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{{3-31-95 p.A-2490.4}}    [5219] In the Matter of Bank of Michigan, Bloomfield Township, Michigan, Docket No. FDIC-94-162aa (10-18-94).

   FDIC Board denies petition for reconsideration of agency's decision not to grant deposit insurance for a proposed bank because the principal stockholder, CEO and board chairman had engaged in questionable and deficient practices during his tenure at other banks.
   [.1] Deposit Insurance—Application—FDIC Discretion to Grant
   The determination to permit a depository institution to become a member of the FDIC is within the sole discretion of the FDIC.
   [.2] Deposit Insurance—Application—Standards
   In considering whether to grant insured status, FDIC evaluates individual directors and officers with regard to their present occupations and past banking experience.
   [.3] Directors and Officers—Experience in Banking—Evidence from Prior Administrative Proceedings
   FDIC properly considered evidence presented in earlier administrative enforcement proceedings against the proposed principal stockholder, CEO and director of a new bank, though a federal court ruled the findings of the ALJ in that removal action void for lack of jurisdiction because the respondent had already resigned from the bank.
   [.4] Directors and Officers—Experience in Banking
   Evidence that applicant had on numerous occasions failed to distinguish his personal business from that of the banks he served as officer, and his inability to comprehend conflicts of interest render him unfit to serve as the largest shareholder, board chairman and CEO of a newly established insured bank.

[Next page is A-2491].

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In the Matter of

Application for Federal Deposit Insurance
BANK OF MICHIGAN
BLOOMFIELD TOWNSHIP, MICHIGAN
(Proposed Insured Depository
Institution)
DENIAL OF PETITION FOR
RECONSIDERATION

FDIC-94-162aa

DECISION AND ORDER

I. INTRODUCTION

   This proceeding arises out of an application for Federal deposit insurance dated July 26, 1993, submitted to the Federal Deposit Insurance Corporation's ("FDIC") Chicago Regional Office ("Regional Office" or "Chicago Regional Office") by Bank of Michigan, Bloomfield Township, Michigan ("Proposed Bank") pursuant to section 5 of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1815.1 The Application was determined to be substantially complete by the Regional Office on October 25, 1993.
   The Regional Office recommended denial of the Application, and on June 21, 1994, the Board of Directors of the FDIC ("Board"), based upon its own independent findings, determined that the recommendation of the Regional Office should be upheld. Pursuant to section 303.6(e) of the FDIC Rules and Regulations, 12 C.F.R. § 303.6(e), the Proposed Bank filed a petition for reconsideration on July 5, 1994, requesting that the FDIC reconsider its denial of Federal deposit insurance for the Proposed Bank.
   In the interim, one of the incorporators of the Proposed Bank requested that the FDIC provide the formal agenda, transcript of the proceedings held by the FDIC on the application for Federal deposit insurance, and a copy of the record prepared by FDIC staff. On July 21, 1994, the FDIC determined to make a discretionary release of these documents and to accord the Proposed Bank an additional 15 days from the date of receipt of the administrative record of the Application to supplement its petition for reconsideration. On August 8, 1994, the Proposed Bank filed its supplemental petition for reconsideration ("Supplemental Reconsideration"). It is the petition for reconsideration and its supplement that are under consideration here.

II. BACKGROUND

A. The Application2 of the Proposed Bank
   The Proposed Bank's Application3 states that the proponents of the Application intend to open the Proposed Bank for business in Bloomfield Township, Michigan, in a commercial building that was formerly a branch bank location for Michigan National Bank of Detroit, Detroit, Michigan ("MNB-Detroit").4 The purpose of the new institution is to service a broad base of customers, who otherwise would not have access to such banking opportunities with a diversity of banking products and services. Application, Exhibit 11, at p. 14A.
   According to the Charter Application, the incorporators of the Proposed Bank, their occupations, the number of shares to which each has subscribed, and the incorporators' proposed positions with the Proposed Bank are as follows: (1) Stanford C. Stoddard ("Mr. Stoddard"), banking consultant; 160,000 shares of stock valued at $2 million; proposed chairman of the board of directors and chief executive officer of the new institution; (2) Martin J. McInerney, automotive salesman; 40,000 shares of stock valued at


1 The application for Federal deposit insurance filed by the Proposed Bank shall be referred to as the "Application".

2 Hereinafter, references will also be made to the exhibit numbers of the documents which were released pursuant to the July 21, 1994, FDIC discretionary release. The Application for Federal deposit insurance is dated July 26, 1993, and appears as Exhibit 11 in the exhibit list.

3 The proponents of the Application also filed an application for a state bank charter with the Financial Institutions Bureau of the State of Michigan which is titled Application for Permission to Organize A New Bank (hereinafter to be referred to as "Charter Application"). At that point in time, the proposed name of the Proposed Bank was Michigan Bank. A senior officer at Michigan National Corporation, Farmington Hills, Michigan ("MNC") one of the largest banking organizations in the State of Michigan with over 200 branches statewide, submitted a letter expressing concern over the similarity of the name of the Proposed Bank with its lead subsidiary banks. In response to this, the Financial Institutions Bureau of the State of Michigan required that the Proposed Bank change its name to avoid any potential confusion. The incorporators selected the name Bank of Michigan, Bloomfield County, Michigan.

4 See discussion infra at 5–6, n. 7.

{{12-31-94 p.A-2492}}$500,000; proposed director of new institution; (3) Steven E. Jacob, health club and recreational facility operator; 40,000 shares of stock valued at $500,000; proposed director of new institution; (4) H. George Levy, physician; 8,000 shares of stock valued at $100,000; proposed director of new institution; (5) Joseph B. Anderson, Jr., car and truck bumper manufacturer; 4,000 shares of stock valued at $50,000; proposed as director of the new institution; (6) Mark Lesnau, banking consultant; 400 shares valued at $5,000; proposed executive vice president and chief operating officer of the new institution; and (7) Linda D. Bernard, attorney; 2,000 shares of stock valued at $25,000; proposed assistant vice president and director of the new institution. Charter Application, Exhibit 1, at 5 - 56. Other subscribers to the capital stock of the Proposed Bank subscribing to more than 8,000 shares of stock5 include the Claire Ann Company for 48,000 shares of stock. Application, Exhibit 11, at 20. Incorporator Mr. Stoddard is a partner in the Claire Ann Company, of which he is a 25 percent partner. The Claire Ann Company is a real estate investment partnership and under the Application would own 12 percent of the total issuance of capital stock of the Proposed Bank. Application at 12.
   It is proposed that 400,000 shares of common stock be issued, each with a par value of $10.00. In addition, a surplus of $1 million is to be included for a total proposed paid-in capital structure of $5 million.6 Charter Application at 56; cf. Offering Memorandum, Exhibit 2, at 1. According to the Chicago Regional Office's recommendation, the proposed directors, officers, and their business interests would purchase 267,400 shares of stock, or 53.5 percent of the proposed stock offering. Mr. Stoddard would be the largest direct shareholder with 160,000 shares or 32.0 percent interest in the Proposed Bank. With his interest in the Claire Ann Company, Mr. Stoddard's direct and indirect ownership interest in the institution would be 41.6 percent. Chicago Regional Office Recommendation at 8.

