FDIC: 1997 - Docket No. FDIC-95-62e


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[¶5242] In the Matter of Ramon M. Candelaria, Sunwest Bank of Santa Fe, Santa Fe, New Mexico, Docket No. 95-62e (3-11-97)

FDIC went beyond administrative law judge's recommended decision, permanently removing respondent and prohibiting him from participating in the affairs of any federally insured institution and from exercising voting rights in any financial institution governed by section 8(e)(7)(A) of the FDIA. (This decision was affirmed by the United States Court of Appeals for the 10th Circuit, 1998 WL 43167)

[.1] Prohibition—Factors Determining Liability—Personal Gain
Respondent intended to and did profit from the loans he issued, using his sister-in-law's name.

[.2] Prohibition—Factors Determining Liability—Loss to Bank
Respondent's actions could be considered a loss to the bank even if there was no adverse financial affect.

[.3] Prohibition—Unsafe or Unsound Practices—Loans
Respondent's actions, falsifying bank records, jeopardized the integrity not only of the bank's records, but also the integrity of the bank regulatory system.

[.4] Prohibition—Personal Dishonesty
Respondent took out two loans from his bank in the name of his sister-in-law, never intending the proceeds to go to her. He also falsified bank records to cover {{5-31-97 p.A-2837}}his trail. He did not admit his dishonesty or repay the loans until an inquiry was underway at the bank.
In The Matter of
RAMON M. CANDELARIA,
individually and as an
institution-affiliated
party of
SUNWEST BANK OF SANTA FE
SANTA FE,NEW MEXICO
(Insured State Nonmember Bank)
DECISION AND ORDER OF
REMOVAL AND PROHIBITION
FDIC-95-62

INTRODUCTION

   The Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Intention to Prohibit From Further Participation, against Ramon M. Candelaria ("Respondent"), pursuant to section 8(e) of the Federal Deposit Insurance Act (the "FDI Act"), 12 U.S.C. § 1818(e).
   This matter is before the Board of Directors (the "Board") of the FDIC following the submission of the Recommended Decision¹ of Administrative Law Judge Arthur L. Shipe ("ALJ"), which recommends that an order of prohibition be entered against Respondent for a one-year period only.
   Exceptions to the Recommended Decision were filed by both parties.
   The Board concurs in and adopts certain recommendations of the ALJ, but modifies the recommendation of a term removal and makes additional findings of fact and conclusions of law as set forth below.

FACTUAL SUMMARY

   The central facts in this case are undisputed. At the time of the two transactions at issue, Respondent was a senior loan officer of Sunwest Bank of Santa Fe, Santa Fe, New Mexico (the "Bank"). He had been so employed for some thirteen years and in the banking industry for some twenty-five years.
   On or about July 21, 1994, the Bank extended credit in the amount of $9,550.00 on a note indicating Olivia Aleman ("Aleman"), Respondent's sister-in-law, as the borrower. On or about February 3, 1995, a second credit was extended in the amount of $5,050.00 on a note indicating Aleman as the borrower. Respondent caused each of the promissory notes to be prepared reflecting Aleman as the borrower and accurately providing her social security number. Each note also reflected Respondent's mailing address and telephone number.
   As lending officer, Respondent approved each of the loans and signed each of the promissory notes on behalf of his sister-inlaw. He caused the disbursement of the loan proceeds in the form of cashier's checks, which he personally signed as the Bank's authorized representative.
   On July 28, 1994, Respondent took the first cashier's check, made payable to Aleman, endorsed it in the name of his sister-in-law, then endorsed it in his own name, and deposited it into his personal account, less $500 which he took as cash. Similarly, on February 7, 1995, Respondent again endorsed the cashier's check by signing his sister-in-law's name, endorsed it in his own name, and deposited the entire proceeds into his personal checking account. Respondent transferred none of the loan proceeds to Aleman.
   An auditor for the Bank's holding company discovered the transactions through a computer monitoring system which indicated that the proceeds of the 1995 loan had been deposited into Respondent's personal account. Further research uncovered the similar deposit of the proceeds of the 1994 loan.
   On March 30, 1996, the auditor, the Bank president, and the Bank security officer met with Respondent to discuss these transactions. In this meeting, Respondent admitted that he had signed the promissory notes on behalf of his sister-in-law, deposited the proceeds of both loans into his personal ac-

¹ Citations to the record shall be as follows:
Recommended Decision - "R.D. at ____."
FDIC Exceptions - "FDIC Except. at ____."
Candelaria Exceptions - "Resp. Except. at ____."
Transcript - "Tr. at ____."
Exhibits - "Ex. ____."

{{5-31-97 p.A-2838}}count, and used the money for his own personal benefit. He insisted, however, that his sister-in-law was the true borrower, and that she intended to use these proceeds to repay Respondent for her pre-existing debts to him. He further represented that he had Aleman's express authority to sign the notes, endorse the checks, and keep the loan proceeds, and his signing of the documents on behalf of his sister-in-law (rather than securing her signature), was done for the sole purpose of expediting the loan processing.
The day following the meeting Respondent accepted the opportunity to resign in lieu of termination. Respondent agreed to repay the two outstanding loans from assets in his pension investment account. Both loans were promptly repaid in full. Respondent is now employed at another institution as vice president and lending officer.

A. The Respondent's Position

Respondent asserts that the loans were bona fide loans to Aleman whose purpose was to repay Respondent for loans he had made to his sister-in-law over an eight- to ten-year period to assist her with medical payments, household expenses, and other personal obligations. He claims that he had intended to prepare the loan documents and have his sister-in-law sign them on a trip to Santa Fe from her home in Almogordo, New Mexico. When she could not make the trips as planned, Respondent claims that Aleman granted him permission and authority to sign the documents on her behalf.²

B. The FDIC's Position

FDIC Enforcement Counsel assert that these were "nominee loans" or "straw loans" made in the name of someone other than the real borrower. They claim these were two loans Respondent made to himself using Aleman's name as a disguise, deposited the proceeds into his own account, and spent them for his personal benefit. They argue that the loans were made at a time when Respondent was in immediate need of financial assistance, in a manner to avoid going through official channels at the Bank. They point out that Respondent never informed the president of the Bank or any other Bank employee that he had borrowed money from the Bank for his own benefit, yet he admits the proceeds were used by him. Respondent admitted that he did not intend Aleman to be liable for the loans, which testimony was corroborated by Aleman. Tr. at 127, 103-05. Aleman knew none of the terms or conditions of either loan. Tr. at 103–105. Respondent made two quarterly interest payments on the July 1994 loan. Tr. at 126–127. Although Respondent claims that the fact that he used his own address on the promissory notes is evidence of his lack of deception, FDIC Enforcement Counsel cites this as further support for the view that the loans were actually to him.

______________________________________
THE RECOMMENDED DECISION

The ALJ concluded that "respondent Candelaria breached his fiduciary duty, received financial gain, and acted with willful disregard for safety or soundness of the Bank," and thus found the "evidence adequately establishes the elements of an industry-wide prohibition." R. D. at 19. In discussing the remedy of removal and prohibition, however, he states that he does not believe "the conduct at issue ... justifies the `ultimate' sanction of a permanent life-time ban." R. D. at 20. The ALJ recommends that the Board remove Respondent from the industry for one-year period. R. D. at 21.
The Board agrees with the ALJ's conclusion that FDIC Enforcement Counsel established the necessary elements of a removal and prohibition order pursuant to section 8(e) of the FDI Act but disagrees with several of the ALJ's findings and with the remedy he recommends, as discussed below.

