independent review of those issues that were alleged in the notices and the evidence presented at the hearing but not addressed by the ALJ. These issues are whether the transactions complained of (1) constituted breaches of Respondent's fiduciary duty to the Bank; (2) constituted unsafe or unsound practices; (3) caused substantial loss or damage to the Bank; or (4) could cause serious prejudice to the interests of the Bank's depositors. The Board's Findings of Fact and Conclusions

III. DISCUSSION

   A. VIOLATIONS OF LAW, REGULATION, AND THE CEASE-AND-DESIST ORDER
   The Board agrees with and adopts the ALJ's Findings of Fact Nos. 1–27, R.D. at 24–26, and Conclusions of Law Nos. 1–17, R.D. at 41, 42.
   1. MGM Letters of Credit. The Board agrees with and adopts the ALJ's findings of fact, conclusions of law and discussion of these transactions, R.D. at 2–6; Findings of Fact Nos. 28–50, and Finding of Fact No. 51 after substituting the figure $250,000 for the figure $484,606; and Conclusions of Law Nos. 18–20, 25, 28, 31, 33, and 37; and adopts Conclusions of Law Nos. 26, 27, 29, 30, 32, 34, 36, and 38 after substituting the words "continued to violate" for the word "violated" in each such Conclusion, R.D. at 41–43.

   [.2] Respondent takes a number of exceptions.¹⁵ First, Respondent argues that MGM is not an "affiliate" of the Bank, despite his one-third ownership. He claims he acquired his interest in MGM in order to save the Bank from a loss on the 1982 loan to May and Matthews, and that the Bank agreed, in consideration of the pay-off of the May and Matthews loan in early 1983, to issue a stand-by letter of credit to secure the bonding off of the liens in the materialman's suit. Hence, claims Respondent, MGM is a company ". . . where control results from the exercise of rights arising out of a bona fide debt previously contracted..." and therefore excluded from the definition of "affiliate" in section 23A(b)(2)(E) of the Act. For much the same reasons Respondent argues that the letters of credit and loan to MGM are exempt from Regulation O because they represent "indebtedness to a bank for the purpose of protecting the bank against loss ..." under 12 C.F.R. § 215.3(b)(4) and hence are not extensions of credit for purposes of Regulation O.¹⁶
   The Board agrees with the ALJ that Respondent's argument with respect to section 23A(b)(2)(E) of the Act is "without logical or factual support," R.D. at 4. The Board has previously held that statutory exceptions to limitations on extensions of credit to related interests must be strictly construed. Docket No. FDIC—85-82e, 2 P-H FDIC Enf. Dec. § 5137 (1989). Logically, "control" for purposes of section 23A(b)(2)(E) must be control by the bank.¹⁷ Factually, Respondent's assertions as to his motives in forming MGM and purchasing the assets of TPR, and the existence of an agreement by the Bank to issue a letter of credit if and when needed in exchange for payment of the May and Matthews loan, are unsupported by any evidence except his own testimony.¹⁸ The

{{11-30-92 p.A-2024}}tial cash "equity" payments to a debtor when collateral security is acquired in lieu of fore-closure upon default is inherently risky and abnormal banking practice, despite the existence of an appraised value in excess of the funds paid out.
   The ALJ found that the practice was neither usual nor prudent, and that it transferred the risk of further decline in property value to the Bank. He concluded that the transaction was an unsafe or unsound banking practice and therefore Respondent was not entitled to receive the funds disbursed during the ORE transaction. The Board agrees. Bank Commissioner Wayne H. Osborn testified that in his experience as an expert in banking affairs in the state of Oklahoma, he had never seen an ORE transaction handled this way, and that he would not have allowed it for the simply reason that the Bank could possible suffer some future loss, Tr. at 493.²⁶
   The Board concludes that the "equity" payments to Falcon Production, for the benefit of Respondent, violated state law and were unsafe or unsound banking practices, and Respondent is obligated to repay the Bank because these payments were made in violation of his fiduciary duty to the Bank.
   As a consequence, the payments constituted extensions of credit under Regulation O, which defines an "extension of credit" to include:

   (8) Any other transaction as a result of which a person becomes obligated to pay money (or its equivalent) to a bank, whether the obligation arises directly or indirectly or because of an endorsement on an obligation or otherwise, or by any other means whatsoever.

   [.6] The ALJ found that "none of the foregoing violations resulted in a loss to the Bank." The Board declines to adopt this finding. The only evidence in the record on this point indicates that there might well have losses associated with some of the transactions involved in these violations.²⁸ If troublesome transactions are properly discussed and documented in the minutes, they will

{{11-30-92 p.A-2026}}likely not obtain approval without strong supporting reasons, which of course is the purpose of the Cease-and-Desist Order provision in question.
   The Board adopts Findings of Fact Nos. 154–157, 159–161, 163–168, and 170; adopts Findings of Fact Nos. 158 and 162 after adding at the end of each the sentence, "Respondent was responsible for the loan transaction and it was conducted at his request;" and rejects Finding the Fact No. 169, R.D. at 36–38; and adopts Conclusions of law Nos. 96–100, R.D. at 48, 49.

   B. CIVIL MONEY PENALTY

   The five statutory factors the Board is required to consider are: the size of the financial resources and good faith of the person charged, the gravity of the violations, the history of previous violations, and such other factors as justice may require. 12 U.S.C. § 1818(i)(2)(G), formerly 12 U.S.C. § 1828(J) (3)(B).²⁹
   In assessing civil money penalties, the Board seeks to deprive the violators of any financial benefit derived as a result of the violation, provide a sufficient degree of punishment, and an adequate deterrent to the Respondent and others from future violations of banking laws and regulations. See, generally, In the Matter of *** Bank, Docket No. FDIC-85-2k, 1 P-H FDIC Enf. Dec. ¶5063 (1986); In the Matter of Ira Lee Brannan, David Brannan, and Stephen L. Brannan, Freedom Bank, DeLeon, Texas, supra.
   First, the Board agrees that Respondent has committed violations of laws and regulations which render him liable for the payment of a civil money penalty. The Board disagrees with certain of the findings of fact, observations, and conclusions of law of the ALJ on this subject, as discussed below.
   Each of the five statutory requirements is discussed below.
   1. Financial Resources. The Board adopts all of the ALJ's findings on financial resources, R.D. at 16, except for his final finding that, as long as Respondent continues to receive the stipulated remuneration for his activities as a banker, he will have sufficient financial resources to allow him to pay a $50,000 civil money penalty. The substantial evidence of record is that Respondent's financial resources will allow him to pay a much larger penalty, whether or not be continues to receive banking income.³⁰ Respondent's December 31, 1987, joint financial statement, FDIC Ex. 287, showed a net worth of $1,099,000. While assets included the $2,750,000 Grubb Judgment, Respondent has in fact been paid $3,717,000 as a result of that lawsuit, thereby significantly improving his asset position and reducing interest expenses. The Board finds the record supports a conclusion that Respondent has the financial resources to pay a substantial civil money penalty, even after full repayment to the Bank of the losses suffered on the transactions at issue here.
   2. Good Faith. The Board disagrees with several of the ALJ's conclusions concerning Respondent's good faith. First, the Board disagrees that the fact that no prohibited overdrafts or violations of the Cease-and-Desist Order occurred after November 1987 demonstrates that Respondent made a successful effort to "correct" these types of violations. More to the point is the fact that numerous prohibited overdrafts occurred after the 1986 Report of Examination set forth numerous violations of law and regulations related to overdrafts of Respondent and his related interests, and the bank examiners had discussed them with Respondent.³¹ These over-

   [.7] The Board agrees with the ALJ that Respondent's attitude with respect to the Falcon Production ORE transaction is representative of his general attitude toward the Bank, that is, he has often treated the Bank's resources as if they were his personal purse which he might employ without regard to regulatory restraints, R.D. at 18. This attitude, and the transactions which demonstrate it, do not reflect well on Respondent's good faith for purposes of a civil money penalty.
   3. Gravity of the Violations. The R.D. states that the gravity of Respondent's violations may be measured by (1) the effect of those violations upon the Bank and (2) the extent to which Respondent benefited from the violations. As to the first measure, the ALJ found that the Bank's aggregate extensions of credit to Respondent and his related interests were continuously in excess of regulatory limits between February 1986 and December 1990, but concluded that the "weight" of this lengthy duration is less-

   [.8] The Board rejects the "gravity" calculations made by the ALJ in several respects. The purpose of civil money penalties is to reduce risk to financial institutions by discouraging the types of insider transactions which experience has shown to be the major cause of bank failure. To hold that prohibited transactions "don't count" for civil money penalty purposes if the insider repays them, would eliminate the major deterrent purpose of civil money penalties. As the Board held in Docket Nos. FDIC-85-82e, FDIC-85-83k, 2 P-H FDIC Enf. Dec. ¶5137 at A-1463-64 (1989), the fact that charged off portions of a prohibited loan are ultimately recovered does not eliminate or excuse the existence of the violation of Regulation O. Likewise, loans which have been classified "Loss" and written off can be considered losses for purposes of quantifying the gravity of violations, even if later repaid.³⁴ Repayment may be taken into account as a mitigating factor, "as justice may require." The Board also rejects the ALJ's conclusion that unpaid interest on the Falcon Production loan and the equity payments in the ORE transaction, although required by the Bank Commissioner to be written off as "Loss," should not be included in calculating loss to the Bank because the Bank "would not necessarily suffer a loss," R.D. at 20, footnotes 59 and 60, apparently because the value of the ORE will cover them. There are few transactions which demonstrate greater "gravity of violation" than the Falcon Production ORE transaction equity payments of Respondent. Those amounts, as well as the unpaid interest on the underlying loan, have been written off as losses to the Bank. The fact that such amounts may ultimately be recouped by the Bank does not detract from the gravity of the violations involved or the risk to the Bank at the time the transaction was consummated. Moreover, the loss to the Bank from the Falcon Production transactions appears to be greater than the sum of the unpaid interest and equity payments written off. The low revenue received on the ORE, as set forth in the April 27, 1990 Report of Examination, means that the Bank has suffered and continues to suffer lost opportunity on the significant funds it has invested in this transaction.
   The Board concludes that the Bank incurred the following direct losses with respect to the extensions of credit to Respondent and his related interests which are the subject of this proceeding:

   [.10] Respondent's testimony reveals that he ignored or perhaps failed to understand the conflicts created by transactions which he devised for his own benefit. For example, Respondent argued that the Falcon Production ORE transaction was in the best interest of the Bank because his son Shawn, the "actual owner" of Falcon Production, would not have allowed and permitted the Bank to have foreclosed and taken that farm and lost the equity in its without some type of bankruptcy proceeding or some other litigation, Tr. at 640. In so doing, Respondent acts as if he is discussing an arm's-length transaction—despite his testimony that he transferred ownership of Falcon Production to his 20-year-old son Shawn in 1985 for "tax-planning" purposes, Tr. at 630; that the purpose of the December 31, 1985, loan of $110,000 to Falcon Production was so that Respondent could transfer a valuable mineral lease to his son, Tr. at 630; and that he transferred the Harmon County Farm to Falcon Production, taking back a note for $405,000, representing the value of the property above the first mortgage, Tr. at 632-35; and the fact that Respondent has been granted a power of attorney by his son to conduct the business of Falcon Production. Respondent's argument that he obtained control of MGM in exercise of rights arising out of a bona fide debt to the Bank previously contracted³⁹ is another example of his failure to distinguish between his own interests and those of the Bank. The Board concludes that Respondent failed to take even rudimentary precautions to protect the Bank's interests with respect to transactions from which he benefited.
   Respondent also breached his fiduciary duty by allowing the Bank to engage in the unsafe or unsound practices which are discussed below.
   (b) Unsafe or Unsound Banking Practices. Unsafe or unsound practices are defined, in part, as:

   . . . any action, or lack of action, which is contrary to generally accepted stand-

ards of prudent operation, the possible consequences of which, if continued, would be abnormal risk or loss or damage to an institution, its shareholders, or the agencies administering the insurance funds.