B. Chicago Regional Office Review and Recommendation

   On July 26, 1993, prior to the filing of the Proposed Bank's Application with the FDIC, certain of its incorporators met with various officials of the Chicago Regional Office to discuss the upcoming submission of the Application with the FDIC. Specifically, one of the Chicago Assistant Regional Directors, James Thickson, various Review Examiners from the Chicago Regional Office, Mr. Stoddard, and his attorney, Michael A. Kus, met to discuss the purposes in creating a new State nonmember bank in Michigan, and the regulatory actions brought against Mr. Stoddard7 after he resigned on July 19, 1984, as chairman of MNC, and director of MNB-Detroit.8 At the meeting, the FDIC staff requested that all documentation submitted to the State of Michigan for the application for a state charter, including financial statements, also be submitted to the Chicago Regional Office. Mr. Stoddard stated that he might not be able to file a financial statement because he did not have a current and accurate list of Mr. Stoddard's various real estate partnership holdings. One of the review examiners explained that the Regional Office would require a detailed personal financial statement setting out his real estate partnerships, contingent liabilities, guarantees and any lawsuits or judgments against him. See July 26, 1993 Memorandum from James W. Lindholm ("July 26, 1993 Lindholm Memorandum"), Exhibit 13.
   The Proposed Bank filed its Application with the Chicago Regional Office on August 16, 1993. By the end of August 1993, the Regional Office had determined that the only materials missing from the Application were financial statements for Mr. Stoddard and


5 A list of subscribers to the capital stock who are subscribing to 8,000 shares of the Proposed Bank or less appears at pages 20 and 21 of the Application.

6 According to the Chicago Regional Office's recommendation, the Financial Institutions Bureau of the State of Michigan required the Proposed Bank to increase its minimum capital to $6,500,000. See Chicago Regional Office Recommendation (Exhibit 78) at 8. The revised offering involved 500,000 shares of common stock to be issued, each with a par value of $10.00, a surplus of $2.50 and an organization fund cost of $.50 for a total cost of $13.00. Offering Memorandum, Exhibit 2, at 1.

7 Mr. Stoddard was president of MNB Detroit from at least 1962 to 1972, and a director of MNB-Detroit from at least 1958 until his resignation in July 1984. Mr. Stoddard was chief executive officer, president, and chairman of the board of MNC, the holding company of MNB-Detroit, between November 1972 and 1984.

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   Mr. McInerney.9 The Regional Office notified the attorney for the Proposed Bank by letter dated August 23, 1993, that the financial reports submitted by Mr. McInerney and Mr. Stoddard were not complete and that the administrative processing of the Application could not commence without these materials.
   While the Regional Office waited for the requested information, it continued its analysis and review of the Application and all underlying materials which had been submitted to that date. On August 25, 1993, the Financial Institutions Bureau of the State of Michigan, as part of its routine investigation of the Charter Application, requested comments from the FDIC's Chicago Regional Office on its position on the Charter Application. In a letter dated September 30, 1993, the Chicago Regional Office submitted its comments to the State of Michigan.10
   Finally, by letter dated October 19, 1993, the Proposed Bank submitted the last parts of the missing financial statements. On October 25, 1993, the Chicago Regional Office determined that the Application was complete. As of that date, neither the Proposed Bank nor the incorporators had submitted any reference letters in support of the Ap-


8 Administrative Law Judge Thomas D. Jones. A Recommended Decision dated September 21, 1987, was issued by Judge Jones. The Recommended Decision proposed findings of fact and conclusions of law and recommended that Mr. Stoddard be prohibited from banking and that he be assessed a civil money penalty in the amount of $147,000.
   On October 22, 1987, the OCC certified the removal proceeding to the Board of Governors of the Federal Reserve System ("FR Board") for final determination pursuant to 12 U.S.C. § 1815(e)(5) (1982). On November 10, 1987, the civil money penalty case was submitted to the OCC for final decision. The FR Board rendered its final decision in the removal action against Mr. Stoddard on January 29, 1988, and upheld the recommended decision of the administrative law judge, finding that Mr. Stoddard should be prohibited from further participation in the banking industry. That decision was overturned by the United States Court of Appeals for the District of Columbia Circuit on March 3, 1989, on the grounds that the OCC did not have in personam jurisdiction over Mr. Stoddard pursuant to section 8(e) of the FDI Act, 12 U.S.C. § 1818(e) (1982). The Court based its determination on an interpretation of section 8(e) of the FDI Act and concluded that "a proceeding under section 8(e) could not be initiated to remove a person from a position as an officer or director of a bank that that person has ceased to occupy." Stoddard v. Board of Governors of the Federal Reserve System, 868 F.2d 1308, 1310 (D.C. Cir. 1989).
   On March 3, 1988, the Comptroller issued his final decision in the civil money penalty action. In his decision, the Comptroller stated:
   "[T]he Comptroller has determined that a preponderance of the evidence supports the ALJ's findings of fact, and therefore that the Comptroller adopts and incorporates herein those findings. Indeed, the occurrence of facts relevant to the civil money penalty case are mainly undisputed by the parties."
   March 3, 1988 Decision of the Comptroller ("Comptroller Decision") at p. 7. The Comptroller, however, determined that, while the acts engaged in by Mr. Stoddard constituted "flagrant misapplication of bank funds," Comptroller Decision at p. 57, they did not constitute extensions of credit for which a civil money penalty action could be maintained pursuant to 12 U.S.C. §§ 375a and 375b.

9 Further, by this time, the Chicago Regional Office had received all of the materials on the Proposed Bank's application for a state charter which had been filed with the Financial Institutions Bureau of the State of Michigan.