DISCUSSION

It is clear from the Recommended Decision that the ALJ found Respondent to be a sympathetic litigant, and therefore, his description of the facts to be entirely credible. The Board is less convinced, and overall finds the testimony of Respondent and Aleman to be a post hoc rationale. Certain weaknesses in the testimony are troubling. For example, Respondent never gives a good reason why he did not mail the loan documents to his sister-in-law for signature, as he had done in the past.³ He claims that he was focused on "expediting" the loans, but ad-

² Ms. Aleman's testimony is only that she gave permission for Respondent to sign the promissory notes on her behalf. There is no testimony or other evidence of Respondent being authorized to endorse two checks made out to Ms. Aleman. Tr. at 94–96.

³ Aleman previously borrowed from the Bank in another, unrelated loan transaction. In that instance Respondent (Continued)

{{5-31-97 p.A-2839}}mits that he never thought about using FedEx (or its equivalent), which would have been the expeditious, but legal way to execute the loans. And, it was Respondent who needed to expedite these loans, not Aleman, because it was always clear that the need underlying the loans was Respondent's. The proceeds of these loans were always intended to go to Respondent. It is difficult to accept this as mere thoughtlessness on two separate occasions, several months apart. In addition, the testimony of Aleman that she knew nothing about the terms of the loans, the duration, or even the amounts of the loans at the time each was made, raises justifiable doubt that an agency relationship was created, that Respondent ever discussed the details of the loans with her, or that he discussed plans to have her sign the documents on a visit to Santa Fe, which plans, according to Respondent, were simply thwarted by Aleman's failure to come to Santa Fe as planned on two separate occasions. A better reading of the record is that Respondent was the actual borrower and Aleman merely a fictitious borrower.⁴ The need for the ruse is made clear by Respondent's financial condition. Tr. at 123. He could not seek a loan directly from an independent loan officer in the Bank⁵ because he, as well as his sister-in-law, was uncreditworthy. Tr. at 87-88. He had no choice but to engage in the deception because it was the only way he was able to obtain the funds he needed.

[.1] To issue an order of prohibition the Board must find each of the following: 1) there must be a specified type of misconduct—violation of law, unsafe or unsound practice, or breach of fiduciary duty; 2) the misconduct must have a prescribed effect— financial gain to the respondent or financial harm or other damage to the institution; and 3) the misconduct must involve culpability of a certain degree—personal dishonesty or willful or continuing disregard for institutional safety or soundness. See In the Matter of Seidman, 37 F.3d 911, 929 (3rd Cir. 1994). The record clearly establishes that Respondent received financial gain from the transactions. R. D. at 15. The remaining two prongs of the test are discussed below.

A. Misconduct

With respect to misconduct, the ALJ finds that Respondent breached his fiduciary duty, but also finds that he did not violate a law or engage in an unsafe or unsound practice. In the briefs, much attention is focused on whether, by signing the name of his sister-in-law, Respondent committed forgery. The ALJ states that "inherent within the offense of forgery is that a signature be made without permission, and with the intent to defraud." (Citation omitted.) R. D. at 8. He then finds that there is no evidence that Respondent Candelaria lacked authorization to sign on behalf of Aleman." Id. Mindful of the difficulty of proving the absence of evidence, the Board finds that the record contains no documentary evidence, such as a power of attorney, granting Respondent permission to sign on behalf of his sister-in-law, and no testimony of any Bank official that such permission had been granted.⁶ Indeed the only evidence is the testimony of Aleman and Respondent, which, at the least is self-serving, and in light of the entire record is less than credible.⁷ As discussed below,

^(Continued)mailed loan documents to his sister-in-law for her review and signature. Aleman personally signed the documents, personally received and utilized the loan proceeds, and repaid the loan in a timely manner.

⁴ Respondent stresses that Ms. Aleman could not be a "fictitious" borrower, because she is a real person and her real social security number was on the documents. Respondent avoids the crucial issue here, which is whether the named borrower is the person who is responsible for the repayment of the loan. When the named borrower is not the person responsible for the loan, in common banking parlance such person is a "fictitious" borrower. Neither Respondent nor Aleman expected or wanted Aleman to have any of the proceeds or be liable for payment of principal or interest on these loans. The FDIC has a significant history of removing officers and directors from banking for making loans to individuals who are nominee borrowers and using the proceeds for their own benefit. See In the matter of James E. Baker, FDIC Enf. Dec. ¶5199 (1993); In the matter of Veil David DeVillier, FDIC Enf. Dec ¶5202 (1993); In the Matter of Veil David DeViller, FDIC Enf. Dec. ¶10,689 (1992); In the Matter of Richard M. Roberson, FDIC Enf. Dec. ¶5211 (1994); In the Matter of Allan Hutensky, FDIC Enf. Dec. ¶5224 (1995), aff'd 82 F.3d 1234 (2d Cir. 1996).

⁵ The Bank had a designated employee loan officer who was responsible for taking and processing all applications for employee loans. Tr. at 64.

⁶ Even after Respondent was forced to resign, at no time prior to the hearing did Aleman tell any one at the Bank that she had given Respondent permission to sign her name on two loan documents. Tr. at 99.

⁷ In fact, Aleman testified: "we sat down one day and it came out to about $15,000 all together and so he took out the money from the bank to pay—to put it in his checking account ..." (emphasis added) Tr. at 95. Aleman admits that she had no knowledge of the terms and conditions of the loans; that Respondent was obligated for (Continued)

{{5-31-97 p.A-2840}}because this case does not turn on whether Respondent committed forgery, the Board leaves that question to the proper state authorities. The issue of forgery is not critical to the removal and prohibition decision because regardless of whether Respondent was authorized to sign, he still made loans to a straw or nominee borrower for his exclusive use and benefit.⁸ Moreover, when a bank official undertakes to simultaneously represent the bank and the borrower, a conflict of interest is presented which generally constitutes a breach of fiduciary duty.
The ALJ also concludes that Respondent did not engage in an unsafe or unsound practice. He states that although Respondent's actions "were highly imprudent" and indicate a "lapse of judgment," based on his reading of the decision in Seidman, supra, and what he considers "the trend among courts of the other circuits," citing Seidman the ALJ finds that "imprudence standing alone ... is insufficient to constitute an unsafe or unsound practice ... contingent, remote harms that could ultimately result in `minor financial loss[es]' to the institution are insufficient to pose the danger that warrants cease and desist proceedings." 37 F.3d at 929; R. D. at 10.

[.2] The Board takes issue with several of the ALJ's findings and with his characterization of Respondent's actions as mere "imprudence." Although he recognizes that a "purely mathematical application" is not determinative of whether an action is unsafe or unsound, the ALJ finds that because the loans were small when compared to the size of the institution, "it is difficult to conclude that the possible threat to financial integrity was such that it represented (or could represent) abnormal risk to the bank." R. D. at 11. The ALJ ignores, however, a twofold risk presented by Respondent's actions. First, while the amount of the loans involved was relatively small, there is no indication that Respondent would not have repeated these actions had he not been caught. Given the financial needs of Aleman and her almost total inability to repay these loans,⁹ and the financial straits of Respondent, Tr. at 116, 123, 131; FDIC Ex. 10, there is reason to believe there could have been repetition of the conduct. Moreover, in a recent, post-Seidman decision, the Eighth Circuit U.S. Court of Appeals specifically rejected the Seidman majority's notion that to be actionable, an unsafe or unsound practice must have some adverse financial effect on a bank. Greene County Bank v. FDIC, 92 F.3d 633 (8th Cir. 1996), cert. denied, Greene County Bank v. FDIC, 92 F.3d 633 (8th Cir., 1996), cert denied, Green County Bank v. FDIC, 1997 WL 63865 (U.S. Feb 18, 1997).¹⁰

[.3] Second, setting aside whether Respondent "forged" Aleman's signature, it is abundantly clear, indeed Respondent admits, that he knowingly falsified bank records. Tr. at 39; FDIC Ex. 10. The ALJ claims that "there is evidence that the loans at issue in this proceeding were initially prepared such that Aleman would borrow from the bank, take custody of the proceeds, and use the funds to repay Respondent Candelaria." R. D. at 17. The only such evidence is Respondent's testimony of what he allegedly intended to, but did not do. In support of his finding, the ALJ discusses in footnote 9 a previous loan to Aleman, which is not in issue in this case and which the ALJ admits "differs from the two in question, in that the previous [loan] did not involve Respondent Candelaria signing on behalf of Aleman and receiving the

^{7 Continued}repaying the loans. Respondent admits that he was prepared to make the interest payments and if the two loans went into default the Bank would have contacted him because his address and telephone number were on the loan documents. See Tr. at 101, 103–105, 113, 127.