   [.11] The transactions which are at the heart of this proceeding were unsafe and unsound banking practices. The MGM letters of credit were issued after the underlying mechanic's lien lawsuit had been lost, without collateral (which had been required by the previous bank), without any financial information on the borrowing corporation, and based on the personal guaranty of a Bank insider whose outstanding loans had been adversely classified by bank examiners. Respondent's personal loans were extended in violation of Regulation O, without collateral or with unperfected security interests in collateral, and at times when Respondent's financial condition had been found by bank examiners not to support substantial loans, at least without adequate collateral security. The Falcon Production loan was made to a corporation with a negative new worth, without a proper appraisal of the property offered as security, and at a time when the outstanding loans to Respondent, the guarantor and beneficiary of the loan, were adversely classified. The Falcon Production ORE transaction violated State law, increased the risk of loss to the Bank, and allowed Respondent to obtain additional cash funds at a time when the Bank was prohibited from extending him additional credit The Board concludes that these were abusive insider transactions and constituted unsafe or unsound practices.

   [.12] (c) Substantial Financial Loss to the Bank. The Board has concluded that the Bank incurred losses totalling $606,033 on loans to Respondent and his related interests, in addition to the lost opportunities suffered by the Bank as a result of the transactions at issue here. See page 63 above. Respondent has repaid some of these losses, amounting to $484,607, Resp. Late-filed Ex. 330. However, the Board has held that the determination whether a bank has suffered, or probably would suffer, a substantial financial loss is to be made as of the time of issuance of the Removal Notice. Docket Nos. FDIC-83-252b&c, FDIC-84-49b, FDIC-84-50e, supra; Docket No. FDIC-85-215e, supra. Moreover, subsequent redemptive acts are irrelevant to a removal action. Unlike the factors to be considered in determining the appropriate dollar amount of a civil money penalty, there are no mitigating criteria under the removal statute. Docket No. FDIC-85-215e, 1 P-H FDIC Enf. Dec. ¶5069 at A-961 (1986).
   The Board concludes that as a result of Respondent's violations, breaches of fiduciary duty and unsafe or unsound banking practices, the Bank has suffered or will probably suffer substantial financial loss or other damage. The financial loss to the Bank is considered substantial even if Respondent's repayments are taken into account. See In the Matter of William Marvin Clark, Sr. FDIC-89-199e, 2 P-H FDIC Enf. Dec. ¶5162 (1991), where the Board held that a loss resulting in charge-offs of $148,000 constituted "substantial financial loss."

   [.13] (d) Serious Prejudice to the Interests of Depositors. When the Removal Notice was issued in July 1989, the Respondent's violations of law, breaches of fiduciary duty and unsafe or unsound practices had resulted in losses to the Bank on loans to or guaranteed by Respondent totalling $606,033. Respondent's joint financial statement with his spouse dated December 31, 1987, showed total assets of $8,407,600 and a net worth of $1,099,300 with contingent liabilities of $15,726,500. Major assets listed.
{{11-30-92 p.A-2033}}included the Grubb Lawsuit anticipated recovery of $2,750,000, 1989 Report of Examination, FDIC Ex. 4, at 2-a-2. However, the U.S. Court of Appeals for the 10th Circuit had vacated the judgment in February 1989 and remanded the case for a new trial on damages unless Respondent accepted a remittitur of $222,629.88, Grubb v. FDIC, 868 F.2d 1151 (10th Cir. 1989), which Respondent rejected in July 1989. The Board concludes that, as of the date the Removal Notice was issued, the interests of the Bank's depositors were subject to the risk of serious prejudice because of Respondent's violations of laws and regulations, breaches of fiduciary duty, and unsafe or unsound practices, and resulting substantial losses to the Bank. See Docket No. FDIC-85-215e, FDIC Enf. ¶5069 at A-951 (1986).
   2. Factors discussed in the Recommended Decision.
   The ALJ's decision to dismiss the Removal Notice is based on his conclusion that Respondent's repetitive violations of laws and regulations did not constitute a willful or continuing disregard for the safety and soundness of the Bank. In so concluding, the ALJ (1) ruled that becoming financially unable to repay a loan cannot constitute "voluntary" or "deliberate" conduct; (2) found that Respondent "willingly" pledged collateral which ultimately repaid the principal balances of the extensions of credit at issue, thus demonstrating that Respondent took positive action to insure the Bank's safety and soundness; (3) found that after receiving the report of the July 1986 Examination, Respondent was involved in eight overdrafts and five violations of the Cease and Desist Order, none of which allegedly exposed the Bank to a possibility of abnormal risk of loss; and the Falcon Production ORE, which created an abnormal "albeit ultimately unrealized" risk to the Bank but without any evidence that Respondent's imposition of that risk was deliberate; (4) found that Respondent committed no new violation after November 1987; (5) found it significant as a matter of discretion that Respondent's violations were not duplicated at the five other banks which he controlled; and (6) found it significant as a matter of discretion that Respondent possesses skills and experience which the industry can ill-afford to lose at this juncture. FDIC Enforcement Counsel excepts to all six of these findings and conclusions. For the reasons stated below, the Board disagrees with each of these findings and conclusions by the ALJ.
   (a) Financial Inability to Repay. Respondent amplifies upon the findings and conclusion in the R.D. on this point by urging that,

   Ironically, the FDIC held the purse strings and delayed payment for years until the FDIC settled [the Grubb Lawsuit]. These [renewals of earlier extensions of credit] were necessitated by those delays which relate back to purported violations ending in 1987. Likewise, the FDIC has always known that Respondent was unable to correct the violations because of his financial inability at the time to repay the loans. The so-called repeat violations were nothing more than renewals awaiting the eventual appellate process to collect on a valid judgment.

   I can's cite for you nor did I bring our examination reports. But I'm pretty certain if you go back and look at the FDIC's write-ups of Mr. Grubb's loans, you'll find that they probably did not charge off some of his loans in our bank because we were in the position we were in with respect to the lawsuit and the expectation that he would be successful.

   [.144] (d) No New Violation After November 1987. The ALJ is in error. The Falcon Production ORE transaction, which the ALJ states "deserves censure," R.D. at 23, occurred in February 1988. More to the point, the Removal Notice alleged, and the ALJ found, dozens of section 23A and Regulation O violations, beginning in December 1985 and continuing through February 1988. Without question, all of the violations which occurred after the July 1986 Examination were done with full knowledge of their seriousness. Moreover, even if the renewals of previous extensions of credit were to be eliminated from the list of post-July 1986 violations, it includes multiple prohibited overdrafts, the $100,000 loan to Respondent in October 1986, five violations of the Cease-and-Desist Order, and the Falcon Production ORE transaction in 1988. The Board finds that these repeated violations demonstrate a willful or continuing disregard for the safety and soundness of the Bank. The Board also finds that Respondent's personal loans and the Falcon Production loan and ORE transaction caused the Bank to suffer substantial financial loss.
   (e) Violations not Duplicated at the Five Other Banks Respondent Controlled. This finding by the ALJ is erroneous.⁴³ Respondent testified that three other banks owned by him were subject to cease and desist orders, Tr. at 716, and the transcript also reflects that Respondent was the subject of a notice to assess civil money penalties at The State Bank of Rocky, Rocky, Oklahoma, which he owned, which was settled prior to the hearing in this matter, Tr. at 717-19. That notice of assessment alleged violations by Respondent of Regulation O and of an FDIC Cease-and-Desist Order.

   [.15] More to the point, the Board is of the view that Respondent's conduct at other banks should not be considered a mitigating circumstance in this case. The owner of more than one bank should not be allowed to insulate himself from penalty by focusing all his violations of law, breaches, of fiduciary duty, unsafe or unsound practices, and disregard for safety and soundness, at one bank.
   (f) Respondent's Skills and Experience. It is evident that Respondent has many years of experience in banking in Oklahoma. However, the Board draws very different conclusions from his background. The Board concludes that the depth and scope of Respondent's experience makes his participation in prohibited activities all the more reprehensible. As the Bank Commissioner testified at the hearing:

   It seems like every examination uncovers something a little bit different than has taken place in the past. And again, with Mr. Grubb's experience in the banking community, he's certainly not a novice in banking, would indicate to me that, you know, he's been given every opportunity.
   Every Report of Examination, every transmittal letter that we've sent back to the Bank, that I've sent bank to the Bank, that I've sent bank to the Bank, has been pretty well descriptive of the problems in the Bank as far as violations are concerned. And they still continue; not only the same violations, but something new, a little bit different than we've encountered in the past.

   Based on the substantial evidence of record, the Board must conclude that Respondent engaged in extensive and abusive self-dealing with respect to the substantial extensions of credit by the Bank to him and his related interests, all of which were for Respondent's personal benefit, and at the Bank's expense. The Board does not doubt that Respondent was motivated to do so by the very serious financial pressures created by his investment in Security State and other financial problems. Moreover, the Board assumes that Respondent was personally confident that he would ultimately prevail in the Grubb Lawsuit, and if payment were forthcoming soon enough he would be able to repay the loans in question. Nevertheless, the Board can only conclude that Respondent deliberately engaged in the prohibited transactions as calculated risks, having decided that it was better to obtain the credit he needed to keep his operations afloat, knowing that some day he would have to deal with the consequences, than to abstain from what he certainly knew were illegal transactions.
   Having found that elements of every statutory factor for removal except personal dishonesty on the part of Respondent (never alleged by the FDIC) are present in this case, the Board in its discretion has determined that it is appropriate to prohibit Respondent's participation in any manner in the conduct of the affairs of the Bank or any other FDIC-insured institution.