10 The Proposed Bank argues that the Chicago Regional Office prejudged the Application, as evidenced by the fact that its September 30, 1993, letter in response to the State of Michigan's request for comments recommended denial of the Charter Application before the Chicago Regional Office had received a completed application for Federal deposit insurance from the Proposed Bank. The Proposed Bank infers from this that the Chicago Regional Office's investigation of the Proposed Bank's Application was tainted.
   The Board disagrees. The only documents which kept the Application from being complete were Mr. Stoddard's and Mr. McInerney's financial statements. The comments of the Regional Office were not based upon information contained in those documents but upon documents previously submitted by the incorporators and already under staff review. Thus, the "incompleteness" of the Application at that time was of no consequence to staff's comments about previously-filed materials.
   Further, there are two different, albeit interrelated, application proceedings, one based upon state law and the other based upon Federal law, where the factors determinative in one proceeding may not be so in the other. The first application filed by the Proposed Bank was with the State of Michigan to obtain a charter to organize a new institution. The second was an application filed with the FDIC to obtain Federal deposit insurance. It is routine practice during an application process for an administrative agency to solicit comments from another agency where there are overlapping interests. The Financial Institutions Bureau of the State of Michigan requested comments from the FDIC concerning granting a state charter to the proposed institution just as the FDIC solicited comments from the State of Michigan as to whether Federal deposit Insurance should be granted to the newly chartered institution.
   However, even assuming arguendo that the Chicago Regional Office's investigation somehow had been prejudged, the Proposed Bank's argument demonstrates a lack of understanding of the administrative process. The role of the Chicago Regional Office was to undertake an investigation and make a recommendation to the Washington Office. The ultimate decisionmaker on this Application was the FDIC Board. The Board's decision was based upon a de novo review of the Application. This involved the Board's reviewing all of the documents developed from the administrative enforcement actions against Mr. Stoddard, making its own independent findings of fact, and then determining whether or not to follow the recommendation of the Chicago Regional Office.

{{12-31-94 p.A-2494}}plication or Mr. Stoddard, nor had they submitted policy statements on a Code of Ethics or conflicts of interest.
   On January 31, 1994, the Chicago Regional Office forwarded the Application to Washington, D.C. for consideration by the Board, along with its recommendation that the Application be denied based upon two factors: general character and fitness of management, 12 U.S.C. § 1816(4), and risk to the deposit insurance fund, 12 U.S.C. § 1816(5).11

C. Review of the Application and Recommendation in Washington, D.C. and Issuance of Order by Board

   The staff of the FDIC's Washington, D.C. office was assigned to review the Application, the underlying materials sent with the Application and the recommendation of the Chicago Regional Office. In addition, the FDIC's senior staff in Washington, D.C. agreed to meet with various incorporators of the Proposed Bank on April 25, 1994, in order to give them an opportunity to fully present their case as to why the FDIC should grant the Application and to address the issues relating to the Regional Office's recommended denial of the Application.
   At the meeting, Mr. Stoddard made a presentation on the issue of general character and fitness of management.12 For the first time, reference letters on behalf of Mr. Stoddard were presented to the FDIC. In addition, Mr. Stoddard tendered a voluminous notebook ("Notebook") consisting of three volumes of materials dealing with defenses to the administrative enforcement actions13 brought against him by the OCC. Passages of the Notebook were tabbed and highlighted by Mr. Stoddard in order "to refute line by line"14 all of the allegations raised in the OCC's administrative enforcement hearing. Finally, at the meeting, FDIC staff, aware of the approximately four-month-old controversy concerning whether the incorporators intended to develop written policies governing conflicts of interest and ethical conduct, requested copies of any policy statements which the incorporators had developed in the intervening months and which they intended to implement in the Proposed Bank.15 Copies of these documents were first pre-


11 The unfavorable findings concerning the general character and fitness of management were based on several facts involving Mr. Stoddard. The Chicago Regional Office's first concern was that Mr. Stoddard, as the proposed chairman of the board, chief executive officer, the controlling shareholder of the Proposed Bank, and the person who would provide most of the financing for the capitalization of the institution, has been the subject of regulatory litigation. The Regional Office was also concerned that Mr. Stoddard had failed to provide sufficient evidence that he is fit to serve in the positions of chairman of the board and chief executive officer, as well as being the major shareholder of the Proposed Bank, in light of his regulatory problems and in light of his ten years of absence since his resignation from serving as an officer, director or employee in an insured depository institution. Finally, the Chicago Regional Office was concerned that there has been a continued denial by Mr. Stoddard that he engaged in well-documented self-serving activities while serving in similar positions at MNB-Detroit and its holding company, MNC. This continued denial coupled with an issue relating to the leasing of the Proposed Bank's premises raised for the Regional Office serious concerns about Mr. Stoddard's ability to fully recognize and avoid future conflicts of interest.

12 In both its Petition for Reconsideration and Supplemental Reconsideration, the Proposed Bank asserts that neither the Proposed Bank nor Mr. Stoddard was given an opportunity to respond to regulatory concerns about Mr. Stoddard's prior banking practices and his general character and fitness to serve as chairman of the board, chief executive officer, and principal shareholder during the Application process. Petition for Reconsideration at 5; Supplemental Reconsideration at 2. The Board finds this assertion to be contradicted by the record. The record demonstrates that the Proposed Bank and Mr. Stoddard were fully apprised of FDIC concerns on this issue and were provided appropriate opportunities to address these concerns. Not only was there a meeting with the FDIC before the Proposed Bank even filed its Application to discuss the FDIC's concerns about Mr. Stoddard's background, see July 26, 1993 Lindholm Memorandum, Exhibit 13, but a March 2, 1994, letter from Chicago Regional Director Simona Frank to Mr. Stoddard requests responses from the incorporators of the Proposed Bank concerning the management issue. March 2, 1994, letter from Chicago Regional Director Simona Frank to Mr. Stoddard, Exhibit 20. Finally, at the April 25, 1994 meeting with the FDIC, Mr. Stoddard discussed at length his position on the management issue. See also March 2, 1994, Memorandum from Mr. Stoddard to the incorporators, Exhibit 29 (attachment section).

13 See discussion supra at 6–7, n. 8.

14 See Notes of April 25, 1994, meeting between FDIC and various incorporators of the Proposed Bank, including Mr. Stoddard, Exhibit 70 at 4.

