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FDIC Enforcement Decisions and Orders |
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Board, having earlier found respondents had violated law and regulations by opening a bank branch without prior FDIC and State authorization, finds that the ALJ improperly evaluated their level of culpability and assesses civil money penalties greater than those recommended by the ALJ. [See ¶5171A, page A-1845.]
[.1] Civil Money PenaltiesAmount of PenaltyFactors
[.2] Civil Money PenaltiesIndemnification
In the Matter of
The Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice") against Steven J. Hirsch, James V. Hirsch, C.R. Hackworthy, Paul W. Hamblin, Bradley C. Lundeen, James W. O'Connell, William J. Radosevich, Richard R. Schmitz, and Richard O. Stout ("Respondents") as individual directors and institution-affiliated parties of Bank St. Croix, Roberts, Wisconsin ("Bank"), on February 11, 1991. This Notice seeks to impose civil money penalties in the amount of $5,500.00 on each Respondent for violations of section 18(d)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1828(d)(1); section 221.04(1) (jm)(1) of the Wisconsin Statutes, Wis. Stat. §221.04(1)(jm)(1); and section 328.2 of the FDIC Rules and Regulations, 12 C.F.R. §328.2, by opening and operating a branch bank in Hudson, Wisconsin ("branch"), without approval of the FDIC or the Commissioner of Banking for the State of Wisconsin ("Commissioner"). Respondents were also charged with, and admitted to violating 12 C.F.R. §328.2, by failing "to display at the branch an `official bank sign.'" Answer at 34.1
During the period from June 1989 through September 1990, Respondent Steven J. Hirsch, president of the Bank, sought and received condition approval from the FDIC and the Commissioner to open a branch bank in Hudson, Wisconsin.3However, the Bank failed to fulfill one of the Commissioner's conditions for approval of the branch bank the infusion of $75,000 of capital from a source outside the Bank.4
The Board has carefully reviewed the entire record in this proceeding, including the parties' submissions, transcripts of the proceedings, the ALJ's Recommended Decision, and Exceptions filed by FDIC Enforcement Counsel. The Board notes that the ALJ properly considered the statutory factors: the size of the financial resources and good faith of the persons charged, the gravity of the violations (losses to the bank and benefit received by violators), the history of previous violations and such other factors as justice may require. 12 U.S.C. §1828(j)(3)(B), 12 U.S.C. §1818(i)(g). The ALJ also properly analyzed the guidance set forth in the "Interagency Policy Regarding the Assessment of Civil Money Penalties by the Federal Financial Regulatory Agencies," 45 Fed. Reg. 59, 423 (September 9, 1980) ("Interagency Policy") in his determination of the appropriate civil money penalties.9The ALJ considered the stipulated evidence of certain of the Respondents' financial resources and the fact that Respondents did not receive any type of economic benefit from the violation. R.D. at 3 through 6.
A. Good Faith
In the Recommended Decision the ALJ found:
[.1] Recognizing that good faith is not a black or white issue, the Board places less weight than the ALJ on Respondents' "good faith" reliance on counsel in keeping the branch open after the November 8, 1990 warnings. In the Board's view, when Respondents were told by both the state and federal regulators that the branch must be closed immediately, they could no longer blindly rely on the advice of counsel that had been called into question. Prudent bankers should have either closed the branch or at least made an immediate independent inquiry at this juncture.11
B. Assessments Adjusted
The Board agrees with the ALJ's analysis and conclusions regarding the state law violation. However, because of our modifications to findings 3, 4, and 5, adjustments to the amounts of assessments are warranted. Accordingly, the assessments for Respondents Steven J. Hirsch, C.R. Hackworthy, Paul W. Hamblin, James W. O'Connell, William J. Radosevich, Richard R. Schmitz, and Richard O. Stout are increased from $500 to $1,000.
C. Prohibition of Indemnification
FDIC Enforcement Counsel urges inclusion in the Order of a provision prohibiting Respondents from accepting payment or seeking reimbursement from the Bank for any monetary penalty or legal expense, pursuant to section 2523 of the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990, Pub. L. No. 101647, 104 Stat. 4789 (codified at section 8(k)(1) of the Act, 12 U.S.C. §1828(k)). This statute states that the Corporation may prohibit or limit, by regulation or order, any golden parachute payment of indemnification. 12 U.S.C. §1828(k)(1). Indemnification payment is defined at section 18(k)(5) of the Act, 12 U.S.C. §1828(k)(5), to include the reimbursement by any insured depository institution or depository institution holding company of any liability or legal expense with regard to any administrative proceeding which results in a final order assessing a civil money penalty.