⁸ Even if she had given him permission to seek a loan on her behalf, as he had previously done, it is not the same as giving explicit permission to sign the documents as her agent or to endorse the checks as her agent.

⁹ Neither Mr. nor Ms. Aleman had a regular source of income; Mr. Aleman was unemployed. Tr. at 116. Respondent states that the loans were to be repaid either by the settlement of his brother-in-law's lawsuit or by Aleman selling her one-fifth share in her mother's house to Respondent. Tr. at 117. Both of these are remote possibilities at best. The record contains no indication of the time frame for settlement of the lawsuit (other than Respondent's testimony that he "knew it was going to take time to settle the lawsuit" Tr. at 127), or the anticipated amount of recovery, and contains no information whatsoever about the house. Notably, the loan files contain no valuation of these as collateral, and it is obvious that loans never should have been made to Aleman without collateral because she is uncreditworthy.

¹⁰ In a case decided just last month, the United States Supreme Court interpreted 18 U.S.C. § 1014, which makes it a felony knowingly to make a false statement to obtain credit or funds from federally insured financial institutions. The Court ruled that materiality is not an element of the crime where the statute does not expressly contain a materiality requirement. United States v. Wells, 1997 WL 78052 (February 26, 1997). This decision limits Seidman and its progeny, which have added an adverse financial effect requirement to the term "unsafe or unsound practice" which is not found in the statute.
{{5-31-97 p.A-2841}}loan proceeds." Id. Respondent's act of signing for Aleman, which was admitted by Respondent and acknowledged by the ALJ, constitutes falsification of bank records. This Board has previously held, and here reiterates that falsification of bank records constitutes an unsafe and unsound practice. In the Matter of Frank E. Jameson, 2 FDIC Enf. Dec. ¶5154A (1990), aff'd, Jameson v. Federal Deposit Insurance Corporation, 931 F2d 290 (5th Cir. 1991). This is an unsafe or unsound practice because it threatens the integrity of the Bank's records and thereby threatens the bank regulatory system. Even the Seidman court recognized such conduct as "unsafe or unsound" because it renders the bank regulatory agency "unable to fulfill its statutory function" and "strikes at the heart of the regulatory function." Seidman, 37 F.3d at 936-937. This Board will not condone such conduct regardless of the magnitude of the amount involved.
Next, the ALJ finds that the "evidence here also establishes that Respondent Candelaria intended to—and actually did— guarantee the full repayment of both loans," and that he "accepted his obligation to insure their repayment, and would not have permitted loss to the bank." R. D. at 11. This finding is not supported by the record. While Respondent did repay the loans after he was caught, and while he may have felt morally obligated to do so, there is absolutely no evidence that he "guaranteed" the loans in the legal sense of the term, or, therefore, that he had any legal obligation to repay them. As an experienced banker, Respondent must have been (or at least should have been) familiar with guarantee documents and the rights and obligations that arise thereunder. He specifically chose not to execute such an agreement. The fact that he put his address and telephone number on the promissory note to direct inquiries to him, rather than his sister-in-law, is of no legal effect and certainly is not the equivalent of a guarantee. It appears to have been a device to enable Respondent to cover up his wrongdoing in case of any inquiry. Based upon the Bank's records, if the Bank had failed, the receiver would have had no cause of action against the Respondent. Thus, at the time the loans were made, Respondent did not intend to guarantee, nor did he guarantee their repayment. Nonetheless, the ALJ's finding is important in that it supports the assertion of FDIC Enforcement Counsel that the true borrower was the Respondent. Tr. at 99-100, 103–105.
Accordingly, the Board finds that Respondent did breach his fiduciary duties and that his actions constitute unsafe and unsound practices.

B. Culpability Test

[.4] The ALJ finds that "on this record [he] cannot conclude that actions of Respondent Candelaria amount to personal dishonesty ... His conduct does not sufficiently indicate ... a disposition to lie or cheat or defraud, nor does it tend to show any deliberate deception or misrepresentation." R.D. at 16. The ALJ finds Respondent to have been "very imprudent in his actions," but "nonetheless ... honest about them." Id. In support of this conclusion he points to the fact that Respondent "freely and openly admitted the pertinent facts surrounding the transactions, did so with complete candor, and made no deliberate efforts to conceal or misrepresent his actions at the time." Id. The ALJ's focus is misplaced. There is no disagreement that when confronted with the Bank's security staff and the Bank's president, Respondent admitted the essential facts surrounding these transactions. However, the determinative question is whether he acted honestly when engaging in the transactions— not after he had been caught. The Board finds it impossible to conclude that one who falsifies bank records does so "honestly" and, accordingly, finds that Respondent acted with personal dishonesty.
Finally, the ALJ finds that Respondent acted with willful disregard for the safety or soundness of the Bank, but did not act with continuing disregard for the safety or soundness of the Bank. R. D. at 18–19. The Board disagrees with the latter conclusion. The ALJ states that "[t]he transaction was repeated once, in a reduced amount. I cannot conclude, however, that this single repetition necessarily represents a continuing disregard. While it was knowingly repeated, there is nothing to indicate that respondent intended to continuously engage in these transactions or to further repeat them over time." R. D. at 19. His characterization of the loans as "two isolated loan transactions" disregards the repetition he acknowledges. Id. The Board considers these two transactions to be connected, not "isolated" and, therefore, a {{5-31-97 p.A-2842}}reflection of a continuing disregard to the safety or soundness of the Bank. Respondent admits that he had loaned his sister-in-law approximately fifteen thousand dollars over several years, and that he now was in need of approximately that amount. Although he hoped to get by with the first loan amount of approximately nine thousand dollars, when he could not, he obtained the second loan, bringing the total borrowing almost up to the amount owed him by Aleman. The loans were made only six months apart. Although in some circumstances a single repetition of an unsafe or unsound practice might not constitute a continuing disregard, under these circumstances the Board finds that it does.

C. Remedy

The ALJ urges the Board to exercise its discretion under 12 U.S.C. § 1818(e)(4) to issue a limited removal and prohibition order for a one-year period, rather than a lifetime removal and prohibition from the banking industry. R. D. at 21. The ALJ correctly states that the statute provides this flexibility,¹¹ and that the Board has previously imposed a fixed term of suspension or removal. In the Matter of Jameson, 2 FDIC Enf. Dec. ¶5154A (1990), aff'd, Jameson v. Federal Deposit Insurance Corporation, 931 F.2d 290 (5th Cir. 1991). Nonetheless, in light of the findings made herein, the Board finds that the appropriate remedy in this case is an order of removal and prohibition without limitation, but with the reminder that the statute also provides for a modification of this order upon application to the FDIC. Requiring Respondent to seek the approval of the FDIC, in accordance with the statute, provides flexibility to the Respondent and protection to the industry.¹²

CONCLUSION

For the foregoing reasons, the Board will enter an order of removal and prohibition against Respondent Ramon M. Candelaria.