15 The issue concerning whether the incorporators of the Proposed Bank intended to develop and implement written policies governing conflicts of interest and ethical conduct began at the hearing before the Commissioner of Banking, Financial Institutions Bureau of the State of Michigan on November 4, 1993. At the hearing, Mr. Stoddard, when asked whether he would have such written policies, responded "this bank is so small and so insignificant, that I don't know if this bank is going to have the same policies as the National Bank of Detroit, or Comerica, somebody like that." Transcript of hearing before the Commissioner of Banking, Financial Institutions Bureau of the State of Michigan on November 4, 1993. Exhibit 9, at 138–139. Ultimately, the incorporators
(Continued)

{{12-31-94 p.A-2495}}sented to the FDIC by letter dated April 26, 1994.
   The FDIC undertook an extensive review of the administrative record developed in the Proposed Bank's Application case.16 This involved the following: (1) reviewing and evaluating the recommendation of the Chicago Regional Office, including all underlying documentation developed by the Regional Office and the Financial Institutions Bureau of the State of Michigan; (2) analyzing all documentation provided by the incorporators of the Proposed Bank, including documents submitted by Mr. Stoddard; and (3) developing a detailed chart ("Chart") that analyzed the allegations made by the OCC during the administrative enforcement proceedings brought against Mr. Stoddard and the admissions made by Mr. Stoddard in response to those allegations.17 After determining that the administrative record developed in the Application process supported the Chicago Regional Office's recommendation that negative findings be made on the two factors of general character and fitness of management and risk to the deposit insurance fund, the FDIC Board issued a denial of the Proposed Bank's Application on June 21, 1994.

III. DECISION

A. The Purpose of the Federal Deposit Insurance Program
   Congress created the FDIC during the economic and banking crises of the early 1930's. The congressional purpose in creating the FDIC was to establish a sound and effective banking system for the nation. United States v. Doherty, 18 F. Supp. 793 (D. Neb. 1937), aff'd, 94 F.2d 495 (8th Cir. 1937), cert. denied, 303 U.S. 658 (1938).
   Commercial banks are unique among financial institutions in that they alone are permitted by law to accept demand deposits. This distinctive power gives commercial banking a key role in the national economy. For banks do not merely deal in, but are actually a source of, money and credit; when a bank makes a loan by crediting the borrower's demand deposit account, it augments the Nation's credit supply. Furthermore, the power to accept demand deposits makes banks the intermediaries in most financial transactions ... and, concomitantly, the repositories of very substantial individual and corporate funds.

United States v. Philadelphia National Bank, 374 U.S. 321, 326 (1963).

   A sound and effective banking system was to be accomplished by instilling the public's confidence in the safety of their deposits through a statutory scheme of deposit insurance. H.R. REP. NO. 150, 73 Cong., 1st Sess. 6 (1933). As stated during consideration of the FDIC's enabling legislation: "[T]here will never be any further confidence of the public in banks until their deposits are guaranteed, and they must be guaranteed absolutely." Congress believed that a statutory scheme of deposit insurance would reduce sudden and precipitous withdrawals of funds from banks by depositors concerned about the safety of their deposits. 77 CONG. REC. 3728 (1933). As stated by one court, "[Congress'] obvious intent was, by insuring deposits, to prevent runs on banks by depositors, to preserve the solvency of insured banks and thus to keep open channels of trade and commercial exchange." Weir v United States, 92 F.2d 634, 636 (7th Cir. 1937), cert. denied, 302 U.S. 761 (1937). See also United States v. Doherty, 18 F. Supp.


15Continued: committed to developing such written policies. See March 11, 1994, letter to Regional Director Simona Frank from the Incorporators, Exhibit 29 attachment, at 6–8. See also March 1, 1994, Memorandum from James W. Lindholm to File, Exhibit 29 attachment, at 2, 4; March 2, 1994 Letter from Regional Director Simona Frank to Stanford C. Stoddard, Exhibit 29 attachment, at 2; March 23, 1994, Memorandum from Regional Director Simona Frank to A. David Meadows, Exhibit 29 attachment, at 3. As stated above, copies of these documents were first presented to the FDIC by letter dated April 26, 1994.

16 The Proposed Bank in its Supplemental Reconsideration takes the position that FDIC staff agreed with the Proposed Bank's position that the findings made by the administrative law judge in the administrative enforcement proceedings brought against Mr. Stoddard were null and void in light of the decision of the United States Court of Appeals for the District of Columbia Circuit. The record does not substantiate the Proposed Bank's characterization of staff's position. Rather, FDIC staff stated that it was undertaking its own review of the administrative enforcement record and would not rely upon the findings of the administrative law judge. See the May 27, 1994, Washington Office Legal Addendum. See also discussion supra at 6–7, n. 8, and infra at 21, n. 21.

17 For an extensive discussion of the methodology employed by the FDIC in reviewing the administrative record developed in the Application process, see Washington Legal Addendum (May 27, 1994), Exhibit No. 78, at pages 3 - 5.

{{12-31-94 p.A-2496}}793 (D. Neb. 1937), aff'd, 94 F.2d 495 (8th Cir. 1937), cert. denied, 303 U.S. 658 (1938).
   In order to accomplish a structure of Federal deposit insurance, a network of Federal statutes was established. With regard to the FDIC's deposit insurance program, the law governing deposit insurance is set forth in the FDI Act. Congress there established which institutions are eligible for membership in the FDIC and under what criteria. Under section 5 of the FDI Act, 12 U.S.C. § 1815, a depository institution that engages in the business of receiving deposits other than trust funds, upon application to the FDIC, may become insured where the Board determines that the depository institution satisfies the factors in section 6 of the FDI Act, 12 U.S.C. § 1816. Section 6 of the FDI Act requires the FDIC to consider the following factors when determining whether to grant an application for federal deposit insurance: the financial history and condition of the bank; the adequacy of its capital structure; its future earnings prospects; the general character and fitness of its management; the convenience and needs of the community to be served by the institution; the risk presented to the deposit insurance funds; and whether or not its corporate powers are consistent with the purposes of the FDI Act. As the Supreme Court stated in Philadelphia National Bank:

    Entry, branching, and acquisition are covered by a network of state and federal statutes. A charter for a new bank, state or national, will not be granted unless the invested capital and management of the applicant, and its prospects for doing sufficient business to operate at a reasonable profit, give adequate protection against undue competition and possible failure ... Failure to meet these standards may cause the FDIC to refuse an application for insurance, 12 U.S.C. § 1815, 1816, and may cause the FDIC, Federal Reserve Board, and Comptroller to refuse permission to branch to insured member, and national banks, respectively. (Emphasis supplied.)
Philadelphia National Bank at 328. If these factors are favorably resolved, the FDIC consents to the bank becoming a member of the FDIC and issues a certificate attesting to the bank's membership in the deposit insurance system.