[.2] The Board observes that a prohibition of indemnification provision was present in the Notice, and that, if the Bank were to reimburse Respondents for the assessments or legal fees, such action would fall within the above definition of an indemnification payment. The Board also notes that this action was brought against the Respondents individually for their personal actions in causing the opening and operating of an illegal branch office, and no penalty was assessed against the Bank. In the Board's view, the penalties and legal fees should be borne by the individual Respondents since it would be unfair to require the Bank to bear the costs associated with these individual actions.
The Board finds that Respondents caused the opening and the operation of a branch bank in Hudson, Wisconsin, for an eleven (11) day period without proper authority from the State and the FDIC. Respondents also caused the branch to operate without displaying an `official bank sign' in violation of 12 C.F.R. §328.2. Therefore, the Board finds that there is ample basis to assess the civil money penalties set forth in the following Order.
The Board of Directors of the FDIC, having considered the entire record in this proceeding, taking into account the appropriateness of the penalty with respect to the size and financial resources and good faith of Respondents, the gravity of the violations, and such other matters as justice may require, it is: ORDERED, that by reason of violations set forth above, the following civil money penalties are hereby assessed: Respondents Steven J. Hirsch, C.R. Hackworthy, Paul W. Hamblin, James W. O'Connell, William J. Hackworthy, Paul W. Hamblin, James W. O'Connell, William J. Radosevich, Richard R. Schmitz and Richard O. Stout, $1,000.00 each, and Respondent James V. Hirsch, $500.00.
/s/ Robert E. Feldman
In the Matter of
CHARNO, Administrative Law Judge:
Civil money penalties may be assessed whenever there is a violation of the statutory or regulatory promulgations which govern the relationship between a bank and its insiders. See 12 U.S.C. §§1818(i)(2). Respondents are concededly insiders by virtue of their positions as members of the Bank's Board of Directors. Because Respondents were found to have committed violations which render them liable for the payment of civil money penalties, the size of those penalties must be determined. In setting the amount of a penalty, Congress has mandated that:
A. Financial Resources
The record establishes that, as of October 1, 1990, the Respondents named below enjoyed the indicated net worths:
The record is devoid of probative evidence concerning the financial ability of Respondents Lundeen and James Hirsch to pay a civil money penalty.4At the time of the hearing, Respondent Steven Hirsch had insufficient liquid assets to pay a $5,500 penalty and his net worth of at least $45,000 was subject to possible deterioration as a result of domestic difficulties.5Petitioner contends that the penalties sought in this action are nominal and that Respondents' ability to pay is therefore immaterial. I find that Respondents' financial resources are sufficient to allow them to pay the civil money penalties assessed herein.6
B. Good Faith
A brief recapitulation of the findings of fact contained in the Decision and Order is necessary in order to assess Respondents' claim of good faith. Prior to October 29, 1990, the Bank had approval from Petitioner and the State to open the Hudson branch. By letter dated October 29,7the Bank informed the State that the branch would be opened on November 5. By letter delivered to the Bank's President Steven Hirsch on November 1, Petitioner withdrew its approval to open the branch. By letter dated November 1, the State suspended its approval to open the branch. The State's letter was received as indicated below:
Based on advise of legal counsel that Petitioner did not have authority to withdraw approval of the branch, the Bank's Board of Directors, except for Respondents Lundeen and James Hirsch who were absent, unanimously voted on November 5 to immediately open the branch. The branch was in fact opened later that day. At the Bank's request, a meeting was held on November 8 in Chicago between representatives of Petitioner, the State and the Bank. The latter was represented by its legal counsel and all of the Respondents in this proceeding except Respondent Lundeen, who was absent. At this meeting, Petitioner and the State reasserted the positions set forth in their earlier letters and Petitioner's representative stated that civil money penalties would be assessed against Respondents unless the branch was closed immediately. Directly after the meeting, Respondents (except for Respondent Lundeen) consulted with their attorney and asked whether Petitioner could impose civil money penalties against them. Their attorney responded in the negative on the ground that Petitioner had not had authority to withdraw approval of the branch.8The Bank continued to operate the branch until November 16 when Petitioner's letter denying the branch application was received
C. Gravity of the Violation
The FDIC has traditionally measured the gravity of a respondent's violations in two ways: (1) the extent to which the respondent benefitted from those violations and (2) the effect of the violations upon the bank. Turning to the first measure, it is agreed that none of the Respondents in this proceeding received any type of economic benefit as a result of the violations previously found herein. Accordingly, I find it inappropriate for the penalty in this proceeding to include any element intended to remove such benefits. With respect to the second measure, the effect of Respondents' violations on the Bank appears to be minimal. As the FDIC's Board of Directors observed on appeal from my earlier Decision, "the violations at issue were short-lived, have been rectified, and the Bank is now operating under a consent agree-
It is ORDERED that:
/s/ Steven M. Charno
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Last Updated 6/6/2003 | legal@fdic.gov |