ORDER

Pursuant to section 8(e) of the FDI Act, 12 U.S.C. § 1818(e), the Board of the FDIC hereby Orders that:
Ramon M. Candelaria is hereby removed from First National Bank, Las Vegas, New Mexico, and without the prior written approval of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. § 1818(e)(7)(D), is prohibited from:

¹³

   This Order will become effective thirty (30) days after it is served on Respondent. The provisions of this Order shall remain effective and enforceable except to the extent that, and until such time as, any provision of this Order shall have been modified, terminated, suspended, or set aside by the FDIC.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 11th day of March, 1997.

__________________________________
RECOMMENDED DECISION

FDIC 95-62e

11-15-96

In The Matter of
RAMON M. CANDELARIA
individually and as an institution-
affiliated party of
SUNWEST BANK OF SANTA FE
SANTA FE,NEW MEXICO

¹¹ Section 8(e)(4) provides that "[t]he agency may issue such orders of suspension or removal from office, or prohibition from participation in the conduct of the affairs of the depository institution, as it may deem appropriate."

¹² The Board views a Removal and Prohibition Order as a remedial action. The existing statutory mechanism permits respondents to seek reinstatement and where reinstatement is appropriate, functions to limit the severity of a Removal Order.

¹³ Subsection (b)(8), as referenced in section 8(e)(7)(A)(ii), has been redesignated as subsection (b)(9).
{{5-31-97 p.A-2843}}
(Insured State Nonmember Bank)
Appearances:
On Behalf of the Federal Deposit Insurance Corporation:
Mr. Carey R. DeMoss, Esq.
Ms. Judith K. Sinclair, Esq.
On Behalf of Respondent Ramon M. Candelaria:
Mr. Donald D. Montoya, Esq.
ARTHUR L. SHIPE, Administrative Law Judge

I. Introduction

   This proceeding arises from a Notice of Intention to Prohibit From Further Participation, issued by the Board of Directors of the Federal Deposit Insurance Corporation ("FDIC") on October 18, 1995. The FDIC brings the matter pursuant to Section 8(e) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(e) ("the FDI Act"), and seeks to determine whether Respondent Ramon M. Candelaria should be permanently prohibited from further participation in the affairs of federally insured depository institutions.
   The Notice alleges that Respondent Candelaria, as senior loan officer of the Sunwest Bank of Santa Fe, Santa Fe, New Mexico, caused the bank on two occasions to extend credit in the name of his sister-in-law, purportedly for her benefit. The proceeds of these loans, however, went directly to the Respondent for his personal use and gain. The FDIC charges that these transactions violate applicable law or regulation, constitute unsafe or unsound banking practices or breach of fiduciary duty, and demonstrate Respondent's personal dishonesty and/or willful or continuing disregard for safety or soundness.
   The matter was tried before me on July 9, 1996, in Albuquerque, New Mexico, wherein the parties appeared through the above counsel. Considering the totality of the circumstances established in these proceedings, including the evidence presented at hearing and my personal observation of the witness' demeanor, I recommend the following.

II. Discussion of Fact

   The facts are largely undisputed and establish the following. Respondent Candelaria, a career banker of some 25 years, worked for Sunwest Bank of Santa Fe (or its predecessor, the Capital Bank) as a loan officer and senior loan officer for some 13 years. He was a highly regarded lender and bank officer, successfully maintained a portfolio of approximately $20 million, and otherwise earned the reputation for being an honest and forthright banker.
   As a result of the transactions at issue here, however, Respondent Candelaria was compelled to resign his bank position in lieu of termination. He is now employed at another institution as vice president and lending officer. Apart from these two alleged transgressions, there appear to be no other questions of his professional conduct.
   The two loans at issue involve credits which Respondent, as bank loan officer, approved for his sister-in-law, Olivia Aleman. The first loan, in the amount of $9,550 was extended on or about July 21, 1994 ("the 1994 loan"), whereas the second, in the amount of $5,050 was extended on or about February 3, 1995 ("the 1995 loan"). The circumstances surrounding the two loans are somewhat similar, as set forth in further detail below.
   Over an eight to ten-year period Respondent Candelaria provided repeated financial support to his sister-in-law and her husband in the form of medical payments, household expenses, and other personal obligations. Their families remain very close, and Aleman, the sister of Respondent's wife, suffers from serious medical complications which has placed great strain on their financial resources. Over the years the total support which Respondent offered, and which he alleges that they agreed Aleman would eventually attempt to repay, came to approximately $15,000.
   During mid-1994 to early 1995, Respondent admits difficulty in his personal financial situation. With children in college, and several other obligations outstanding, Respondent needed cash. It was in this context that the parties apparently decided that Aleman would have to repay the funds which Respondent had previously supplied her.
   Lacking resources with which to repay this debt, they agreed that Aleman would borrow from the bank in order to repay Respondent. According to Respondent, it was hoped that Aleman would be able to repay the loans from the proceeds of a pending lawsuit, or from the possible sale of some inherited real estate. Failing those sources of repayment, Respondent Candelaria would re- {{5-31-97 p.A-2844}}pay the two loans, which were structured and disbursed as follows.
   Respondent first caused promissory notes to be prepared on each of the loans on July 21, 1994, and February 3, 1995, respectively. While the notes reflected Aleman as the borrower, and included her true name and social security number, they reflected the Respondent's mailing address and telephone number. The practical effect of this was to cause any correspondence or inquiry concerning the loans to be directed to Respondent Candelaria.
   Respondent then signed each of the promissory notes on behalf of his sister-in-law. While she had intended to travel to Santa Fe to sign the notes in person, because of medical and other reasons, as well as the 230 mile distance from her home in Almogordo, New Mexico, she could not make the trips nor sign the notes as they had originally planned. Instead, she granted Respondent Candelaria the permission and authority to sign the documents on her behalf.¹
   As lending officer, Respondent Candelaria approved each of the loans, causing their disbursement in the form of cashier's checks which he personally signed as the bank's authorized representative. The two checks were made payable to the order of Aleman, and were issued on July 21, 1994, and February 2, 1995 respectively.
   With the 1994 Loan check, Respondent, on July 28, 1994, first indorsed it in the name of his sister-in-law, then indorsed it in his own name, and deposited it into his personal account, less $500 which he took as cash. Similarly with respect to the 1995 loan, Respondent on February 7, 1995, again indorsed this check with the name of his sister-in-law, indorsed it in his own name, and deposited the entire proceeds into his personal checking account. The Respondent transferred none of the loan proceeds to Aleman.
   An auditor of the bank's holding company first discovered the transactions. While reviewing an Employee Review Report, generated by a computer system monitoring certain deposits of bank employees, the auditor realized that the proceeds of the 1995 loan had been deposited into Respondent's personal account. Through further research, the auditor uncovered the 1994 loan as well.
   On March 30, 1996, the auditor, the bank president, and the bank security officer, met with Respondent to discuss these transactions. In this meeting Respondent admitted that he had signed the promissory notes on behalf of his sister-in-law, deposited the proceeds of both loans into his personal account, and used the money for his own personal benefit. He insisted, however, that his sister-in-law was the true borrower, and that she intended to use these proceeds to repay Respondent for her pre-existing debts. He further represented that he had Aleman's express authority to sign the notes, indorse the checks, and keep the loan proceeds, and his signing of the documents on behalf of his sister-in-law (rather than securing her signature), was done for the sole purpose of expediting the loan processing.
   The day following this meeting, the bank president asked Respondent Candelaria to resign, and accepted his resignation in lieu of termination. The bank negotiated an arrangement whereby Respondent Candelaria would completely repay the two outstanding loans from assets in his pension investment account. Both loans were promptly repaid in full.