   [.1] The determination to permit a depository institution to become a member of the FDIC is within the sole discretion of the FDIC. As a member in the FDIC, an institution has certain rights, privileges and obligations established by Congress. Without becoming a member of the FDIC, an institution cannot operate as a Federally insured depository institution. Membership in the FDIC is not an absolute right; it can be terminated by FDIC's Board. Ultimately, without membership in the FDIC, depositors do not receive the protection of their insurable deposits by the deposit insurance fund.18

B. Reconsideration of the Denial of the Application

   This proceeding is before the Board on a request by the Proposed Bank to reconsider the Board's denial of its Application on the factors of general character and fitness of management and risk to the deposit insurance fund under section 6 of the FDI Act, 12 U.S.C. § 1816.
   The Board, in analyzing the record herein, is mindful that newly chartered, newly insured depository institutions face a myriad of risks in today's banking climate. In the Matter of Patrick G. Huycke, FDIC-91-86jj, 1 P-H FDIC Enf. Dec. Par. 5168A at A-1808.1. The Board recognizes that "competent senior management of a recently chartered institution...provides the most likely basis to ensure the institution will conduct itself in a manner consistent with safe and sound banking and the first line of defense against problems in the future." In the Matter of Gary A. Dorris, FDIC-92-128jj, 1 P-H FDIC Enf. Dec. Par. 5193, at A-2178.

   [.2] In reconsidering its decision, the Board is guided by the Manual of Examination Policies of the Division of Supervision ("DOS"), which provides:

    General Character of the Management
— The quality of an institution's management is vital and perhaps the single most important element in determining the applicant's acceptability for deposit insurance.
DOS Manual of Examination Policies at 8.1-4. The DOS Manual of Examination Policies directs that evaluations be made of the individual directors and officers with regard

18 This deposit insurance fund is not derived from appropriated monies; instead, it is derived from assessments paid by insured banks in accordance with section 7 of the FDI Act, 12 U.S.C. § 1817. The FDIC uses the deposit insurance fund to protect depositors who hold their money in Federally insured institutions.
{{12-31-94 p.A-2497}}to their present occupation and past banking experience, "including observations as to how successful the individuals have been in their present and past activities and whether they have been asked to resign from a position held," what their other financial business interests are, what their net worth figures are, their titles, duties, and responsibilities in the new institution, as well as the stock holdings of each individual in the proposed institution. DOS Manual of Examination Policies at 8.1-4.
   The Manual of Examination Policies states that to satisfy these criteria, an evaluation of management with regard to the following must be undertaken: technical competence, leadership, and administrative ability; compliance with banking regulations and statutes; ability to plan and respond to changing circumstances; adequacy of and compliance with internal policies; depth and succession; tendencies toward self-dealing; and demonstrated willingness to serve the legitimate banking needs of the community. DOS Manual of Examination Policies at 4.1–11.
   Taking the record in the light most favorable to the Proposed Bank,19 the Board must nonetheless reaffirm its decision to deny the Application and, thereby, deny the Proposed Bank's petition for reconsideration. In so doing, the Board adopts and incorporates by reference herein the May 27, 1994, Washington Office Legal Addendum ("Legal Addendum"), Exhibit 78, and its attachment.
   Viewing the profile of management of the Proposed Bank, the Board observes that Mr. Stoddard is proposed as the largest shareholder with a 41.6 percent interest in the Proposed Bank. The next largest shareholders with only an 8 percent interest each, Mr. McInerney and Mr. Jacob, do not even approximate the holdings of Mr. Stoddard. Further, while Mr. McInerney and Mr. Jacob are proposed solely as directors, Mr. Stoddard has been proposed for the positions of chairman of the board and chief executive officer. Thus, Mr. Stoddard has the potential of wielding the most influence in the institution in light not only of his being the largest shareholder, but also because of his proposed positions as chairman of the board and chief executive officer.
   The DOS Manual of Examination Policies directs that evaluations "with respect to individuals who are likely to dominate the policies and operations of the institution... should be particularly complete." DOS Manual of Examination Policies at 8.1-4. Given the proposed structure of management in the Application, the Board finds that Mr. Stoddard is the most significant individual in management and that the record of his banking career over the past 30 years is relevant to a determination as to whether the factor of general fitness and character of management under section 6 of the FDI Act, 12 U.S.C. § 1816, is met by the Applicant Proposed Bank.

   [.3] As stated in the Legal Addendum, there is abundant evidence based upon Mr. Stoddard's own admissions at the administrative enforcement proceedings20 that Mr. Stoddard engaged in questionable and deficient


19 The FDIC has given full consideration to all documentation provided by Mr. Stoddard and the other incorporators. As explained fully in the Legal Addendum, Exhibit 78, this has included the Notebook tendered by Mr. Stoddard at the April 25, 1994, meeting, copies of the reference letters provided by Mr. Stoddard at the meeting, policy statements on the code of ethics and conflicts of interest, as well as the correspondence throughout the application process. In addition, the FDIC, while not under a duty to retrieve other documents not provided by the applicants in the Application process, obtained the stipulations, various exhibits, and the briefs presented at the administrative enforcement hearing, including the OCC's Proposed Findings of Fact and Conclusions of Law. The FDIC also has considered the oral presentation made by Mr. Stoddard at the April 25, 1994, meeting, the presentations by the other incorporators present at the meeting, the transcript of the proceeding before the Commissioner of Banking for the State of Michigan, and all other documentation submitted by Mr. Stoddard and the other incorporators. Finally, the FDIC has analyzed the Petition for Reconsideration and the Supplemental Reconsideration. This, then, constitutes the record for the reconsideration of the denial of the application for Federal deposit insurance on behalf of Bank of Michigan, Bloomfield Township, Michigan.

20 With regard to the underlying administrative enforcement record, the FDIC staff analyzed the OCC's and Mr. Stoddard's submissions, as reflected in a comprehensive chart included in the Application record. See May 27, 1994, Washington Office Legal Addendum, Exhibit 78, attachment. In considering the record evidence, the FDIC considered only undisputed facts contained in the administrative enforcement record. Those facts consisted of facts admitted by Mr. Stoddard, facts not in dispute or facts for which no contrary facts were presented and where credibility was not an issue. Thus, where Mr. Stoddard objected to a proposed OCC finding of fact due to the credibility of the witness, argues that the cited testimony did not support the OCC's characterization of the testimony, or contended that the OCC's proposed finding of fact was inaccurate, then the referenced proposed OCC finding of fact was either not considered or it was duly noted that there was a continuing line of objection to the particular factual issue involved. Ultimately, in making its determinations with regard to the conduct of Mr.
(Continued)

{{12-31-94 p.A-2498}}banking practices during his tenure at MNB-Detroit and MNC.21 These practices involved the commingling of personal business with banking business and the charging of personal expenses through the bank's expense records with the explanation that personal funds were later used to repay, in part, what was owed the bank.

