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FDIC Enforcement Decisions and Orders

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   [5243] In the Matter of Allan Hutensky, First Central Bank, Hartford, Connecticut, FDIC Docket No. 92-300e (7-8-97)

   FDIC agreed with the administrative law judge that sanctions should be imposed under FDIA section 8(e) against a bank director for violating Regulation O in connection with two loans. The Board of Governors issued an order of prohibition, agreeing with an appellate court finding that respondent acted with willful disregard and with personal dishonesty. No mitigating factors were found, despite respondent's arguments. (See ¶5224 for action by the Court of Appeals.)

   [.1] Prohibition—Factors Determining Liability—Personal Gain
   Respondent bypassed the required procedures and received the benefit of the proceeds as a result of his actions.

   [.2] Prohibition—Personal Dishonesty
   There was substantial evidence that dspondent's conduct in relation to the two loans in question involved personal dishonesty.

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   [.3] Regulation O—Nominee Loans
   Appellate court's finding of a Regulation O violation upheld in connection with respondent's conduct in making two loans.

   [.4] Prohibition, Removal, or Suspension—FDIC Authority
   Because FDIC Enforcement Counsel established the elements of a violation of section 8(e) of the FDIA, and because there were no mitigating factors present, the imposition of an order of prohibition against respondent was appropriate.

In the Matter of
ALLAN HUTENSKY
individually, and as an
institution-affiliated party of
FIRST CENTRAL BANK
HARTFORD,CONNECTICUT
(Former Insured State Nonmember Bank)
DECISION AND ORDER TO PROHIBIT
FDIC-92-300e

   This matter is before the Board of Directors (the "Board") of the Federal Deposit Insurance Corporation ("FDIC") upon remand from the United States Court of Appeals for the Second Circuit following its decision in Allan Hutensky v. Federal Deposit Insurance Corporation, 82 F.3d 1234 (2nd Cir. 1996).

Background1

   On December 22, 1992, the FDIC issued a Notice of Intention to Prohibit From Further Participation ("Notice") against five respondents pursuant to section 8(e) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(e). All respondents entered into settlement agreements with the FDIC prior to the commencement of the administrative hearing except Allan Hutensky ("Respondent" or "Hutensky").
   The charges against Respondent involve three transactions—two loan transactions (the Harding and Reveruzzi Loans) and a transaction arising from the refinancing of an outstanding loan in the amount of $9.5 million to the partnership of Bronson & Hutensky. Following a hearing, the Board issued a final Decision and Order against Hutensky, 1 PH FDIC Enf. Dec. ¶5224 (1995). Hutensky appealed the Board's Decision and Order, and on April 19, 1996, the Court of Appeals for the Second Circuit issued its decision. The appellate opinion fully affirmed the findings of fact and conclusions of law made by the Board regarding the two loan transactions. The Circuit Court found insufficient evidence of Hutensky's culpability to support the charge of the Notice relating to the modification of the $9.5 million loan to Bronson & Hutensky. The Court remanded the matter to the FDIC. "with instructions that it determine the appropriate sanctions, if any, to be applied on the basis of [Hutensky's] involvement in the Harding and Reveruzzi loans only," Hutensky, id. at 1243.
   Accordingly, on July 19, 1996, the FDIC issued an order reopening this proceeding and, following the submission of briefs, requiring the Administrative Law Judge, Walter J. Alprin, ("ALJ") to issue a recommended decision on the limited issue of what, if any, sanction against Respondent should be entered based only on the Reveruzzi and Harding loan transactions. On March 26, 1997, the ALJ issued a Recommended Decision After Remand recommending the issuance of a final order prohibiting Respondent from future participation in the affairs of federally insured depository institutions. Following review of the Exceptions to the Recommended Decision filed by Respondent, the Board hereby adopts the ALJ's findings, conclusions and recommendation.

Discussion

   [.1,.2,.3] The only issue to be determined at this juncture is whether a sanction is to be imposed against Hutensky for the violations of section 8(e) of the FDI Act which were clearly found by the Court of Appeals.2 In its discussion, the Court found that "Huten-


1The facts of this proceeding are detailed in the Board's Decision and Order and in the opinion of the Court of Appeals for the Second Circuit. Therefore, the Board will summarize here only the facts necessary to explain its decision.