   For the reasons set forth in the above Decision, the Board of the FDIC hereby ORDERS that:

   For the reasons set forth in the above Decision, and pursuant to section 8(e) of the FDI Act, as amended by sections 903 and 904 of FIRREA, Pub. L. No. 101-73, §§ 903 and 904, 103 Stat. 183, 453, 457 (1989) (codified at 12 U.S.C. § 1818(e)), the Board of the FDIC hereby ORDERS that:
   1. Ronald J. Grubb is hereby removed as a director and officer of Bank of Hydro, Hydro, Oklahoma.
   2. Ronald J. Grubb is hereby prohibited from serving or acting as an institutionaffiliated party and/or from participating in any manner in the conduct of the affairs of any of the institutions or agencies listed herein, without the prior written consent of the FDIC and of the appropriate Federal financial institutions regulatory agency pursuant to the provisions of section 904(a) of FIRREA, Pub. L. No. 101-73, § 904, 103 Stat. 183, 457, (1989) (codified at 12 U.S.C. § 1818(e)(7)):
   (i) Any insured depository institution as defined in 12 U.S.C. § 1813(c)(2),(3) and (4);
   (ii) Any depository institution holding company as defined in 12 U.S.C. § 1813(w);
   (iii) Any insured credit union under the Federal Credit Union Act as defined in 12 U.S.C. § 1752;
   (iv) Any institution chartered under the Farm Credit Act of 1971;
   (v) Any appropriate Federal banking agency as defined in 12 U.S.C. § 1813(q);
   (vi) The Federal Housing Finance Board and any Federal home loan bank; and
   (vii) The Resolution Trust Corporation.
   3. Ronald J. Grubb is hereby prohibited from voting for a director, or soliciting, procuring, transferring, attempting to transfer, voting, or attempting to vote any proxy, consent, or authorization with respect to any voting rights in any institution described in paragraph 2 hereof, without the prior written approval of the FDIC and the appropriate federal banking agency as that term is defined in section 3(q) of the FDI Act, 12 U.S.C. § 1813(q).
   4. Ronald J. Grubb is hereby prohibited from violating any voting agreement previously approved by the appropriate Federal banking agency with regard to any institution described in paragraph 2 hereof, without the prior written approval of the FDIC and the appropriate Federal banking agency as that term is defined in section 3(q) of the FDI Act, 12 U.S.C. § 1813(q).
   This ORDER shall become effective thirty (30) days after the date of its service.
   This ORDER shall remain effective and enforceable except to the extent that and until such time as, any of its provisions shall have been modified, terminated, suspended or set aside by the FDIC.
   IT IS FURTHER ORDERED, that the Executive Secretary, or his designee, is instructed to execute and serve copies of the Decision and Orders on counsel for both parties, the Administrative Law Judge, the Bank, and the Bank Commissioner for the State of Oklahoma.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 25th day of August, 1992.
   /s/ Robert E. Feldman
   Deputy Executive Secretary

   A. Findings of Fact
   1. On September 17, 1985, Respondent met with the FDIC and the Oklahoma State Banking Department regarding the results of the 1985 Examination.
   2. At the conclusion of the 1986 examination, FDIC Examiner-in-Charge Darwin E. Niles met with Respondent and informed him of the alleged violations of law and violations of the FDIC's Cease-and-Desist Order recited in the 1986 Report of Examination.
   3. On or about November 26, 1986, Respondent received a copy of the 1986 Report of Examination from the Oklahoma State Banking Department and was notified of the alleged violations of law discovered at the 1986 Examination and recited in the 1986 Report of Examination.
   4. At the conclusion of the 1987 Examination, FDIC Examiner-in-Charge Bruce C.
{{11-30-92 p.A-2039}}Adams met with Respondent and informed him of the violations of law and violations of the FDIC's Cease-and-Desist Order discovered at the 1987 examination and recited in the 1987 Report of Examination.
   5. At the conclusion of the 1989 Examination, FDIC Examiner-in-Charge Luther W. Hildebrand met with Respondent and informed him of the violations of law and violations of the FDIC's Cease-and-Desist Order discovered at the 1989 Examination and recited in the 1989 Report of Examination.
   6. Respondent, who has owned interests in and worked in banks since 1968, has substantial knowledge and experience in the policies, operations, affairs, and business of banking.

   B. MGM Production Company - Letters of Credit
   7. Prior to March 9, 1987, Respondent received a letter from the FDIC that the issuance of the Bank's letter of credit No. 21486 on behalf of MGM violated section 23A of the Federal Reserve Act.
   8. Prior to March 9, 1987, Respondent had knowledge and information that the Bank's issuance of letter of credit No. 21486 on behalf of MGM violated section 23A of the Act.
   9. In March 1988, Respondent received a copy of the 1987 Report of Examination.
   10. In March 1988, Respondent had knowledge and information that the Bank's issuance of letters of credit Nos. 21486 and 038809 on behalf of MGM violated section 23A of the Act.
   11. When issued, the Bank's letter of credit No. 21486 was not secured with any collateral.
   12. When issued, the Bank's letter of credit No. 038809 was not secured with any collateral.
   13. When issued, the Bank's letter of credit No. 038809 was not secured with any collateral.
   14. The Bank's loan No. 97013 was not secured with any collateral.
   15. When the Bank's letter of credit No. 21486 was issued, the Bank had no financial information on MGM to determine MGM's capacity to repay the letter of credit.
   16. When the Bank's letter of credit No. 21486 was issued, Respondent's financial statements reflected a steadily declining net worth and a highly leveraged position, resulting in a marked deterioration of his financial condition.
   17. When the Bank's letter of credit No. 038809 was issued, the Bank had no financial information on MGM to determine its capacity to repay the letter of credit.
   18. When the Bank's letter of credit No. 038809 was issued, Respondent's financial statement reflected a steadily declining net worth and a highly leveraged position, resulting in a marked deterioration of his financial condition.
   19. When the Bank's letter of credit No. 038809 was issued, Respondent's financial statements reflected a steadily declining net worth and a highly leveraged position, resulting in a marked deterioration of his financial condition.
   20. On October 31, 1985, Respondent was awarded a Judgment against the First National Bank and Trust Company of Oklahoma City, Oklahoma ("1985 Judgment").
   21. The Bank considered only Respondent's guaranty for payment on the Bank's letters of credit No. 21486, No. 038809, and No. 038809 and loan No. 97013 to MGM.
   22. The Assignment of Judgment executed by Respondent and filed by the Bank on February 15, 1989, with the Clerk of the U.S. District Court, Western District of Oklahoma, did not assign any interest in the possible proceeds from the 1985 Judgment for the payment of the Bank's charged-off loan No. 97013 to MGM.
   23. Not until F&M executed its Subordination Agreement with the Bank and Respondent on November 30, 1990, and the Bank filed its Assignment of Judgment on December 4, 1990 with the U.S. District Court Clerk (Resp. Ex. 320, 322) was the Bank provided with a purported security interest as collateral for the Bank's chargedoff loan No. 97013 to MGM.

   C. MGM Production Company - Overdrafts

   24. Respondent was one of two persons with signature withdrawal authority on MGM's account No. 0-781-191 at the Bank.

   D. Ron Grubb Investments - Overdrafts

   25. During 1986, Ron Grubb Investments periodically overdrew its account No. 0-659014 at the Bank.
{{11-30-92 p.A-2040}}
   E. Falcon Production Company - Loans to Respondent and ORE Transaction
   26. On December 31, 1985, when the Bank extended loan No. 95198 to Falcon Production, the Bank had no title information with respect to the mineral mortgage that comprised the collateral for the loan.
   27. On December 31, 1985, when the Bank extended loan No. 95198 to Falcon Production, the Bank had no appraisal on the mineral mortgage that comprised the collateral for the loan other than Respondent's handwritten appraisal which had no supporting information or documentation.
   28. On December 31, 1985, when the Bank extended loan No. 95198 on Falcon Production, Falcon Production had a negative net worth of $15,400.
   29. On December 31, 1985, when the Bank extended loan No. 95198 to Falcon Production, the Bank was without any information as to the income-producing ability of the mineral mortgage as a means of payment on the loan.
   30. On February 12, 1987, when the Bank extended loan No. 96282 to Falcon Production, the Bank had no title information with respect to the mineral mortgage and the real estate mortgage that comprised the collateral for the loan.
   31. On February 12, 1987, when the Bank extended loan No. 96282 to Falcon Production, the Bank had no appraisals on the mineral mortgage (except for Respondent's outdated handwritten appraised described in finding of Fact No. 27 above) or the real estate mortgage that comprised the collateral for the loan.
   32. On February 12, 1987, when the Bank extended loan No. 96282 to Falcon Production, the Bank did not have any current information on the financial condition of Falcon Production.
   33. On February 12, 1987, when the Bank extended loan No. 96282 to Falcon Production, the Bank was without any information as to the income-producing ability of the loan's collateral as a means of payment on the loan.
   34. The Bank continues to own the ORE acquired from Falcon Production in February 1988.