   [.4] The record demonstrates that there were three categories of banking practices in which Mr. Stoddard failed to distinguish between the assets of MNC and MNB-Detroit and his own personal assets. The first category is exemplified by the transactions involving Mr. Stoddard and the Building and Properties Division of MNB. The Building and Properties Division ("B&P") served as the bank maintenance division and supervised construction of new bank facilities. Stipulation No. 6.22
   As set forth in the Chart, B&P employees performed extensive renovations on Mr. Stoddard's personal residences, including his home in Birmingham, Michigan, and his vacation home in Harbor Springs, Michigan. With regard to his personal residence in Birmingham, B&P employees, as an example, constructed a walk-in closet (paragraph number 24)23, a bay window (par. no. 30), installed a portion of a fireplace (par. no. 25), repaired furnace or gas lines (par. no. 39), completed electric work (par. no. 45), painted (par. no. 47), removed a bathtub, built a panel over cracked formica (par. no. 48), removed a rotting porch and replaced it with a new porch (par. no. 29), and performed landscaping (par. nos. 17–23, 32–36), including installing a pond (par. no. 28).
   B&P employees also performed extensive renovations on the vacation homes of Mr. Stoddard and his mother and sister. For example, on Mr. Stoddard's vacation home, B&P employees constructed a brook and waterfall (par. nos. 65, 68), removed rocks from the beachfront area and built a beachwall (par. nos. 65, 70), replaced a rotting deck, installed a skylight, installed storm windows (par. no. 81–83), and installed a fence (par. no. 80). With regard to the vacation home of Mr. Stoddard's mother, B&P employees installed a walk-in closet (par. no. 89), and enclosed a porch, including adding a roof and windows (par. no. 90). With regard to the vacation home of Mr. Stoddard's sister, B&P employees remodeled the kitchen (par. no. 91) and built a porch, repaired cupboards and fixed a railing (par. no. 92). With regard to all vacation homes, B&P employees opened and closed all vacation homes during the spring and fall of various years (par. nos. 77–79), and performed general repairs, including repairing roof leaks and frozen pipes (par. no. 93).


20Continued: Stoddard during the time he was involved with MNC and MNB-Detroit, the FDIC relied upon Mr. Stoddard's own Proposed Findings of Fact and Mr. Stoddard's admission. Thus, the FDIC rendered its findings with regard to Mr. Stoddard's conduct while at MNC and MNB-Detroit in the light most favorable to Mr. Stoddard. See May 27, 1994 Washington Office Legal Addendum, Section IV "Methodology" for a more detailed description of the methodology used by the FDIC in analyzing the administrative enforcement record.

21 The Proposed Bank argues that the findings of the administrative law judge were rendered null and void by the decision of the United States Court of Appeals for the District of Columbia Circuit when it determined that the removal order issued pursuant to section 8(e) of the FDI Act, 12 U.S.C. § 1818(e) (1982), against Mr. Stoddard was void for lack of jurisdiction. Even assuming arguendo that the findings of fact made by the administrative law judge in the removal action were rendered void by the ruling of the United States Court of Appeals for the District of Columbia Circuit, that decision did not nullify the findings made by the Comptroller in the parallel civil money penalty action. In that case, the Comptroller of the Currency, in his decision, as stated supra, found that Mr. Stoddard engaged in acts constituting "flagrant misapplication of bank funds." Comptroller Decision at p. 57. See discussion supra at 6–7, n. 8. Further, as acknowledged by the Proposed Bank in its Supplemental Reconsideration, the FDIC undertook its own exhaustive analysis of the record of the evidence presented at the hearing on the administrative enforcement actions brought against Mr. Stoddard. See Proposed Bank's Supplemental Reconsideration at 3–7. In examining the record of evidence presented at the administrative hearing, the Board was not relying upon the fact that there were administrative enforcement actions brought by the OCC against Mr. Stoddard. Instead, the Board was relying upon the evidence which was presented at the hearing not only by the OCC but also by Mr. Stoddard. The hearing transcripts and the documents filed by the respective parties created a crucible of evidence from which the Board then extracted its own findings of fact and conclusions into the conduct engaged in by Mr. Stoddard while at MNC and MNB-Detroit. Like the Comptroller in the civil money penalty action, the Board found that "the occurrence of facts relevant...[to the case] are mainly undisputed by the parties."

22 References to stipulations refer to those stipulations entered into at the administrative enforcement hearing held from August 16, 1986, through October 16, 1986, in Ann Arbor, Michigan, before Administrative Law Judge Thomas D. Jones. See supra note 8, at 7–8.

23 Paragraph numbers refer to those paragraph numbers on the Chart. The paragraph numbers, in turn, reference the paragraph numbers of the OCC's Proposed Findings of Fact submitted in the administrative enforcement proceeding and Mr. Stoddard's Objections to the OCC's Proposed Findings of Fact ("Stoddard Objections") also submitted in the enforcement proceeding. Hereinafter, paragraph number will be abbreviated to "par. no.".