III. Discussion of Law

The Notice seeks to determine whether the FDIC Board should permanently prohibit Respondent Candelaria from further industry participation. To issue this sanction, the Board must find each of the following: 1) there must be a specified type of misconduct—violation of law, unsafe or unsound practice, or breach of fiduciary duty; 2) the misconduct must have a prescribed effect— financial gain to the Respondent or financial harm or other damage to the institution; and 3) the misconduct must involve culpability of a certain degree—personal dishonesty or willful or continuing disregard for institutional safety or soundness. As the United States Court of Appeals for the Third Circuit recently summarized the prohibition elements:

¹ Aleman previously borrowed from the bank in other, unrelated loan transactions approved by Respondent. In those instances Respondent mailed loan documents to his sister-in-law for her review and signature. These previous transactions are not at issue here, however, as Aleman personally signed the documents, personally received and utilized the loan proceeds, and repaid the loan in a timely manner.

In the Matter of Seidman, 37 F.3d 911, 929 (3rd Cir. 1994).
A. The Misconduct Test
   The misconduct test requires proof that Respondent's actions amount to a violation of law or regulation, unsafe or unsound practice, or breach of fiduciary duty. The FDIC Enforcement Counsel argue that each of these three standards are established here, thus satisfying the misconduct test.
   They argue that Respondent, by signing the two notes and by indorsing the two checks in the name of his sister-in-law committed criminal forgery. Though they do not argue this point expressly, they imply that this alleged forgery satisfies the "violation of law" element of the misconduct test. Alternatively, they propose that the loan transactions as a whole constituted unsafe and unsound practices, and that Respondent's conflict of interest and self-dealing transactions constitute a breach of his fiduciary duty of loyalty.
   I find insufficient evidence on this record to conclude that Respondent has committed the crime of forgery. Inherent within the offense of forgery is that a signature be made without permission, and with intent to defraud.² It is basic law that "wherever authority is given to sign the name of another to a writing, there can be no forgery."³
   In this case there is no evidence that Respondent Candelaria lacked authorization to sign on behalf of Aleman. Rather, the evidence clearly establishes through Aleman's own admission that she granted this authority to Respondent who exercised it consistent with her intentions. Accordingly, the Respondent's actions, in signing the two promissory notes and in indorsing the two checks on behalf of Aleman cannot, in this instance, constitute the offense of forgery, nor do they constitute a violation of law within the meaning of the misconduct test.
   The next element is that of unsafe and unsound practice. While the FDI Act does not define the term "unsafe or unsound practice," the courts and agencies, including the FDIC Board, have commonly adopted the definition contained in a memorandum submitted to Congress by John Horne, then Chairman of the Federal Home Loan Bank Board, during hearings on amendments to the FDI Act:

⁴

Several courts implementing this concept have recently imposed a higher standard of foreseeable harm to an institution before a practice can be considered unsafe or unsound. See, e.g. Gulf Federal Savings and Loan Ass'n v. Federal Home Loan Bank Board, 651 F.2d 259, 267 (5th Cir. 1981) (en banc) ("`unsafe or unsound practice'...refers only to practices that threaten the financial integrity of the association"); Seidman v. Office of Thrift Supervision, Supra, ("The imprudent act must pose an abnormal risk to the financial stability of the banking institution. This is the standard that the case law and legislative history indicates we should apply in judging whether an unsafe or unsound practice has occurred."); Johnson v. Office of Thrift Supervision, 81 F.3d. 195 (D.C. Cir. 1996) (remanding an agency enforcement case for additional explanation of how imprudent expenditures "threatened [the institution's] `stability' or integrity.")
The Seidman decision, upon which Respondent Candelaria relies heavily for his proposition that the facts here do not establish an unsafe or unsound practice, acknowledges that removal and prohibition is the "ultimate administrative sanction" which

² 2 LaFave and Scott, Substantive Criminal Law, False Pretenses § 8.7(j)(5).

³ 36 Am. Jur. 2d Forgery § 9.

⁴ Financial Institutions Supervisory Act of 1966: Hearings on S. 3158 Before the House Committee on Banking and Currency, 89th Cong., 2d Sess. 49–50 (1966) (statement of Chairman Home), cited in First National Bank of Eden v. Department of Treasury, 568 F.2d 610, 611 (8th Cir. 1978) (per curiam). See also Groos National Bank v. Comptroller of the Currency, 573 F.2d 889, 897 (5th Cir. 1978); In the Matter of James E. Baker, FDIC Enf. Dec. & Orders ¶5199 at A-2283 (1993).
{{5-31-97 p.A-2846}}may be applied only in those instances of misconduct demonstrating "an abnormal risk to the financial stability of the banking institution." Id. at 928. The Seidman court vacated the prohibition Order entered by the Director of the Office of Thrift Supervision, as the imprudent practices there did not arise to the level of an unsafe or unsound practice within the meaning of Section 8(e).⁵ The court remanded the case for the Director to consider whether a cease and desist order or civil money penalty would be authorized under the FDI Act. Id. at 939.
   In my opinion the record of this proceeding does not adequately identify an abnormal risk that Respondent's actions posed to the bank. While I fully agree that his actions were highly imprudent under the circumstances, and while the Respondent himself does not and cannot deny this lapse of judgment, the Seidman court, and the trend among courts of the other circuits, makes clear that "imprudence standing alone, however, is insufficient to constitute an unsafe or unsound practice...contingent, remote harms that could ultimately result in `minor financial loss[es]' to the institution are insufficient to pose the danger that warrants cease and desist proceedings." Id. at 929, citing Gulf Federal Savings and Loan Ass'n, 651 F.2d at 264.
   The facts here establish that Respondent Candelaria caused the bank to extend two discreet loans in the aggregate amount of $14,600 which, when considering the total size of the Respondent's portfolio, and the overall size of the institution, represent a rather insignificant portion of the bank's total assets. I find it difficult to conclude that the possible threat to financial integrity was such that it represented (or could represent) abnormal risk to the bank.
   I fully acknowledge that the "unsafe or unsound" doctrine pronounced in Seidman does not lend itself to a purely mathematical application. In addition to the financial amount in question, one must also consider the many other attendant circumstances in determining whether abnormal risk is present through a given practice.
   While the total amount at issue in this case seems insignificant when compared with the other assets of the bank, the evidence here also establishes that Respondent Candelaria intended to—and actually did— guarantee the full repayment of both loans. He made two quarterly interest payments on the July 1994 Loan, and upon discovery of the transactions, made complete repayment of the outstanding principal and interest. Although the loans were issued in the name of Aleman, I am convinced on this record that Respondent Candelaria accepted his obligation to insure their repayment, and would not have permitted loss to the bank.
   In response, Enforcement Counsel argue that Seidman should be limited to the facts of that particular case. They argue that Seidman does not establish additional standards by which unsafe or unsound practices are measured, and that "abnormal risk" does not require a finding of actual loss, but rather, requires merely the possibility of loss if the offending practice continues.
   I agree that we need not await actual loss before finding a certain condition unsafe or unsound. Rather, in applying the legislative history, and the definition consistently adopted by the courts and agencies, the possible consequences of an action, if continued, must present an abnormal risk or loss or damage to the bank. This record does not support any finding of abnormal loss or damage to the bank, and the only issue here is whether there is abnormal risk. I conclude on this record there is not.
   At hearing the evidence offered by Enforcement Counsel on the issue of safety and soundness was the government's expert, a commissioned bank examiner. The witness testified that the transactions in question violated "proper practices and procedures." Tr. at 155. As a result, she concluded, they constituted unsafe and unsound practices within the meaning of the FDI Act.⁶
   On cross examination, however, the witness conceded total unfamiliarity with any of the judicial or administrative decisions interpreting the phrase "unsafe or unsound practice." While I have considered the testimony, I do not believe the ultimate conclusions reached by the witness comport with the standards required of the appellate courts.
   Accordingly, I conclude that there is insufficient evidence on this record that Respondent's actions constituted unsafe and un-

⁵ The facts alleged in Seidman (though not fully proven) appear more serious than those established here.