2Respondent argues that use of the phrase "sanctions, if any, to be applied" by the Court of Appeals was intended to suggest that the imposition of no sanction would be appropriate here (emphasis added by Respondent). (Continued)


{{9-30-97 p.A-2854}}sky's conduct in connection with the two loans violated Regulation O," Hutensky, at 1241, n.9, and firmly rejects Hutensky's argument that the Board's Decision and Order erred in finding that "he acted with willful disregard and personal dishonesty with respect to the two [Harding and Reveruzzi] loans," Hutensky, at 1239. The Court specifically did "not see any reason to apply case law construing 18 U.S.C. § 656, a statute providing criminal penalties for misapplication of bank funds," as Respondent argued, Hutensky, at 1240-41. The Court emphatically found "that there is substantial evidence that Hutensky's conduct in relation to the Harding and Reveruzzi loans involved personal dishonesty," and that "Hutensky bypassed the required procedures and received the benefit of the proceeds as a result of his actions, and, therefore, his conduct demonstrated personal dishonesty." Finally, the court also found that "[I]n view of the evidence of Hutensky's extensive experience in law and busines, the fact that his business interests received needed funds from the banks, and his willingness to forego any consideration of whether these personally advantageous deals were consistent with his legal and fiduciary obligations, we agree with the FDIC that Hutensky's actions manifested personal dishonesty, despite his claims that he acted without culpability," Hutensky, at 1241.
   In the face of these determinations, Respondent argues that mitigating factors favor the FDIC refraining from imposing a prohibition order. Hutensky urges consideration of the "highly technical nature of the regulatory violation at issue, and the difficulty of the legal question presented." He then lists a series of "facts" which "suggest that a prohibition order would be an unnecessarily severe sanction." Finally, he cites five "equitable considerations" which support the imposition of no sanction: (1) he has had a beneficial influence on the policies and practices of the banks; (2) he has performed community service; (3) he has been already adversely affected by this proceeding; (4) he did not declare bankruptcy; (5) he does not desire to become a participant in the banking industry, Hutensky Br. at 8–14.
   The regulatory violations with which Hutensky was charged are neither technical, nor complex. The legal questions posed are not "difficult," but rather, are straightforward, as found by the Court of Appeals. The ALJ found that the "mitigating factors cited by Hutensky are specious," and the Board agrees, R.D. at 9.
   The Board adopts the ALJ's findings and conclusions with respect to each of the arguments made by Respondent, but specifically notes Respondent's claim that he has already been "effectively punished for his involvement in the Harding and Reveruzzi loans," because of its importance, Hutensky Br. at 10. Section 8(e) of the FDI Act is a remedial, not a punitive statute. While a bank director who abuses his position of trust may become a respondent in a section 8(e) case and experience adverse effects as a byproduct of the action against him, section 8(e) serves solely to protect the banking industry from the predatory behavior of bank insiders. To overlook all of Respondent's seriously improper acts at this point would be, as the ALJ points out, to advise all future respondents that they could safely take their chances at hearing, at the agency final decision level, and even at the appellate court level, and then expect to negotiate a consent order so as to avoid the stigma of public exhibition of their improper activities and the sanction of being subject to an order of prohibition. Declining to issue an order of prohibition or limiting it in any manner would weaken the statutory agencies in protecting the public interest, and with respect to the FDIC, the viability of the Bank Insurance Fund, by lessening the deterrent effect of agency enforcement actions.

   [.4] Because FDIC Enforcement Counsel has established the elements of a violation of section 8(e) of the FDI Act based upon the conduct related solely to the Harding and Reveruzzi loans, as found by the Board and by the Court of appeals, and because there are no mitigating factors present, the imposition of an order of prohibition against Respondent is appropriate.

ORDER OF PROHIBITION

   For the reasons set forth above, and pursuant to section 8(e) of the Federal Deposit


2 Continued:Respondent reads too much into the Court's effort to be fair to him. As noted by FDIC Enforcement Counsel, the Board's Decision and Order of May 3, 1995, imposed the sanction of prohibition based on three transactions. The Board did not explicitly state, although it could have, that each of the violative transactions standing alone was sufficient basis to issue a prohibition order. The Board assumes that the absence of such a statement is the reason for the remand.

{{9-30-97 p.A-2855}}Insurance Act, 12 U.S.C. § 1818(e), it is hereby ORDERED that:
   1. Allan Hutensky shall not participate in any manner in the conduct of the affairs of any insured depository institution, agency or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), without the prior written consent 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); and
   2. Allan Hutensky shall not solicit, procure, transfer, attempt to transfer, vote, or attempt to vote any proxy, consent or authorization with respect to any voting rights in any financial institution, agency, or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), without the prior written consent 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); and
   3. Allan Hutensky shall not violate any voting agreement with respect to any insured depository institution, agency, or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), without the prior written consent 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); and
   4. Allan Hutensky shall not vote for a director, or serve or act as an institution-affiliated party, as that term is defined in section 3(u) of the FDI Act, 12 U.S.C. § 1813(u), of any insured depository institution, agency, or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), without the prior written consent 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).
   This ORDER will become effective thirty (30) days from the date of its issuance.
   The provisions of this ORDER will remain effective and in force 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 8th day of July 1997.

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