{{12-31-94 p.A-2499}}
   Mr. Stoddard admitted that with respect to his home in Birmingham, MNB-Detroit incurred $14,695 (par. no. 56). For the work performed on the vacation homes of Mr. Stoddard and his mother and sister, Mr. Stoddard admitted that MNB-Detroit and MNC incurred $14,149, but stated that he paid $2,845 for employee expenses and $1,148 to outside suppliers (par. no. 106). With regard to paying for the labor costs incurred by B&P employees and MNC and MNB-Detroit, Mr. Stoddard stated that he should not be expected to be billed or to pay for such costs because he believed that they were related to the use of his residences for business development (par. no. 23).
   The second major category of commingling of MNC and MNB-Detroit assets with Mr. Stoddard's personal assets is the renovation and conversion of buildings to Mormon churches and their donation to the Mormon Church. By Mr. Stoddard's own admissions in the Stipulations, the Stoddard Objections and the Stoddard Findings,24 Mr. Stoddard purchased various buildings located in Albion, Charlotte, Oscoda, Ludington and West Branch, Michigan in order to renovate them and then donated them to the Mormon Church.
   The renovations were carried out by B&P employees, the Patrie Construction Company and church members. While Mr. Stoddard has disputed the amount of time spent by B&P employees to perform the renovations, the number of B&P employees working on these various projects, and the amount of work performed by B&P employees as opposed to church members, Mr. Stoddard has stipulated that he claimed a charitable contribution on his tax returns for each of the properties donated. Stipulation Nos. 12 -16. Mr. Stoddard, however, never paid MNC and MNB-Detroit for the costs of labor performed by B&P employees, Stoddard Findings Nos. 256–260, and for certain expenses for materials and supplies. Further, MNC and MNB-Detroit never claimed any tax deduction for the labor donated to the Mormon Church. Stoddard Findings No. 340.
   The final category where the record demonstrates banking practices of commingling MNC and MNB-Detroit assets with Mr. Stoddard's personal assets is the intermingling of B&P inventory with Mr. Stoddard's own personal inventory. By Mr. Stoddard's own admissions in the Stoddard Findings, the B&P inventory was intermingled with Mr. Stoddard's own inventory created from the renovations of various properties that were later donated to the Mormon Church. The B&P inventory consisted of salvaged items from remodeled MNC and MNB-Detroit bank branches, motels, and Mormon churches. According to the Stoddard Findings, some of these items were retained in inventory for a time and then discarded. Other items that were slow movers or obsolete were selected out of inventory and contributed to the Mormon Church. Such items could not be accounted for in B&P records. They just appeared to be eliminated (Stoddard Findings, par. no. 208). In the B&P inventory, Mr. Stoddard maintained items that he himself had purchased, but admitted that he did not keep records of what those items were (Stoddard Findings, par. no. 356).
   These practices demonstrate that Mr. Stoddard commingled his personal business with the business of MNC and MNB-Detroit to such a degree that it was difficult to separate personal from business expenses.
   This pattern of Mr. Stoddard's failure to separate his personal and business assets and his inability to identify and comprehend conflicts of interest continues to the present time and is substantiated by his recent actions during the Application process. In sworn testimony before the Commissioner, Financial Institutions Bureau of the State of Michigan, on the Proposed Bank's application for a new charter, Mr. Stoddard stated that he did not believe that a conflict existed for him to serve as both a representative for the Proposed Bank and for the Trust that currently holds title to the proposed bank building in negotiating a lease for the property.
   In response to this, the Proposed Bank argues that Mr. Stoddard correctly answered that he was not a trustee of the Trust that holds title to the property proposed to be leased by the Proposed Bank. This is belied by the transcript,25 which reflects Mr. Stod-


24 Like the OCC, Mr. Stoddard submitted in the administrative enforcement proceedings his own Proposed Findings of Fact and Conclusions of Law. This document is referred to as "Stoddard Findings" and is the source for the last column on the Chart. After each statement is a number in the Chart. This number refers to the paragraph number of the Stoddard Findings.

25 The testimony of Mr. Stoddard on this issue is as follows:
(Continued)

{{12-31-94 p.A-2500}}dard's testimony that he believed he was a trustee, and his statements show that he negotiated on behalf of the Trust. The fact that Mr. Stoddard is not a Trustee is immaterial because his testimony demonstrates that during the time he believed himself to be a Trustee, he failed to comprehend that it would have been a conflict of interest for him to represent both the Proposed Bank and the Trust in negotiating terms of a lease for the Proposed Bank. See Hearing before Commissioner of Banking, Exhibit 9, at pp. 148–151. See also id. at 152–162. See Proposed Bank's Supplemental Reconsideration at 16–17..4
   Such inability to understand conflicts of interest in an individual proposed to be the major shareholder, chairman of the board, and chief executive officer of the Applicant Proposed Bank raises grave concerns for the Board. The Proposed Bank itself recognizes the significance of management in its own Offering Memorandum, Exhibit 2, which provides in pertinent part:

    DEPENDENCY ON MANAGEMENT

       The success of the Bank will be primarily dependent upon its executive officers and other management personnel to be selected. If the services of the stated executive officers becomes unavailable for any reason or if the Bank is unable to hire qualified and experienced personnel, the success of the Bank could be adversely affected.

   Offering Memorandum, Exhibit 2, at 4.
   In requesting reconsideration of the Board's denial of its Application, the Proposed Bank argues that the Board failed to consider letters of reference on behalf of Mr. Stoddard and the policy statements on the

25Continued: COMMISSIONER: I believe you personally own the building that the bank will be leasing?
THE WITNESS [Mr. Stoddard]: I don't own it.
COMMISSIONER: You don't own it?
THE WITNESS: It is in a charitable trust.
COMMISSIONER: Who are the trustees of that trust?
THE WITNESS: The trustees of that trust are the family members of the late Howard P. Stoddard who left it in a charitable trust, where the building has three beneficiaries, there is (sic) two alma maters, Michigan State University, University of Utah, and the Church of the Jesus Christ of Latter Day Saints.
COMMISSIONER: Who are the trustees?
THE WITNESS: Virginia Perry, Charles C. Stoddard and Stanford C. Stoddard, his three surviving heirs, two surviving brothers and sister.
COMMISSIONER: You and your brother and sister?
THE WITNESS: Yes, and all we do is determine which of these institutions get what the trust generates, the dividend income from his trust, building rental, things of that nature, whatever is in the trust that's billed out X dollars.
COMMISSIONER: So that you as a trustee of the trust, chief executive officer of the bank, there will be an agreement entered into between the trust and the bank, correct?
THE WITNESS: Well, the trust owns the building, they are going to lease the building to the bank, yes...
COMMISSIONER: To protect the interests of the stockholders and depositors, and to keep your fiduciary responsibility as trustee in one corner and chairman of the bank in another corner, how are you going to deal with that matter?
THE WITNESS: I don't see a conflict at all. We are talking about three known beneficiaries. If Chuck and Virginia want to say: This year the $28,000 is going to go to Michigan State, that's where it goes. This year it goes to a church project, that's where is goes, good...
MR. KROPSCHOT [Ross Kropschot, Chief Deputy of the Financial Institutions Bureau for the State of Michigan]: How do you decide what the lease price is going to be?...
THE WITNESS: We did it the way you normally do it, the — you look at the overall cost of running a building at Square Lake and Telegraph Road, taxes, insurance, operating upkeep and everything else.
MR. KROPSCHOT: What side do you look at? You are on both sides of the transaction.
THE WITNESS: The proposed lease, I think, is $4,000 a month, that's $48,000.
MR. KROPSCHOT: Who decided on $4,000?
THE WITNESS: The respective president of the bank, l, and Mark and the others talked to us and said: That's probably a reasonable figure because when we put on top of it — let's put it this way, right now that the trust, since his demise, has been negative, because the bank in Grand Rapids administering his trust has to spend so much on — they are getting $1,500 a month from the Traffic Improvement Association of the county, period, that's $15,000 a year, there are more operating expenses than that in the building. (Emphasis supplied.)
COMMISSIONER: That's not the point though. Do you recognize in the lease of the building from the trust, the bank leasing the building from the trust, that you are incurring two different — [Questioning is diverted at this point.]
Hearing before Commissioner of Banking. Exhibit 9, at pp. 148–151. See also id. at 152–162.