⁶ The examiner did not testify in the FDIC case in chief. Rather, Enforcement Counsel elected to call this witness in rebuttal, despite that Respondent offered no expert testimony to rebut.
{{5-31-97 p.A-2847}}sound practices within the meaning of Section 8(e) of the Act. Rather, I think a slightly higher showing is required before concluding that abnormal risk to the financial stability or integrity of the bank exists.
The final element of the misconduct test requires the finding of any act, omission, or practice which constitutes a breach of fiduciary duty, which duty the U.S. Supreme Court has defined as follows:

Pepper v. Litton, 308 U.S. 295, 311 (1939).
   Service as a director or officer of a federally insured bank represents an important business assignment that carries with it commensurate duties and responsibilities. FDIC Policy Statement Concerning the Responsibilities of Bank Directors and Officers, December 3, 1992. Directors and officers of banks have obligations to discharge these duties, similar to the responsibilities owed by directors and officers of other business corporations. These duties include those of care and loyalty. Id.
   The duty of care requires directors and officers to act as prudent and diligent business persons in conducting the affairs of the bank. The duty of loyalty generally prohibits them from putting their personal or business interests above the interests of the bank, and requires them to administer the affairs of the bank with candor, personal honesty, and integrity. In the Matter of Ronald J. Grubb, FDIC Enf. Dec. and Orders ¶5181 at A-2030 (1992). See Also J. Villa, Bank Directors' Officers' and Lawyers' Civil Liabilities, § 1.02 (Aspen, 1994). When a bank officer places personal interest above that of the bank, or utilizes bank resources for personal gain, the officer commits a serious breach of fiduciary duty. In the Matter of Robert S. Stoller, FDIC Enf. Dec. and Orders ¶5174 at A-1870 (1992); In the Matter of Richard M. Roberson, FDIC Enf. Dec. and Orders ¶5211 at A-2400 (1994).
   Enforcement Counsel argue that Respondent Candelaria, by creating and approving loans in the name of his sister-in-law for his personal gain and use, breached his fiduciary duty.⁷ Because of the self-dealing nature of the loans, and the manner in which Respondent's personal need motivated the lending decision, I agree.
   By misusing his position at the bank to satisfy his personal financial need, Respondent violated the very basic requirement that he make fair and unbiased decisions in the institution's best interest. His decision to approve and disburse the proceeds of these loans, however small or inconsequential they may have been, served not primarily the bank's best interest but his own. Given his extensive experience, Respondent could not help but know the impropriety of these actions. On this basis I conclude that Respondent Candelaria breached his fiduciary duty, thus establishing the misconduct test of prohibition.

B. The Effects Test

The Effects Test requires a showing of financial gain to the Respondent or financial harm or other damage to the institution. In this instance the Respondent did repay all interest and principal on the loans, and the bank suffered no financial loss. Nor does the record support the finding of financial harm or "other damage" as a result of the transactions.
It is not disputed, however, that Respondent received financial gain, as he admittedly received and used the loan proceeds for personal benefit. Given these rather clear conclusions, I find that this, the effects test, is satisfied on this record.

C. The Culpability Test

The final prong of the prohibition test requires a finding that the institution-affiliated party 1) acted with personal dishonesty; and/or 2) acted with willful or continuing disregard for the safety or soundness of the bank. These final elements are necessary to satisfy the culpability test, and Enforcement Counsel contend that Respondent's conduct evidences both.
Personal Dishonesty encompasses a broad range of conduct including "disposition to lie, cheat, or defraud; untrustworthiness; lack of integrity;...misrepresentation of facts

⁷ This issue involves the duty of loyalty, and the discussion of breach here is limited to that duty.
{{5-31-97 p.A-2848}}and deliberate deception by pretense and stealth...[or] want of fairness and [straightforwardness]." Van Dyke v. Board of Governors of the Federal Reserve System, 876 F.2d. 1377, 1379 (8th Cir. 1989). On this record I cannot conclude the actions of Respondent Candelaria amount to personal dishonesty. His conduct does not sufficiently indicate, in my opinion, a disposition to lie or cheat or defraud, nor does it tend to show any deliberate deception or misrepresentation. He freely and openly admitted the pertinent facts surrounding the transactions, did so with complete candor, and made no deliberate efforts to conceal or misrepresent his actions at the time.
   Enforcement Counsel argue that his failure to notify anyone of his intended receipt of the loan proceeds, as well as his use of Aleman's name as the putative borrower in this instance evidences personal dishonesty. While I agree that Respondent Candelaria had the duty to disclose his intended receipt of proceeds and failed to do so, I cannot agree, under the circumstances, that this failure necessarily equates to personal dishonesty. Though he may have been very imprudent in his actions, I nonetheless find him to be honest about them.
   Nor can I accept the Enforcement Counsel's suggestion that his conduct represents the dishonest falsification of bank records. There is some credible evidence on the record that Respondent had personally supplied money to his sister-in-law over many years for medical and other expenses.⁸ Further there is evidence that the loans at issue in this proceeding were initially prepared such that Aleman would borrow from the bank, take custody of the proceeds, and use the funds to repay Respondent Candelaria.⁹ Because of certain events which transpired after the fact, however, Aleman was unable to either personally sign the documents or take possession of the proceeds. These circumstances eventually led Respondent Candelaria to sign the notes, indorse the checks, and deposit the loan proceeds directly into his personal bank account.
   Considering the totality of the circumstances, these factors do not support the suggestion that Respondent dishonestly falsified bank documents, and I cannot conclude on this record that he did. Rather, I find insufficient evidence to establish the element of personal dishonesty.
   The final element of the culpability test is one in which we look to determine whether the conduct of the Respondent represents a willful or continuing disregard for safety or soundness. As noted in Brickner v. FDIC, 747 F.2d 1198 (8th Cir. 1984), the elements of "willful disregard" and "continuing disregard" present two distinct, alternative standards for removal. Id. at 1202.¹⁰
   The FDIC Board, in its previous application of this element has described the standard as follows:

In the Matter of Anonymous, 1 FDIC Enf. Dec. and Orders ¶5069 at A-948 (1986).
In my opinion, the conduct of Respondent Candelaria adequately satisfies the scienter requirement of willful disregard for safety or soundness.¹¹ By approving the loans, signing the documents, and securing the proceeds for his personal use, Respondent knowingly and deliberately received proceeds from loans which he had personally approved. He intended his actions to accomplish that re-

⁸ Whether these several instances of financial assistance actually constituted "loans," and whether Aleman had any legal obligation to repay Respondent is not certain, though there may have certainly been some moral obligation to repay.