   F. Respondent's Personal Loans

   35. The Bank's loan No. 95549 to Respondent was partially comprised of a renewal of loan No. 95465 in the principal amount of $75,000 with accrued interest of $1,116.
   36. The Bank's loan No. 95549 was, also, partially comprised of additional new funds disbursed to Respondent in the amount of $73,884.
   37. On June 5, 1986, when the Bank's loan No. 95549 was made to Respondent, Respondent was contingently liable on other transactions in the amount of $17,580,000.
   38. On October 29, 1986, pursuant to the Bank's loan No. 95866 to respondent, initial funds were disbursed in the amount of $39,270.22 and deposited into Ron Grubb Investments' account no. 0-659-014 with the Bank.
   39. The funds in the amount of $39,270.22 that were deposited into Ron Grubb Investments' account No. 0-659-014 were for the payment of multiple overdrafts incurred by Respondent in said account.
   40. On October 29, 1986, when the Bank's loan No. 95866 was made to Respondent, Respondent was contingently liable on other transactions in the amount of $17,580,000.
   41. The Bank's loan No. 96212 was secured with real estate collateral represented by two real estate mortgages.
   42. On April 14, 1987, when the Bank's loan No. 96212 was made to Respondent, the loan was amortized for 36 months, with monthly payments of $1,922 and a final balloon payment of $243.815 to be made by Respondent.
   43. On April 14, 1987, when the Bank's loan No. 96212 was made of Respondent, Respondent's contingent liabilities were $18,358,000.
   44. On April 14, 1987, when the Bank's loan No. 96212 was made to Respondent, the Bank had outstanding extensions of credit to Falcon Production in the amount of $110,000 and to Respondent in the amount of $150,000 that were adversely classified "Substandard" at the 1986 Examination.
   45. During the 1985 Examination, Respondent's loans were classified "Substandard" because his loans were unsecured and his financial condition was steadily declining.
   46. Loan No. 95465 to Respondent was unsecured.
   47. Loan No. 95549 to Respondent was unsecured.
   48. On October 29, 1986, when the Bank's
{{11-30-92 p.A-2041}}loan No. 95866 was made to Respondent, the loan was not secured with any collateral acceptable for purposes of section 23A of the Act.
   49. On October 29, 1986, when the Bank's loan No. 95866 was to Respondent, Respondent's financial statements reflected a steadily declining net worth and a highly leveraged position resulting in a marked deterioration of his personal financial condition.
   50. On April 14, 1987, when the Bank's loan No. 96212 was made to Respondent, the Bank's collateral position was uncertain because of Respondent's wife's failure to sign and execute the two real estate mortgages.
   51. On April 14, 1987, when the Bank's loan No. 96212 was made to Respondent, the Bank's lien positions with respect to the collateral were uncertain because the Bank had no title information on the two mortgaged properties.
   52. On April 14, 1987, when the Bank's loan No. 96212 was made to Respondent, Respondent's financial statements reflected a steadily declining net worth and a highly leveraged position resulting in a marked deterioration of his personal financial condition.
   53. The Security Agreement concerning the 1985 Judgment, as executed by Respondent on July 23, 1986, was not perfected by the Bank through proper filing of the Assignment of Judgment with the U.S. District Court Clerk until February 15, 1989.
   54. The Bank's security interest in the 1985 Judgment was subordinated to multiple prior security interests of Respondent's creditors such that any receipt by Respondent of the total proceeds of the Judgment would only result in the payment of the principal amount of $250,000 due on loan No. 96212 and no other debt obligations of Respondent's or his related interests to the Bank would be paid.
   55. The Assignment of Judgment executed by Respondent and filed by the Bank on February 15, 1989, only assigned any interest in the possible proceeds from the 1985 Judgment for the sole payment of the principal due on Respondent's personal loan No. 96212 and not for the payment of the uncollected interest on the loan or any other extensions of credit to Respondent and his related interests.
   56. The 1985 Judgment was affirmed in part, reversed in part, and remanded on February 16, 1989, by the U.S. Court of Appeals for the Tenth Circuit, Rob Grubb, Weatherford Interstate Holding Co. v. FDIC, 868 F.2d 1151 (10th Cir. 1989), with a Court proffered option for Respondent to accept a remittitur of the 1985 Judgment to the sum of $222,629.88.
   57. On July 21, 1989, Respondent rejected the remittitur in the amount of $222,629.88 as proffered by the U.S. Court of Appeals and sought a new trial on the issue of damages.
   58. Pursuant to a second trial, on October 26, 1990, Respondent was awarded a second judgment against the FDIC in its corporate capacity and as receiver for the failed First National Bank and Trust Company of Oklahoma City, Oklahoma ("1990 Judgment").
   59. On November 30, 1990, Respondent granted the Bank a security interest in the 1990 Judgment and tendered the Bank an assignment of Judgment.
   60. On December 4, 1990, the Bank's security interest in the 1990 Judgment was perfected when Respondent's Assignment of Judgment, dated November 30, 1990, was filed with the Clerk of the U.S. District court, Western District of Oklahoma.

   G. Respondent's Lack of Good Faith

   61. At the conclusion of the 1986 Examination, Respondent was expressly informed of and warned about the numerous violations of law and violations of the FDIC's Cease-and-Desist Order, and he took no action to correct the numerous violations, except to make an assignment of the 1985 Judgment which was never perfected and subordinate to assignments at other banks.
   62. Approximately 30 days after the conclusion of the 1986 Examination, Respondent and his related interests overdrew their accounts at the Bank in violation of the same provisions of Regulation O which Respondent had been expressly informed of and warned about at the conclusion of the 1986 Examination.
   63. Approximately 90 days after the conclusion of the 1986 Examination, Respondent received additional funds from the Bank for the purpose of paying Respondent's overdrafts at the Bank in violation of the same provisions of Regulation O which Respond-
{{11-30-92 p.A-2042}}ent had been informed and warned at the conclusion of the 1986 Examination.
   64. Prior to the 1987 Examination, Respondent was, again, informed by Bank Commissioner Osborn that Respondent's continued overdrafts at the Bank violated the same provisions of which Respondent had been previously informed and warned about at the conclusion of the 1986 Examination.
   65. At the conclusion of the 1987 Examination, Respondent was, again, expressly informed of and warned about the numerous new violations of law and violations of the FDIC's Cease-and-Desist Order, many of which were repeat violations of the same provisions of Regulation O and section 23A and provisions of the Order recited and criticized during the 1986 Examination, and he took no action to correct the same.
   66. Approximately 21 days after the conclusion of the 1987 Examination, Respondent received additional funds as a defaulting borrower at the Bank through the Falcon Production ORE transaction in violation of the same provisions of Regulation O of which Respondent had been informed and warned at the conclusion of the 1987 Examination.
   67. At the conclusion of the 1989 Examination, Respondent was, again, expressly informed of the numerous new violations of law and of the FDIC Cease-and-Desist Order; and he took no action to correct the same.
   68. Respondent was not "too concerned" for several years, until he realized that the FDIC was serious about pursuing them, about the violations of Regulation O and section 23A with respect to the MGM letters of credit transactions that occurred in 1986, 1987, 1988, and that resulted in a loss to the Bank.

   H. Gravity of Respondent's Violations of Law

   69. All of the numerous and repetitive violations of Regulation O and section 23A criticized at the 1986 Examination, 1987 Examination, and 1989 Examination, concerned and involved Respondent and his related interests.

   I. Respondent's Unsafe or Unsound Practices

   70. Respondent and his related interests were criticized during the 1986 Examination, 1987 Examination, and 1989 Examination for their participation in numerous violations of law, including Regulation O and section 23A.
   71. Respondent and his related interests engaged in numerous overdrafts at the Bank during 1986 and 1987.
   72. Respondent's related interest, MGM, obtained unsecured letters of credit in 1986, 1987, and 1988, and a loan 1988, guaranteed by Respondent whose financial condition was deteriorating.
   73. Respondent received additional funds from the Bank through the Falcon Production ORE transaction that he was not entitled to receive in violation of section 414B of the Oklahoma Banking Code, and Regulation O and in violation of prudent, safe and sound banking.

   J. Respondent's Breach of his Fiduciary Duty

   74. Respondent and his related interests received funds from the Bank pursuant to transactions that were in violation of Regulation O and section 23A.
   75. Respondent and his related interest received funds from the Bank that resulted in adversely classified extensions of credit at the Bank.
   76. Respondent and his related interests repeatedly received funds from the Bank that exceeded the lending limits provided by Regulation O and section 23A.
   77. Respondent received from the Bank initial funds on October 29, 1986 in the amount of $39,270, through loan No. 95866, to pay off overdrafts in his Ron Grubb Investments account at the Bank.
   78. Respondent and his related interests engaged in numerous continuous overdrafts at the Bank.
   79. Respondent received additional funds from the Bank through the Falcon Production ORE transaction that he was not entitled to receive in violation of section 414B of the Oklahoma Banking Code.

   K. Respondent's Benefit and Financial Gain and Bank's Loss

   80. Respondent and his related interests received the tangible economic benefit of proceeds from the Bank in the total amount of $708,241 with respect to the following extensions of credit:

   $606,033 for the funds extended to Respondent and his related interests that resulted in loss to the Bank, and
   $281,527 in total overdraft items paid on behalf of Respondent and his related interests and of which Respondent directly or indirectly received the benefit.

   90. Respondent, as the principal shareholder of the Bank, exercised a controlling and dominant role in the management and policies of the Bank so as to obtain the extensions of credit to him and his related interests.
   91. On the transactions at issue, Respondent considered himself as sole authority for the Bank's affairs.
   92. Respondent used the Bank to finance the operations of his other businesses.
   93. At the conclusion of the 1986 Examination and 1987 Examination, Respondent was repeatedly informed by the FDIC and the Oklahoma Banking Department about the numerous violations of Regulation O and section 23A caused by him and his related interests and was warned to discontinue such violations.
   94. Notwithstanding the notice and warnings to Respondent by the FDIC and the Oklahoma Banking Department regarding his numerous, repetitive violations of Regulation O and section 23A, Respondent continued to receive funds from the Bank in violation of Regulation O and section 23A, as well as in violation of safe and sound banking practices.
   95. The Bank Commissioner is of the opinion that the Respondent should not remain as a director and person participating in the affairs of the Bank.

   A. Introduction

   1. Respondent is an "institution-affiliated party" as that term is defined in section 3(u) of the FDI Act, 12 U.S.C. § 1818(a) (1989).
   2. At all times pertinent to the alleged charges, the Bank was subject to section 414B of the Oklahoma Banking Code ("section 414B"), 6 Okla. Stat. Ann. § 414B (Supp. 1991).
   3. At all times pertinent to the alleged charges, Respondent "violated", as that term is defined in section 3(v) of the FDI Act, 12
{{11-30-92 p.A-2044}}U.S.C. § 1813(v) (1989), former section 8(i)(2)(i) of the FDI Act, 12 U.S.C. § 1813(i)(2)(i), section 8(k) of the FDI Act, 12 U.S.C. § 1818(k), section 18(j)(4)(A) of the FDI Act, 12 U.S.C. § 1828(j)(4)(A), sections 23A and 22(h) of the Act, 12 U.S.C. § 371c and 375b, section 414B of the Oklahoma Banking Code, 6 Okla. Stat. Ann. 414B, and the FDIC Cease-and-Desist Order to the Bank by, without any limitation, acting (alone or with another or others) for or toward causing, bringing about, participating in counseling, or aiding or abetting one or more violations of Regulation O, section 23A and the FDIC Cease-and-Desist Order.
   4. The opinions and conclusions of FDIC Examiners are entitled to great weight and considerable deference in accordance with Sunshine State Bank v. FDIC, 783 F.2d 1580 (11th Cir. 1986).