{{1-31-95 p.A-2501}}code of ethics and conflicts of interest. Petition for Reconsideration at 12, 17–19; Supplemental Reconsideration at 3, 17–19. The references presented to the FDIC at the April 25, 1994, meeting are in the form of letters and testimony in support of Mr. Stoddard from members of the local community in Oakland County, Michigan, as well as individuals who have public standing. These letters26include references from Rex E. Lee, former Solicitor General of the United States and now President of Brigham Young University, Richard L. Lesher, President of the Chamber of Commerce of the United States, Damon J. Keith, Circuit Judge for the United States Court of Appeals for the Sixth Circuit, and Eugene A. Miller, Chairman and Chief Executive Officer of Comercia Incorporated.27
   These letters recognize Mr. Stoddard as an innovator in the banking industry and clearly offer support for Mr. Stoddard as well as for his endeavor to organize a new depository institution. However, they do not indicate any knowledge of or provide any commentary on the conduct in which Mr. Stoddard engaged while at MNC and MNB-Detroit, or on activities in which Mr. Stoddard has been involved since he resigned from MNC or MNB-Detroit, that are probative of Mr. Stoddard's fitness to hold the most significant positions in the management structure of the Proposed Bank.
   Further, the Board finds that neither the Proposed Bank, nor Mr. Stoddard has provided the FDIC with any other evidence of Mr. Stoddard's fitness to serve in the Proposed Bank's most important position which allays the Board's concerns. Mr. Stoddard has not been employed in any banking positions since his resignations from MNC and MNB-Detroit in 1984, and he has stated that he has not received any remuneration as a consultant to the banking industry.
   The Board is troubled by Mr. Stoddard's insistence throughout the processing of the Application that he is "blameless"28 and bears no culpability for the banking practices in which he engaged as a director and officer at MNC and MNB-Detroit. In sworn testimony before the Commissioner of Banking,29 in a March 2, 1994, memorandum to the incorporators of the Proposed Bank,30 and at the April 25, 1994, meeting with FDIC senior staff,31 Mr. Stoddard maintained that he has "refuted every single allegation, line by line," made in the administrative enforcement proceedings brought against him. After scrutinizing the evidence before the OCC, however, the Board finds that Mr. Stoddard has not refuted all evidence of improper activities. Indeed, the undisputed facts demonstrate Mr. Stoddard's unacceptable commingling of personal and business interests. Mr. Stoddard maintains that he has been completely vindicated since every action brought against him has been overturned. However, the fact that the United States Court of Appeals for the District of Columbia Circuit and the Comptroller of the Currency determined that then-existing law did not provide for the legal sanctions at issue in those proceedings, does not preclude the FDIC from deciding that the uncontested evidence of Mr. Stoddard's conduct has different implications in this distinct proceeding.
   Based on its independent review of the record, the Board firmly believes that the activities of Mr. Stoddard, amply supported by this record, reflect adversely on his judgment and are inappropriate for one proposed to hold the most significant positions in the


26 These letters constitute Exhibits 74 through 77 and Exhibits 32 and 35. It should be noted that, in its Petition for Reconsideration as well as the Supplemental Reconsideration, the Proposed Bank sets forth the individuals who wrote letters in support of Mr. Stoddard. A few of these letters were written after the April 25, 1994, meeting and at least one letter was not received by the FDIC during the time when it was reviewing the Application. These letters include those from Michigan Attorney General Frank J. Kelley dated June 15, 1994, and from B. Joseph White, Dean, School of Business Administration, University of Michigan, dated May 25, 1994. See Petition for Reconsideration at 19–21; Supplemental Reconsideration at 2, 14–16.

27 The Board notes that a letter was received from Gerald Ford, former President of the United States. However, President Ford noted in his letter that since he has not lived in Michigan for seventeen years he has a policy of not writing endorsements or official recommendations for Michigan residents. Accordingly, President Ford declined to make a recommendation, but wished Mr. Stoddard well in his new venture.

28 See Exhibit 70 at p. 10 where Mr. Stoddard insists that he is blameless for the banking practices occurring while he was at MNC and MNB-Detroit.

29 See Transcript of Hearing before Commissioner of Banking, Financial Institutions Bureau of the State of Michigan, Exhibit 9, at 11–13.

30 See attachment to Exhibit 29.

31 See Exhibit 70 at 10.
{{1-31-95 p.A-2502}}proposed bank's management. They indicate, at the least, a disregard for the distinctions between personal matters and accounting and corporate business which the Board finds creates too great a risk for a newly chartered depository institution.32

IV. CONCLUSION

   Based upon the record before it, the Board reaffirms its prior decision to deny the Application. Senior executive positions at a newly chartered institution carry with them great fiduciary responsibility to the depositors and to the public. As the Applicant itself recognizes, adequate senior management provides the most likely basis to ensure that a newly chartered institution will conduct itself in a safe and sound manner and be successful. The record in this Application demonstrates to the Board that Mr. Stoddard, the most significant individual in the management structure of the Proposed Bank — the proposed largest shareholder, chairman of the board and chief executive officer — has engaged in a pattern of conduct, which he still does not acknowledge, of failing to make distinctions between personal and business assets and of an inability to identify and comprehend conflicts of interest. This does not prevent Mr. Stoddard from serving in an existing, healthy institution where in certain capacities he would not pose a risk to the deposit insurance fund. However, given the myriad risks with which newly chartered institutions are faced, the Board must deny the Petition for Reconsideration and reaffirm its denial of the Application on the basis of general character and fitness of management and risk to the deposit insurance fund.

ORDER

   The Board of Directors of the Federal Deposit Insurance Corporation, having considered the entire record in this Application proceeding, hereby denies the petition for reconsideration made by Bank of Michigan, Bloomfield Township, Michigan, a Proposed Bank, on the June 21, 1994, denial of its Application for Federal deposit insurance.
   ACCORDINGLY, IT IS HEREBY ORDERED THAT the Application for Federal deposit insurance filed by Bank of Michigan, Bloomfield Township, Michigan, a Proposed Bank, is denied and the Order of Denial is reaffirmed.
   IT IS FURTHER ORDERED, that the Executive Secretary, or his designee, is instructed to execute and serve copies of this Decision and Order on all parties and the Commissioner for the State of Michigan.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 18th day of October, 1994.
/s/ Leneta G. Gregorie
Acting Assistant Executive
Secretary


32 The Code of Ethics and the policy statement on conflicts of interest which the Proposed Bank indicates that it intends to implement do not provide sufficient protection where Mr. Stoddard would be the largest single shareholder, chairman of the board, and chief executive officer.

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