⁹ The note at FDIC Exhibit 3, for example, similarly listed Aleman as borrower, with the Respondent's address and telephone number. There does not appear to be any issue that this was a legitimate loan to Aleman, however, and the records there were never alleged to be "falsified." Of course, this previous loan differs from the two in question, in that the previous did not involve Respondent Candelaria signing on behalf of Aleman and receiving the loan proceeds.

¹⁰ The willful or continuing disregard criteria were adopted with the idea that these two gauges of conduct would encompass those practices which though not fraudulent, were deliberate and effectuated in the face of an inauspicious outcome, or were knowingly repeated over a period of time. H.R. Rep. No. 1383, 95th Cong., 2d Sess. 18, reprinted in 1978 U.S.C.C.A.N. 9273, 9290.

¹¹ The standard of willful disregard does not necessarily require that Respondent's actions themselves be "unsafe or unsound." Rather, the actions must show some disregard (either willful or continuing) for safety or soundness. In the Matter of Swanson, OTS 95-05, slip op. (Decision on Reconsideration dated April 4, 1995) at 12.
{{5-31-97 p.A-2849}}sult, while knowing clearly the impropriety of this practice.
   The transaction was repeated once, in a reduced amount. I cannot conclude, however, that this single repetition necessarily represents a continuing disregard. While it was knowingly repeated there is nothing to indicate that Respondent intended to continuously engage in these transactions or to further repeat them over time. Rather, it is my conclusion that these two isolated loan transactions represent Respondent's willful disregard, without sufficient evidence of any continuing nature. Thus, I conclude that this, the culpability test is satisfied on this record, and find as a whole that Respondent Candelaria breached his fiduciary duty, received financial gain, and acted with willful disregard for safety or soundness of the Sunwest Bank of Santa Fe. Thus I find that the evidence adequately establishes the elements of industry-wide prohibition.
   12 U.S.C. § 1818(e)(4) provides in pertinent part that "[t]he agency may issue such orders of suspension or removal from office, or prohibition from participation in the conduct of the affairs of the depository institution, as it may deem appropriate." (Emphasis Added). Expanding upon this statutory language, the Board has acknowledged its authority to fashion an "appropriate" remedy under the removal provision, considering all the circumstances. In the Matter of Jameson, 2 FDIC Enf. Dec. and Orders ¶5154A (1990), aff'd, Jameson v. Federal Deposit Insurance Corporation, 931 F.2d 290 (5th Cir. 1991). Specifically, the Board has concluded that Section 8(e) provides the flexibility to impose a fixed term of suspension or industry removal, which allows the agency to deal with abuses while fashioning a sanction that it deems appropriate considering the circumstances of each particular case.¹²
   In this instance the Board has brought action seeking to permanently prohibit Respondent from industry participation. At the time the Board issued the Notice, Respondent Candelaria had resigned from the Sunwest Bank, and apparently had no affiliation with any financial institution. Since issuance of the Notice Respondent has secured employment as vice-president and lending officer at another, unrelated bank, and his re-employment appears to have been after a year-long absence. Hence, any prohibition from participation will also act to remove him from the industry, and obviously, any removal will work considerable hardship upon Respondent and his family.
   I am quite troubled by the Respondent's conduct, and believe some form of sanction is appropriate under the circumstances. I do not, however, believe the conduct at issue, when considered with the totality of the circumstances, and when compared with the misconduct of other reported cases, justifies the "ultimate" sanction of a permanent lifetime ban.
   Respondent's counsel argues that some alternative sanction, such as a civil money penalty would be more appropriate than removal and prohibition. Given the relief sought in the Notice, I do not believe other forms of sanction are within my purview to recommend.
   For these reasons I recommend that the Board remove Respondent Candelaria from the industry for a one-year period, and enter the following Findings of Fact, Conclusions of Law, and Proposed Order:

IV. Findings of Fact

   1. Sunwest Bank of Santa Fe, Santa Fe, New Mexico, was at all times pertinent to the charges herein a corporation existing and doing business under the laws of the State of New Mexico, with its principal place of business in Santa Fe, New Mexico. Stipulation 1.
   2. Sunwest Bank of Santa Fe was at all times pertinent to the charges herein an insured State nonmember bank. Stipulation No. 1.
   3. Ms. Olivia Aleman ("Aleman") is, and was at all times pertinent to this proceeding, the sister-in-law of Respondent Candelaria. Stipulation No. 5.
   4. Respondent has been employed in the banking industry for 25 years. FDIC Ex. 10; Tr. 108–109. His career appears to be one of integrity and honesty, and he has never before been the subject of any professional question or concern. Tr. 76, 81, 110.
   5. Respondent has been a bank loan officer for 13 years. FDIC Ex. 10; Tr. 109.
   6. Respondent previously provided ex-