   B. MGM Production Company - Letter of Credit

   5. Because on March 9, 1988, the Bank's letter of credit No. 038909 exceeded 10 percent of the Bank's capital and surplus, Respondent continued to violate section 23A(a)(1)(A).
   6. Because the funding of the Bank's loan No. 97013 to MGM involved more than the normal risk of repayment or presented other unfavorable features, Respondent continued to violate section 215.4(a)(2) of Regulation O, 12 C.F.R. § 215.4(a)(2).
   7. On February 14, 1986, the Bank's "lending limit," pursuant to section 215.2(f) of Regulation O, 12 C.F.R. § 215.2(f), was $340,950.
   8. Because on April 14, 1988, the Bank's loan No. 97013 to MGM exceeded 10 percent of the Bank's capital and surplus, Respondent continued to violate section 23A(a) (1)(A) of the Act.

   C. Falcon Production Company - Loans to Respondent and ORE Transaction

   9. The fair market value of the real estate acquired by the Bank from Falcon Production exceeded the Bank's "recorded investment" in Falcon Production's defaulted loan.
   10. At the time the Bank acquired the real estate from Falcon Production in February 1988, Falcon Production was a defaulting borrower whose borrowing, as a related interest of Respondent, already had exceeded the lending limit prohibition of Regulation.
   11. Because the Falcon Production ORE transaction resulted in Respondent's receiving additional funds on February 17, 1988, in the amount of $48,553 to which he was not lawfully entitled pursuant to Respondent's unsafe or unsound practices concerning the disbursement of such funds, Respondent was obligated to repay the funds to the Bank.
   12. Because the Falcon Production ORE transaction resulted in Respondent's receiving additional funds on February 22, 1988, in the amount of $34,688 to which he was not lawfully entitled pursuant to Respondent's unsafe or unsound practices concerning the disbursement of such funds, Respondent was obligated to repay the funds to the Bank.

   D. Statutory Grounds for Respondent's Removal and Prohibition

   13. Pursuant to former section 8(e)(1) of the FDI Act, 12 U.S.C. § 1818(e)(1), Respondent's acts, omissions, and practices have caused him to violate laws, rules, and regulations; in particular Regulation O, section 23A, and section 414B.
   14. An unsafe or unsound practice involves any action, or lack of action, which is contrary to generally accepted standards of prudent operation, the possible consequences of which, if continued, would be abnormal risk of loss or damage to an institution, its shareholders, or the agencies administering the insurance funds and encompasses all practices contrary to accepted standards of prudent banking operation that might result in abnormal risk or loss to a bank.
   15. Pursuant to former section 8(e)(1) of the Act, 12 U.S.C. § 1818(e)(1), Respondent's acts, omissions, and practices related to the letters of credit for and loan to MGM; related to the loans and disbursed ORE funds to Falcon Production; related to the personal loans to Respondent; and related to the overdrafts in Respondent's personal account and the accounts of MGM, Ron Grubb Investments, and Falcon Management, constitute unsafe or unsound practices by Respondent in connection with the Bank.
   16. Respondent's acts, omissions, and practices that resulted in violations of Regulation O, section 23A, and section 414B, are deemed to be unsafe or unsound practices.
   17. Respondent engaged in an unsafe or unsound practices as a result of his selfdealing with the Bank pursuant to the vari-
{{11-30-92 p.A-2045}}ous, numerous extensions of credit (letters of credit, loans, ORE funds, and overdrafts) to Respondent and his related interests that allowed him to receive a personal financial benefit as a direct consequence of his insider position at the Bank as principal shareholder and director.
   18. Respondent breached his fiduciary duty to the Bank by engaging and participating in transactions with the Bank that caused violations of Regulation O, section 23A, and section 414B.
   19. Respondent breached his fiduciary duty to the Bank as a result of his self-dealing with the Bank pursuant to the various numerous extensions of credit (letters of credit, loans, ORE funds, and overdrafts) to Respondent and his related interests that allowed him to receive a personal benefit as a direct consequence of his insider position at the Bank as principal shareholder and director.
   20. Respondent breached his fiduciary duty to the Bank by failing to heed the numerous repeated warnings from the FDIC and the Oklahoma Banking Department concerning the numerous, continuing violations of Regulation O and section 23A.
   21. Given Respondent's extensive experience in the banking industry and his actual knowledge of the facts and voluntary and intentional participation in the transactions involving the MGM letter of credit and loan, the Falcon Production loans and ORE funds, Respondent's personal loans, and the overdrafts that occurred in the accounts of Respondent, MGM, Ron Grubb Investments and Falcon Management; Respondent's intentional and deliberate conduct throughout 1986, 1987, and 1988 evidences his willful or continuing disregard for the safety or soundness of the Bank pursuant to former section 8(e)(1) of the Act, 12 U.S.C. § 1818(e)(1).
   22. The fact that Respondent's acts, omissions, and practices, constituting violations of Regulation O and section 23A, unsafe or unsound practices, and breaches of his fiduciary duty, continued after repeated notices and warnings by the FDIC and the Oklahoma State Banking Department during the three year period of 1986, 1987, and 1988, further demonstrates Respondent's willful or continuing disregard for the safety or soundness of the Bank, pursuant to former section 8(e)(1) of the FDI Act, 12 U.S.C. § 1818(e)(1).
   23. Respondent's willful or continuing disregard for the safety or soundness of the Bank is further evidenced by the extensions of credit to Respondent and his related interests resulting in continuous lending limit violations at the Bank from on or about February 14, 1986 when the MGM letter of credit No. 21486 was first issued to November 14, 1991.
   24. As a result of Respondent's acts, omissions, and practices that have resulted in his violating Regulation O, section 23A, and section 414B; that have resulted in his engaging and participating in unsafe or unsound practices with regard to the Bank; and that have resulted in the breaching of his fiduciary duty to the Bank, the Bank has suffered substantial financial duty to the Bank, the Bank has suffered substantial financial loss or other damage in the total amount of $606,033, pursuant to former section 8(e)(1) of the FDI Act, 12 U.S.C. § 1818(e)(1), of which amount Respondent repaid $484,606.98 on November 14, 1991.
   25. Recovery of a charge-off loan does not eliminate or void the existence of a violation of Regulation O or section 23A.
   26. Respondent's repayment of some of the losses caused by the extensions of credit to Respondent and his related interests, are not relevant or material to the statutory factor of "substantial financial loss" set forth in former section 8(e)(1) of the FDI Act, 12 U.S.C. § 1818(e)(1).
   27. The fact that the substantial financial loss from Respondent's violations, practices, and breaches did not result in such critical harm to the Bank as the cause possible insolvency and failure, is not a basis for Respondent not being subject to a removal and prohibition Order pursuant to former section 8(e) of the Act, 12 U.S.C. § 1818(e) (1989).
   28. As result of Respondent's violations, practices, and breaches, Respondent has received financial gain in the total aggregate amount of $887,560 pursuant to former section 8(e)(1) of the Act, 12 U.S.C. § 1818(e)(1), including $606,033 in funds loaned to him and his related interests that resulted in substantial financial loss to the Bank.
   29. Respondent also received benefit from
{{11-30-92 p.A-2046}}the $281,527 in overdrafts extended to him and his related interest, in violation of section 23A and Regulation O.

   IN WITNESS WHEREOF, I have hereunto subscribed my name and caused the seal of the Corporation to be affixed hereto, in the City of (SEAL) Washington and District of Columbia, this 25th day of August, 1992.

   WHEREAS, on December 22, 1988, a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay and notice of Hearing ("Assessment Notice") was filed against Ronald J. Grubb for $50,000, issued pursuant to former sections 18(j)(3) and 18(j)(4) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §§ 1828(j)(3) and 1828(j)(4), and Part 308 of the Federal Deposit Insurance Corporation ("FDIC") Rules of Practice and Procedure, 12 C.F.R. § 308.74-.76.
   WHEREAS, the Assessment Notice as amended alleges the following violations with respect to Bank of Hydro, Hydro, Oklahoma ("Bank"): (1) violations of the lending limits and collateral security requirements of section 23A of the Federal Reserve Act, 12 U.S.C. § 371c ("section 23A"), and the creditworthy requirements and lending limits of sections 215.4(a)(2) and 215.4(c) respectively of Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O"), 12 C.F.R. § 215, with respect to the issuance and subsequent renewals of a letter of credit on behalf of MGM Production Company, an "affiliate" of the Bank and "related interest" of Respondent, as those terms are defined in section 23A and section 215.2(k) of Regulation O, respectively; (2) violations of the creditworthy requirements of section 215.4(a)(2), the lending limits of section 215.4(c), and the prior approval requirements of section 215.4(b), all of Regulation O, with respect to overdrafts on checking accounts maintained at the Bank on behalf of Respondent and certain of his "related interests," namely MGM, Falcon Management Company ("Falcon Management"), and Ron Grubb Investments ("RGI"); (3) violations of section 215.4(d) of Regulation O with respect to overdrafts on Respondent's personal account; (4) violations of the collateral requirements of section 23A(c)(1) with respect to the overdrafts of MGM and Falcon Management; (5) violations of the creditworthy requirements of section 2154.(a)(2) of Regulation O with respect to the issuance and renewal of a loan to Falcon Production Company ("Falcon Production"), an alleged "related interest" of Respondent, and violation of the lending limits of section 215.4(c) of Regulation O with respect to the renewal of that loan; (6) violations of sections 215.4(a)(2) and 215.4(c) of Regulation O with respect to certain payments to Respondent in connection with the so-called Falcon Production ORE transaction; (7) violations of sections 215.4(c) and 215.4(a)(2) of Regulation O with respect to four extensions of credit made to Respondent during 1986 and 1987; (8) violations of the November 29, 1985 Cease-and-Desist Order issued by the FDIC to the Bank by (a) capitalizing uncollected interest on two occasions, (b) twice failing to document the reasons for extensions of credit to classified borrowers, (c) failing to document the reasons for purchasing a loan participation, and (d) failing to
{{11-30-92 p.A-2047}}amend the loan policy to reflect changes required by the FDIC.
   WHEREAS, on July 13, 1989, the FDIC issued a Notice of Intention to Remove and/or Prohibit from Further Participation ("Removal Notice") to Respondent pursuant to former section 8(e)(1) of the Act, 12 U.S.C. § 1818(e)(1), and Part 308 of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.69-.73.
   WHEREAS, the Removal Notice as amended realleges that Respondent violated section 23A of the Act and various provisions of Regulation O as described above; and further alleges that Respondent's illegal conduct resulted in Respondent's engaging or participating in unsafe or unsound banking practices and breaches of his fiduciary duty to the Bank, and demonstrated his willful or continuing disregard for the safety or soundness of the Bank; and that as a result of Respondent's acts, omissions and/or practices, the Bank has suffered or will probably suffer substantial financial loss or other damage in the amount of approximately $606,033, and resulted in Respondent's receiving financial gain amounting to $887,560; and seeks to permanently prohibit Respondent from further participation in the conduct of the affairs of the Bank or any other FDIC-insured institution as an institution-affiliated party.
   WHEREAS, in December 1989, the civil money penalty and removal actions were consolidated for hearing and decision.
   WHEREAS, an evidentiary hearing was held December 3–6, 1990, in Oklahoma City, Oklahoma before Administrative Law Judge Steven M. Charno ("ALJ").
   WHEREAS, on March 25, 1992, the ALJ found that Respondent had committed the violations of section 23A and Regulation O alleged in the Assessment Notice and the Removal Notice.
   WHEREAS, the ALJ found that Respondent had acted in good faith for purposes of a civil money penalty.
   WHEREAS, the ALJ found that the Bank had suffered "actual losses" of $23,874 as a result of the transactions complained of and that such loss was the proper measure of the financial gain or other benefit to Respondent for purposes of determining the gravity of the violations.
   WHEREAS, the ALJ found that Respondent had breached his fiduciary duty to the Bank in connection with the Falcon Production ORE transaction and that such breach justifies a penalty approximately twice as great as the economic benefit which Respondent received as a result of his violations; and concluded that a civil money penalty of $50,000 was supported by substantial evidence of record.
   WHEREAS, the ALJ found that Respondent had committed violations of law but also found that the repetitions of violations were the result of Respondent's financial inability to repay the prohibited extensions of credit, and held that financial inability to repay prohibited extensions of credit cannot constitute "deliberate" or "voluntary" conduct and hence does not demonstrate a willful or continuing disregard by respondent for the safety or soundness of the Bank.
   WHEREAS, the ALJ failed to make findings of fact as to whether the transactions at issue constituted breaches of Respondent's fiduciary duty to the Bank, constituted unsafe or unsound practices, caused substantial loss or damage to the Bank, or could cause serious prejudice to the interests of the Bank's depositors.
   WHEREAS, the ALJ recommended that the Removal Notice by dismissed.
   WHEREAS, Respondent and FDIC Enforcement Counsel filed exceptions to the ALJ's Recommended Decision.
   NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors ("Board") of the FDIC, based upon a thorough review of the testimony, the documentary evidence, the briefs and arguments of the parties, the ALJ's Recommended Decision, and the Exceptions, adopts the ALJ's Findings of Fact Nos. 1–50, No. 51 after substituting the figure $250,000 for the figure $484,606, 52–72, 74 after correcting the account number to read "0-659-014," 75–131, 136–157, 158 after adding the sentence, "Respondent was responsible for this loan transaction and it was conducted at his request," 163–168, 170–176, 179, 181, 183, 185, 190–191, and 195; rejects the ALJ's Finding of Fact 132–135, 169, 177, 180, 182, 184, 186–189, 192–194, and 196–198; adopts Conclusions of Law Nos. 1–25, 28, 31, 33, 37, 39, 41–42, 44–46, 48–51, 53–57, 59–65, 67–78, 80–82, 84–86, 88–90, 92–94, 96–100, 102–109, and 111; adopts Conclusions of Law Nos. 26, 27, 29, 30, 32, 34,
{{11-30-92 p.A-2048}}46, 38, 40, 43, 47, 52, 58, 66, 79, 83, 87, 89, 91, and 95, after substituting the words "continued to violate" for the word "violated" in each such Conclusion; adopts Conclusion of Law No. 110 after modifying it to read, "The FDIC has authority pursuant to 12 U.S.C. § 1818(e) to issue an order removing Respondent from the Bank as a director and prohibiting him from serving or acting as an institution-affiliated party and/or from participating in the conduct of the affairs of the Bank and any other insured depository institution;" and adopts Conclusion of Law 112 after modifying it to read as follows:

An action under pre-FIRREA section 8(e)(1) requires the FDIC to prove at least one of the factors in each of the following three numbered paragraphs:

1. That a director, officer or person participating in the conduct of the affairs of an insured bank has:
(a) committed any violation of law, rule or regulation or of a cease and desist order which has become final; or
(b) engaged or participated in any unsafe or unsound practice in connection with the bank; or
(c) committed or engaged in any act, omission or practice which constitutes a breach of his fiduciary duty as a director or officer; and
2. That as a result of such violation, practice or breach:
(a) the bank has suffered or will probably suffer substantial financial loss or other damage; or
(b) the interest of the bank's depositors could be seriously prejudiced; or
(c) the director or officer has received financial gain; and
3. That the violation, practice or breach of fiduciary duty is either:
(a) one involving personal dishonesty on the part of the director or officer; or
(b) one which demonstrates a willful or continuing disregard for the safety or soundness of the bank;

In the Matter of
RONALD J. GRUBB, individually and
as a director and/or person
participating in the conduct
of the affairs of
BANK OF HYDRO
HYDRO, OKLAHOMA
(Insured State Nonmember Bank)
Carey R. DeMoss, Esquire, Katherine C. Hall, Esquire and David W. Lynch, Esquire of Dallas, Texas for the Petitioner.
Terry W. Tippens, Esquire and Greg A. Castro, Esquire (Fellers, Snider, Blankenship, Bailey & Tippens) of Oklahoma City, Oklahoma for the Respondent.
Docket Nos. FDIC-88-282k
and FDIC-89-111e
Steven M. Charno, Administrative Law Judge:

   On December 22, 1988, the Federal Deposit Insurance Corporation ("Petitioner" or "FDIC") issued a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay and Notice of Hearing ("Penalty Notice") to Ronald J. Grubb ("Respondent"), individually and as a director of the Bank of Hydro, Hydro, Oklahoma ("Bank").¹ The Penalty Notice alleged that Respondent had violated Section 23A of the Federal Reserve Act ("Act"), 12 U.S.C. § 371c, Section 22(h) of the Act, 12 U.S.C. § 375b, Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O"), 12 C.F.R. Pt. 215, and a Cease and Desist Order issued by Petitioner. By Answer filed February 20, 1989, Respondent denied the propriety of any civil money penalty.
   On July 13, 1989, Petitioner issued a Notice of Intention to remove and/or to Prohibit from Further Participation ("Removal Notice") to Respondent, realleging the violations first cited in the Penalty Notice. By Answer of August 28, 1989, Respondent opposed the remedy sought by Petitioner. During a December 28, 1989 prehearing conference, the penalty and removal actions were consolidated for hearing and decision.

I. Alleged Violations
   A. Letters of Credit
   MGM Production Company ("MGM") is an Oklahoma corporation which is one-third owned by Respondent. On February 14, 1986, the Bank issued a standby letter of credit on MGM's behalf to Travelers Insurance Company ("Travelers") in the amount of $265,000. The weight of the evidence does not establish that this letter was issued pursuant to a 1983 agreement between the Bank, on the one hand, and MGM or its principals, on the other hand.⁴ The letter was guaranteed by Respondent, but neither the letter nor the guaranty were secured by a pledge of collateral. At the time Respondent gave his guaranty, one of his loans from the Bank had been adversely classified "substandard." The standby letter of credit became effective on March 10, 1986.
   On March 9 of 1987 and of 1988, the Bank renewed the letter of credit. On both occasions, the renewed letter was guaranteed by Respondent but the Bank did not have a perfected security interest in an pledged collateral.⁵ At the time of the first renewal, other loans by the Bank to Respondent and Falcon Production Company, Inc. ("Falcon Production")⁶ had been adversely classified "substandard;" at the time of the 1989 renewal, other outstanding loan to Respondent and Falcon Production had been adversely classified "doubtful." On April 14, 1988, the Bank disbursed $235,801 pursuant to the letter of credit and booked the transaction as a loan in that amount to MGM. At the time the letter was funded Respondent guaranteed the resulting loan but the Bank did not have a perfected security interest in any pledged collateral. In December of 1988, the Bank charged off the MGM loan as a "loss."
   Petitioner maintains that the three letters of credit and the loan violate the lending limits of Section 23A of the Act, which prohibits an extension of credit to or on behalf of an "affiliate" which exceeds 10 percent of a bank's capital and surplus. Respondent, relying upon Section 23A(b)(2)(E) of the Act, argues that MGM is not an "affiliate"

   No member bank may pay an overdraft of an executive officer or director of the bank, unless the payment of funds is made in accordance with (1) a written, pre-authorized, interest-bearing extension of credit plan that specifies a method of repayment or (2) a written, pre-authorized transfer of funds from another account of the account holder at the bank.

An extension of credit. . .includes. . . [a]ny other transaction as a result of which a person becomes obligated to pay money (or its equivalent) to a bank, whether the obligation arises directly or indirectly, or because of an endorsement on an obligation or otherwise, or by any other means whatsoever.

   an "unsafe or unsound practice" embraces any action, or lack of action, which is contrary to generally accepted standards of prudent operation, the possible consequences of which, if continued, would be abnormal risk or loss or damage to an institution, its shareholders, or the agencies administering the insurance funds.

   the Corporation shall take into account the appropriateness of the penalty with respect to the size of the financial resources and good faith of the member bank or person charged, the gravity of the violation, the history of previous violations, and such other matters as justice may require. 12 U.S.C. § 18(j)(4)(B).

   In determining the amount of a civil money penalty, the agencies believe that a significant consideration should be the financial or economic benefit the Respondent obtained from the violation.... The removal of economic benefit will, however, usually be insufficient by itself to promote compliance with the statutory provisions. The penalty may, therefore, in appropriate circumstances reflect some additional amount beyond the economic benefit derived to provide a deterrent to future conduct. 45 Fed. Reg. 59423 (1980).

   1. At all times pertinent hereto, the Bank was a corporation existing and doing business under the laws of Oklahoma with its principal place of business in Hydro, Oklahoma.
   2. At all times pertinent hereto, the Bank was a state nonmember bank insured by the FDIC.
   3. At all times pertinent hereto, Respondent was a director and person participating in the affairs of the Bank.
   4. At all times pertinent hereto, Respondent owned 1,433.5 shares of the 1,483.5 shares of outstanding stock of Hydro Bancshares, Inc. ("Bancshares"), a one-bank holding company that owned 4,885 shares of the 5,000 shares of the outstanding stock of the Bank. As a result, Respondent owned 96.63 percent of the outstanding stock of Bancshares, and Bancshares owned 97.70 percent of the outstanding stock of the Bank.
   5. At all times pertinent hereto, MGM was a corporation existing and doing business under the laws of Oklahoma.
   6. At all times pertinent hereto, Respondent owned 33.33 percent of MGM.
   7. At all times pertinent hereto, Falcon Production was a corporation existing and doing business under the laws of Oklahoma.
   8. Respondent was one of the original incorporators of Falcon Production on August 30, 1978.
   9. At all times pertinent hereto, Respondent (a) was President and a director of Falcon Production, (b) had the authority to borrow on the account of Falcon Production and (c) held a power of attorney allowing him to conduct the business of Falcon Production.
   10. At all times pertinent hereto, Respondent exercised controlling influence over the management and policies of Falcon Production.
   11. On January 1, 1987, Falcon Production issued to Respondent 5,000 shares of preferred stock valued at $411,191.02.
   12. At all times pertinent hereto, RGI was a sole proprietorship wholly owned by Respondent.
   13. At all times pertinent hereto, Falcon Management was a corporation existing and doing business under the laws of Oklahoma.
   14. At all times pertinent hereto, Falcon Management was 100 percent owned by Respondent.
   15. The Bank was examined jointly by examiners from the FDIC and the State as of the close of business on May 10, 1985 ("1985 Examination"), and a joint report of exam-

   Following the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower whose loan or other credit has been classified "Substandard" and is uncollected unless the Bank's Board of Directors has signed a detailed written statement giving reasons why failure to extend such credit would be detrimental to the best interests of the Bank. The statement shall be placed in the appropriate loan file and included in the minutes of the applicable board of director's meeting.