¹² Id. at A-1542.6. See Also In the Matter of Anonymous, 2 FDIC Enf. Dec. and Orders ¶5113 (1988).
{{5-31-97 p.A-2850}}tensive financial support to his sister-in-law, for medical and family expenses, in an aggregate amount of approximately $15,000. Tr. 94–95.
   7. Respondent's sister-in-law suffers from extremely serious medical complications. Tr. 91.
   8. Prior to July 21, 1994, Respondent experienced difficulty in his personal financial condition and needed cash. FDIC Ex. 10; Tr. 116; 123, 131.
   9. On or about July 21, 1994, Respondent caused the Bank to make a loan ("July 1994 Loan") in the amount of $9,550 in the name of "Olivia Aleman" which Respondent approved on behalf of the Bank. FDIC Ex. 4; Tr. 115, 125.
   10. Respondent, with the consent and permission of Aleman, signed Aleman's name to the $9,550 promissory note. FDIC Ex. 3; Tr. 114, 118, 122, 125.
   11. Respondent arranged for the July 1994 Loan proceeds to be disbursed by cashier's check dated July 21, 1994, in the amount of $9,500, signed by Respondent and made payable to "Olivia Aleman." FDIC Ex. 5, 6; Tr. 15–16, 124–125.
   12. On or about July 28, 1994, Respondent, with the consent and permission of Aleman, indorsed the $9,500 cashier's check in Aleman's name. FDIC Ex. 11; Tr. 114, 118, 122.
   13. On or about July 28, 1994, Respondent indorsed the $9,500 cashier's check in his own name, and deposited it into his personal account, less $500 taken in cash. FDIC Ex. 6, 11; Tr. 16, 95, 114, 118.
   14. Respondent admitted that he used the proceeds of the July 1994 Loan for his personal benefit. FDIC Ex. 10; Tr. 126, 131.
   15. Aleman had no knowledge of the terms or conditions of the July 1994 Loan. Tr. 99–100.
   16. Aleman never personally received the proceeds from the July 1994 Loan. Tr. 101.
   17. Aleman never made any payments on the July 1994 Loan. Tr. 103.
   18. Aleman admitted that Respondent was ultimately obligated to repay the July 1994 Loan, if she could not do so. Tr. 103–104.
   19. Respondent, not Aleman, made two quarterly interest payments on the July 1994 Loan. Tr. 126–127.
   20. Respondent repaid the July 1994 Loan upon his resignation from the Bank. Tr. 127.
   21. On or about February 3, 1995, Respondent caused the Bank to make a loan ("February 1995 Loan") in the amount of $5,050 in the name of "Olivia Aleman" which Respondent approved on behalf of the Bank. FDIC Ex. 7, 10.
   22. Respondent, with the consent and permission of Aleman, signed Aleman's name on the $5,050 promissory note. FDIC Ex. 7, 10.
   23. Respondent arranged for the February 1995 Loan proceeds to be disbursed by cashier's check in the amount of $5,000, signed by Respondent and made payable to "Olivia Aleman." FDIC Ex. 9; Tr. 13–14.
   24. On or about February 7, 1995, Respondent, with the consent and permission of Aleman, indorsed the $5,000 cashier's check in Aleman's name. FDIC Ex. 9.
   25. On or about February 7, 1995, Respondent indorsed the $5,000 cashier's check in his own name, and deposited it into his personal account at the Bank. FDIC Ex. 9; Tr. 11–12.
   26. Respondent admitted that he used the proceeds of the February 1995 Loan for his personal benefit. FDIC Ex. 10; Tr. 131.
   27. Aleman had no knowledge of the terms or conditions of the February 1995 Loan. Tr. 104.
   28. Aleman never personally received the proceeds from the February 1995 Loan.
   29. Aleman never made any payments on the February 1995 Loan. Tr. 104.
   30. Aleman admitted that Respondent was ultimately obligated to repay the February 1995 Loan, if she could not do so. Tr. 104–105.
   31. Respondent repaid the February 1995 Loan upon his resignation from the Bank. Tr. 127.
   32. Respondent did not intend to injure or defraud the bank, and it appears that he fully intended to insure final repayment of the above loans. Tr. 118, 119, 120.
   33. On or about March 30, 1995, Respondent met with Johnnie Barker, an au- {{11-30-00 p.A-2851}}ditor with Boatmen's Bancshares Inc., Ronald Ghion, Assistant Vice President and Security Officer for Sunwest Bank of Albuquerque, and Max Myers, President of the Bank, to discuss the above transactions. FDIC Ex. 10; Tr. 34, 63.
   34. At the above meeting, Respondent admitted that he had signed Olivia Aleman's name to both notes in question. The signatures were made with the express permission of Aleman. FDIC Ex. 10; Tr. 39, 94, 95.
   35. Prior to the above meeting, Respondent did not disclose to the Bank that he was making the loans to Aleman or that he was the intended beneficiary of the loan proceeds. Tr. 51, 65.
   36. Respondent has not provided any documentation regarding any alleged agreement with Aleman concerning the July 1994 Loan and the February 1995 Loan. Tr. 67, 82–83.
   37. By including his address and telephone number on the above promissory notes, Respondent implies some personal obligation on the two loans. FDIC Ex. 4, 7; Tr. 113.
   38. Respondent's stated reason for making the loans was because Aleman personally owed Respondent money which she lacked the funds to repay. Tr. 117, 122–123, 127.
   39. Respondent admitted that he was the ultimate obligor on the July 1994 Loan and the February 1995 Loan. Tr. 127.
   40. Respondent admitted that he did not disclose to the Bank his receipt of the loan proceeds resulting from the July 1994 Loan and the February 1995 Loan which he personally approved. Tr. 129.
   41. Respondent admitted that he did not disclose to the Bank that he had signed Aleman's signature to the July 1994 Loan note and the February 1995 Loan note. Tr. 129–130.
   42. The Bank's policy and procedure on lending to an officer, employee and his/her relatives ("insider loans") is that the person seeking such loan would utilize a loan officer specifically designated to make and approve an insider loan. Tr. 64.
   43. Respondent was aware and had knowledge of the Bank's policy and procedures for processing insider loans. Tr. 70.
   44. The Bank's policy and procedure on insider loans is designed to insure against improper conflicts of interest. Tr. 65.
   45. Respondent resigned from the bank in lieu of termination on March 31, 1995. Tr. 67–68.
   46. The bank had intended to terminate Respondent for breach of bank policy and procedure, breach of his fiduciary duties, and damage caused to the Bank's reputation in the community. Tr. 70, 72.
   47. As of the date of the hearing, Respondent was employed as a vice president and loan officer of another unrelated financial institution. Tr. 132.

V. Conclusions of Law

   1. The Bank was at all times pertinent to the charges herein subject to the provisions of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §§ 1811–1831t, the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the laws of the State of New Mexico. Stipulation No. 1.
   2. The FDIC has jurisdiction over the Bank, the Respondent, and the subject matter of this proceeding. Stipulation No. 4.
   3. At all times pertinent to the charges herein, Respondent was a senior loan officer and an "institution-affiliated party" of the Bank as that term is defined in Section 3(u) of the Act, 12 U.S.C. § 1813(u) and for purposes of sections 8(e)(7), 8(i) and 8(j) of the Act, 12 U.S.C. §§ 1818(e)(7), 1818(i) and 1818(j). Stipulation No. 3.
   4. Respondent committed or engaged in acts, omissions or practices which constituted a breach of his fiduciary duty as an officer of the Bank in connection with his approval of the July 1994 Loan and the February 1995 Loan, and his personal receipt of the loan proceeds resulting therefrom.
   5. Respondent breached his fiduciary duty of loyalty by not disclosing his personal interest in the July 1994 Loan and the February 1995 Loans.
   6. Respondent received financial gain as a result of the above loans, in the amount of $9,550 and $5,050, respectively.
{{11-30-00 p.A-2852}}
   7. Respondent's conduct concerning the July 1994 Loan and the February 1995 Loan demonstrates Respondent's willful disregard for the safety or soundness of the Bank.
   8. An Order of Prohibition from Further Participation may issue against Respondent pursuant to the provisions of section 8(e) of the Act, 12 U.S.C. § 1818(e).
   9. The imposition of a term removal allows the agency to deal with abuses while fashioning a sanction appropriate considering the circumstances of each case.
   10. Under the facts and circumstances of this particular case, the removal of Respondent Candelaria from banking for a period of one year reflects the nature of his breach of fiduciary duty, as well as the mitigating circumstances surrounding the actions.

VI. Proposed Order

   The Board of Directors of the Federal Deposit Insurance Corporation having considered the entire record made at hearing, briefs, and arguments of counsel, and the Recommended Decision and Order of Administrative Law Judge Arthur L. Shipe, and exceptions thereto, finds that:
   Respondent Ramon M. Candelaria has committed or engaged in acts or practices which constitute a breach of fiduciary duty, while an officer, and institution-affiliated party of the Sunwest Bank of Santa Fe, Santa Fe, New Mexico;
   By reason of such breach of duty, the Respondent has received financial gain;
   Such conduct demonstrates the Respondent's willful disregard for the safety or soundness of the Bank.
   Accordingly, IT IS HEREBY ORDERED:
   Ramon M. Candelaria is hereby, without the prior written approval of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in Section 8(e)(7)(D) of the Act, 12 U.S.C. § 1818(e)(7)(D), prohibited from:
   a. participating in any manner in the conduct of the affairs of any financial institution or organization enumerated in Section 8(e)(7)(A) of the Act, 12 U.S.C. § 1818(e)(7)(A);
   b. Soliciting, procuring, transferring, attempting to transfer, voting or attempting to vote any proxy, consent or authorization with respect to any voting rights in any financial institution enumerated in Section 8(e)(7)(A) of the Act, 12 U.S.C. § 1818(e)(7)(A);
   c. violating any voting agreement previously approved by the appropriate federal banking agency; or,
   d. voting for a director, or serving as an institution-affiliated party.
   IT IS FURTHER ORDERED that the provisions of this ORDER shall become effective upon the expiration of thirty (30) days after its service, and shall be effective for a period of one (1) year. The provisions of this Order shall otherwise remain effective and enforceable except to the extent that, and until such time as, any provision of this Order shall have been modified, terminated, suspended, or set aside by action of the Federal Deposit Insurance Corporation or a reviewing court.
   So Ordered, this 15th day of November, 1996.

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