   Following the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit through purchasing participations in loans unless prior to their purchase the Bank's Board of Directors receives and reviews (i) adequate financial information, (ii) proper collateral documents (if applicable), (iii) adequate evidence of the obligor's demonstrated paying capacity, and an affirmative determination is made that the credit conforms to the Bank's existing loan policy. Written approval, citing complete reasons for the extensions of credit, shall be prepared by the Bank's Board of Directors and placed in the appropriate credit file.

Within 60 days from the effective date of this ORDER, the Bank shall review its current written loan policies and procedures, and adopt any changes thereto that are necessary or appropriate. The Bank's lending policy shall include:

(i) a requirement that extensions of credit to an obligor must receive the prior review and approval of the Loan and Discount Committee if the total obligations of the obligor, after the extensions of credit, will exceed 50 percent of the limitation on maximum indebtedness to the Bank as set forth in Section 802 of the Oklahoma State Banking Code.
(ii) a prohibition against credit to income until actually collected from the borrower of any interest added to the unpaid balance of any loan on which interest is due, interest included in a separate note accepted for uncollected interest due on any loan unless such advances are supported by additional tangible collateral which adequately and completely secures the loan, or uncollected interest booked by any means that essentially avoids recognition of overdue loans and/or artificially inflates the income of the Bank.

The written loan policies and procedures described in paragraph 7(b) and any amendments shall be presented to the Regional Director and the Commissioner for

their review; within 30 days from their response, the amended written loan policies and procedures shall be adopted by the Board of Directors of the Bank.

   1. At all times pertinent hereto, the Bank was subject to the provisions of the Federal Deposit Insurance Act, 12 U.S.C. §§ 18111831d, the Rules and Regulations of the FDIC, 12 C.F.R. Ch. III, and the laws of Oklahoma.
   2. The Bank is an "insured depository institution" within the meaning of 12 U.S.C. § 1813(c)(2).
   3. The FDIC is the "appropriate Federal Banking Agency" within the meaning of 12 U.S.C. § 1813(q).
   4. At all times pertinent hereto, Respondent was a "director" of the Bank within the meaning of 12 U.S.C. §§ 1818(e)(1), 1818(i)(2) and 1828(j)(3).
   5. At all times pertinent hereto, the Bank and Respondent were subject to Section 23A of the Act, as made applicable to insured state nonmember banks by 12 U.S.C. § 1828(j)(1).
   6. At all times pertinent hereto, the Bank and Respondents were subject to Section 22(h) of the Act and Regulation O, as promulgated thereunder and made applicable to insured state nonmember banks of 12 U.S.C. § 1828(j)(2) and Section 337.3 of the FDIC's Rules and Regulations, 12 C.F.R. § 337.3.
   7. As of November 29, 1985, Respondent and the Bank were subject to a final Cease and Desist Order issued by the FDIC.
   8. The FDIC has jurisdiction over the Bank, Respondent and the subject matter of this proceeding.
   9. The FDIC has the burden of proof by a preponderance of the evidence.
   10. At all times pertinent hereto, Respondent was a "director" and a "principal shareholder" of the Bank as those terms are defined in Sections 215.2(c) and (j) of Regulation O.
   11. At all times pertinent hereto, MGM was an "affiliate" of the Bank as that term is defined in Section 23A(b)(1) of the Act.
   12. At all times pertinent hereto, MGM was a "related interest" of Respondent as that term is defined in Section 215.2(k) of Regulation O.
   13. At all times pertinent hereto, Falcon Production was controlled by Respondent within the meaning of Section 215.2(b)(1)(iii) of Regulation O.
   14. At all times pertinent hereto, Falcon Production was a "related interest" of Respondent as that term is defined in Section 215.2(k) of Regulation O.
   15. At all times pertinent hereto, RGI was a "related interest" of Respondent as that term is defined in Section 215.2(k) of Regulation O.
   16. At all times pertinent hereto, Falcon Management was an "affiliate" of the Bank as that term is defined in Section 23A(b)(1) of the Act.
   17. At all times pertinent hereto, Falcon Management was a "related interest" of Respondent as that term is defined in Section 215.2(k) of Regulation O.
   18. The Bank's issuance of letter of credit no. 21486 was a "covered transaction" within the meaning of Section 23A(b)(7)(E) of the Act.
   19. Because letter of credit no. 21486 at the time of issuance exceeded 10 percent of the Bank's capital and surplus, Respondent violated Section 23A(a)(1)(A) of the Act.
   20. An individual's unsecured personal guaranty is not acceptable collateral to secure an extension of credit from a bank to its affiliate pursuant to the collateral requirements of Section 23A(c)(1) of the Act.
   21. Because letter of credit no. 21486 at the time of issuance was not secured with acceptable collateral, Respondent violated Section 23A(c)(1) of the Act.
   22. The issuance of letter of credit no. 21486 was an "extension of credit" within
{{11-30-92 p.A-2072}}the meaning of Sections 215.3(a)(3) and (4) of Regulation O.
   23. Because the issuance of letter of credit no. 21486 resulted in the Bank exceeding its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   24. Because the issuance of letter of credit no. 21486 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   25. The Bank's issuance of letter of credit no. 038809 was a "covered transaction" within the meaning of Section 23A(b)(7)(E) of the Act.
   26. Because letter of credit no. 038809 at the time of issuance exceeded 10 percent of the Bank's capital and surplus, Respondent violated Section 23A(a)(1)(A) of the Act.
   27. Because letter of credit no. 038809 at the time of issuance was not secured with acceptable collateral, Respondent violated Section 23A(c)(1) of the Act.
   28. The issuance of letter of credit no. 038809 was an "extension of credit" within the meaning of Sections 215.3(a)(3) and (4) of Regulation O.
   29. Because the issuance of letter of credit no. 038809 resulted in the Bank exceeding its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   30. Because the issuance of letter of credit no. 038809 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   31. The Bank's issuance of letter of credit no. 038909 was a "covered transaction" within the meaning of Section 23A(b(7)(E) of the Act.
   32. Because letter of credit no. 038909 at the time of issuance was not secured with acceptable collateral, Respondent violated Section 23A(c)(1) of the Act.
   33. The issuance of letter of credit no. 038909 was an "extension of credit" within the meaning of Sections 215.3(a)(3) and (4) of Regulation O.
   34. Because the issuance of letter of credit no. 038909 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   35. The Bank's funding of loan no. 97013 was a "covered transaction" within the meaning of Section 23A(b)(7)(E) of the Act.
   36. Because loan no. 97013 at the time of funding was not secured with acceptable collateral, Respondent violated Section 23A(c)(1) of the Act.
   37. The funding of loan no. 97013 was an "extension of credit" within the meaning of Sections 215.3(a)(3) and (4) of Regulation O.
   38. Because funding of loan no. 97013 resulted in the Bank exceeding its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   39. Each overdraft by MGM on account no. 0-781-191 during the periods September 9–16, 1986 and January 6–7, 1987 was an "extension of credit" within the meaning of Section 215.3(a)(2) of Regulation O.
   40. Because each overdraft on account no. 0-781-191 during the periods September 9–16, 1986 and January 6–7, 1987 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   41. Because each overdraft on account no. 0-781-191 during the periods September 9–16, 1986 and January 6–7, 1987 resulted in the Bank continuing to exceed its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   42. Because of disinterested majority of the Bank's Board of Directors failed to give prior approval to each overdraft on account no. 0-781-191 during the periods September 9–16, 1986 and January 6–7, 1987, Respondent violated Section 215.4(b) of Regulation O and Section 337.3(b) of the FDIC's Rules and Regulations.
   43. Because each overdraft on account no. 0-781-191 during the periods September 9–16, 1986 and January 6–7, 1987 was not secured by acceptable collateral, Respondent violated Section 23A(c)(1) of the Act.
   44. Each overdraft by RGI on account no. 0-659-014 during 1986 and 1987 was an "extension of credit" within the meaning of Section 215.3(a)(2) of Regulation O.
   45. Because each overdraft on account no. 0-659-014 during 1986 and 1987 involved more than the normal risk of repayment or presented other unfavorable fea-
{{11-30-92 p.A-2073}}tures, Respondent violated Section 215.4(a)(2) of Regulation O.
   46. On every occasion when RGI overdrew account no. 0-659-014 during 1986 and 1987, the Bank's aggregate extensions of credit to Respondent and his related interests exceeded either $500,000 or 5 percent of the Bank's "capital and unimpaired surplus" within the meaning of Section 215.2(f) of Regulation O.
   47. Because each overdraft on account no. 0-659-014 during 1986 and 1987 resulted in the Bank continuing to exceed its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   48. Because a disinterested majority of the Bank's Board of Directors failed to give prior approval to each overdraft on account no. 0-659-014 during 1986 and 1987, Respondent violated Section 215.4(b) of Regulation O and Section 337.3(b) of the FDIC's Rules and Regulations.
   49. The overdraft by Falcon Management on account no. 0-622-109 during the period October 27–28, 1986 was an extension of credit within the meaning of Section 215.3(a)(2) of Regulation O.
   50. Because the overdraft on account no. 0-622-109 during the period October 27–28, 1986 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   51. When Falcon Management overdrew account no. 0-622-109 during the period October 27–28, 1986, the Bank's aggregate extensions of credit to Respondent and his related interests exceeded either $500,000 or 5 percent of the Bank's "capital and unimpaired surplus" within the meaning of Section 215.2(f) of Regulation O.
   52. Because the overdraft on account no. 0-622-109 during the period October 27–28, 1986 resulted in the Bank continuing to exceed its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   53. Because a disinterested majority of the Bank's Board of Directors failed to give prior approval to the overdraft on account no. 0-622-109 during the period October 2728, 1986, Respondent violated Section 215.4(b) of Regulation O and Section 337.3(b) of the FDIC's Rules and Regulations.
   54. Because the overdraft on account no. 0-622-109 during the period October 27–28, 1986 was not secured by acceptable collateral, Respondent violated Section 23A(c)(1) of the Act.
   55. Each overdraft by Respondent on account no. 0-659-058 during 1985 and 1986 was an extension of credit within the meaning of Section 215.3(a)(2) of Regulation O.
   56. Because the Bank paid each overdraft on account no. 0-659-058 during 1985 and 1986, Respondent violated Section 215.4(d) of Regulation O, 12 C.F.R. § 215.4(d).
   57. Because each overdraft on account no. 0-659-058 during 1985 and 1986 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   58. Because each overdraft on account no. 0-659-058 during 1985 and 1986 resulted in the Bank continuing to exceed its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   59. On every occasion when Respondent overdrew account no. 0-659-058 during 1985 and 1986, the Bank's aggregate extensions of credit to Respondent and his related interests exceeded either $500,000 or 5 percent of the Bank's "capital and unimpaired surplus" within the meaning of Section 215.2(f) of Regulation O.
   60. Because of disinterested majority of the Bank's Board of Directors failed to give prior approval to each overdraft on account no. 0-659-058 during 1985 and 1986, Respondent violated Section 215.4(b) of Regulation O and Section 337.3(b) of the FDIC's Rules and Regulations.
   61. The Bank's loan no. 95198 was an "extension of credit" to Respondent and his related interest, Falcon Production, within the meaning of Sections 215.3(a) and 215.3(f) of Regulation O.
   62. Because loan no. 95198 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   63. The Bank's loan no. 96282 was an "extension of credit" to Respondent and his related interest, Falcon Production, within
{{11-30-92 p.A-2074}}the meaning of Sections 215.3(a) and 215.3(f) of Regulation O.
   64. Because loan no. 96282 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   65. On February 12, 1987, the Bank's "lending limit" within the meaning of Section 215.2(f) of Regulation O was $359,100.
   66. Because loan no. 96282 exceeded the Bank's aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   67. Section 414B of the Oklahoma Banking Code allows a bank to acquire real estate conveyed to it in satisfaction of debts previously contracted.
   68. Section 414B requires that real estate acquired in satisfaction of a borrower's previous debt be accounted for at the lower of a bank's "recorded investment" in the loan being satisfied or at the real estate's fair market value on the date of acquisition.
   69. The Bank's "recorded investment" of $258,711 in the Falcon Production ORE property was comprised of the following elements: (a) $110,000 from the "unpaid original balance" of loan no. 96282, (b) $14,311 from the "accrued and uncollected interest" on that loan and (c) $134,400 from the "loan acquisition cost" of paying the first mortgage.
   70. Payments representing a defaulting borrower's equity in real estate conveyed in satisfaction of a debt previously contracted do not constitute "loan acquisition costs" within the meaning of Section 414B.
   71. Because the Falcon Production ORE transaction allowed Respondent to receive funds in excess of the Bank's "recorded investment," he caused the Bank to violate Section 414B.
   72. An unsafe or unsound practice embraces any action, or lack of action, which is contrary to generally accepted standards of prudent operation, the possible consequences of which, if continued, would be abnormal risk or loss or damage to an institution, its shareholders or the agencies administering the insurance funds.
   73. The Bank's disbursement of $83,241 in connection with the Falcon Production ORE transaction was an unsafe and unsound banking practice.
   74. During the period February 17–22, 1988, neither Falcon Production nor Respondent was entitled to receive funds from the Bank in contravention of Section 414B or the principles of safe and sound banking.
   75. Because the Falcon Production ORE transaction resulted in Respondent receiving $83,241 during the period February 17–22, 1988 to which he was not lawfully entitled, he was obligated to repay such funds to the Bank.
   76. The disbursements of funds by the Bank pursuant to the Falcon Production ORE transaction in amounts of $48,553 and $34,668 were "extensions of credit" to Respondent and his related interest, Falcon Production, within the meaning of Sections 215.3(a) and 215.3(f) of Regulation O.
   77. Because the disbursements of funds by the Bank in amounts of $48,553 and $34,688 pursuant to the Falcon Production ORE transaction involved more than a normal risk of repayment, Respondent violated Section 215.4(a)(2) of Regulation O.
   78. On February 17 and 22, 1987, the Bank's "lending limit" within the meaning of Section 215.2(f) of Regulation O was $367,650.
   79. Because the disbursement of funds by the Bank in amounts of $48,553 and $34,688 pursuant to the Falcon Production ORE transaction resulted in the Bank exceeding its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   80. The Bank's loan no. 95465 to Respondent was an "extension of credit" within the meaning of Section 215.3(a) of Regulation O.
   81. Because the Bank's loan no. 85465 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   82. On April 25, 1986, the Bank's "lending limit" within the meaning of Section 215.2(f) of Regulation O was $355,950.
   83. Because loan no. 95465 resulted in the Bank exceeding its aggregate lending limit to Respondent and his related interest, Respondent violated Section 215.4(c) of Regulation O.
   84. The Bank's loan no. 95549 to Respondent was an "extension of credit" within the meaning of Section 215.3(a) of Regulation O.
   85. Because loan no. 95549 involved more
{{11-30-92 p.A-2075}}than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   86. On June 5, 1986, the Bank's "lending limit" within the meaning of Section 215.2(f) of Regulation O was $355,950.
   87. Because loan no. 95549 resulted in the Bank exceeding its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   88. The Bank's loan no. 95866 to Respondent was an "extension of credit" within the meaning of Section 215.3(a) of Regulation O.
   89. Because loan no. 95866 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   90. On October 29, 1986, the Bank's "lending limit" within the meaning of Section 215.2(f) of Regulation O was $343,800.
   91. Because loan no. 95866 resulted in the Bank exceeding its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   92. The Bank's consolidated loan no. 96212 to Respondent was an "extension of credit" within the meaning of Section 215.3(a) of Regulation O.
   93. Because loan no. 96212 involved more than the normal risk of repayment or presented other unfavorable features, Respondent violated Section 215.4(a)(2) of Regulation O.
   94. On April 14, 1987, the Bank's "lending limit" within the meaning of Section 215.2(f) of Regulation O was $367,350.
   95. Because loan no. 96212 resulted in the Bank exceeding its aggregate lending limit to Respondent and his related interests, Respondent violated Section 215.4(c) of Regulation O.
   96. Every member of a bank's board of directors is legally responsible to take any action necessary to insure that the bank is in compliance with all orders issued by the FDIC.
   97. Respondent caused the Bank to violate the FDIC Cease and Desist Order by failing to monitor and insure the Bank's compliance with paragraph 6(c) of the Order in connection with the Bank's loans to Jimmie Schimmel on December 30, 1985 and D.D. Duke on September 10, 1987.
   98. Respondent caused the Bank to violate the FDIC Cease and Desist Order by failing to monitor and insure the Bank's compliance with paragraph 6(d) of the Order in connection with the Bank's purchase of a participation in the Harry Stickler loan on August 1, 1987.
   99. Respondent caused the Bank to violate the FDIC Cease and Desist Order by failing to monitor and insure the Bank's compliance with paragraph 7(b) of the Order in connection with the Bank's capitalization of uncollected interest in connection with loans to Verlin Long on January 21, 1987 and Travis Hagy on December 16, 1987.
   100. Respondent caused the Bank to violate the FDIC Cease and Desist Order by failing to monitor and insure the Bank's compliance with paragraph 7(c) of the Order in connection with the Bank's failure to adopt changes in its loan policy required by the FDIC.
   101. Except as concluded herein, Respondent was not shown to have violated any law, regulation or order.
   102. Because Respondent violated Section 23A of the Act and Regulation O, he is subject to the assessment of a civil money penalty pursuant to 12 U.S.C. § 1828(j)(4).
   103. Because Respondent violated the FDIC's Cease and Desist Order, he is subject to the assessment of a civil money penalty pursuant to 12 U.S.C. § 1818(i)(2).
   104. In any action for the assessment of a civil money penalty pursuant to 12 U.S.C. §§ 1818(i)(2)(ii) and 1828(j)(4)(B), the determination of the amount of the penalty must take into account: (a) the size of the offender's financial resources, (b) the good faith of the offender, (c) the gravity of the offender's violations, (d) any history of previous violations and (e) any other matter which justice may require.
   105. The relative weight to be given each of the five statutory factors is within the FDIC's discretion, which cannot be exercised arbitrarily and must be based on reasoned analysis and substantial evidence.
   106. A central statutory purpose of the enabling legislation authorizing the imposition of civil money penalties pursuant to 12
{{11-30-92 p.A-2076}}U.S.C. §§ 1818(i)(2)(ii) and 1828(j)(4)(B) is the deterrence of abusive and self-serving practices which are harmful to banks.
   107. In assessing a civil money penalty pursuant to 12 U.S.C. §§ 1818(i)(2)(ii) and 1828(j)(4)(B), significant consideration should be given to the financial or economic benefit which Respondent received as a result of his violations.
   108. The receipt of credit which should not have been received is of indirect economic benefit to the recipient.
   109. In assessing a civil money penalty pursuant to 12 U.S.C. §§ 1818(i)(2)(ii) and 1828(j)(4)(B), the penalty amount may reflect some additional amount beyond the economic benefit derived in order to provide a deterrent to future unlawful conduct.
   110. The FDIC has authority pursuant to 12 U.S.C. § 1818(e) to issue an order removing Respondent from the Bank as a director and prohibiting him from participating in the affairs of the Bank or any other insured depository institution.
   111. The issuance of an order removing Respondent from banking is discretionary of the part of the FDIC.
   112. In order to issue an order removing Respondent from banking in this case, Petitioner must demonstrate that Respondent's conduct simultaneously (a) violated laws and regulations, (b) economically benefitted Respondent and (c) demonstrated Respondent's willful or continuing disregard for the Bank's safety or soundness.
   Based on the foregoing findings of fact and conclusions of law and upon the entire record in this proceeding, I hereby make the following recommended:

   It is ORDERED that:
   1. By reason of his violations of law, regulation and order, Ronald J. Grubb is assessed a civil money penalty in the amount of $50,000 pursuant to Sections 8(i)(2) and 18(j)(4) of the Federal Deposit Insurance Act, 12 U.S.C. §§ 1818(i)(2) and 1828(j)(4).
   2. This Order shall be effective and the ordered penalty shall be final and payable twenty (20) days from its fate of issuance by the Board of Directors of the Federal Deposit Insurance Corporation.
   3. The Notice of Intention to Remove and/or to Prohibit from Further Participation is dismissed.
   Done at Arlington, Virginia, this 25th day of March, 1992.