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{{6-30-98 p.A-2892}}
   [5247] In the Matter of Charles E. Baker, James E. Baker, and Thomas W. Keating, Community Bank, Granbury, Texas, Community Bank, Rockwall, Texas, and Farmers & Merchants State Bank, Burleson, Texas, Docket No. 92-86e (4-17-98).

   FDIC denies report to modify order of prohibition from further participation.
   [.1] Modification of Orders—Voting Rights
   [.2] Evidence—Prior Breach of Fiduciary Obligations
   [.3] Modification of Orders—Risk to Bank Credibility

In the Matter of
CHARLES E. BAKER,
JAMES E. BAKER,
AND THOMAS W. KEATING,
individually and as
institution-affiliated
parties of
COMMUNITY BANK
GRANBURY,TEXAS
and
COMMUNITY BANK
ROCKWALL,TEXAS
and
FARMERS & MERCHANTS STATE
BANK

BURLESON,TEXAS
(Insured State Nonmember Banks)

DECISION AND ORDER DENYING
APPLICATION TO MODIFY ORDER OF
PROHIBITION FROM FURTHER
PARTICIPATION

FDIC-92-86e

STATEMENT OF THE CASE

Introduction
   On April 1, 1997 Charles E. Baker ("Respondent" or "Respondent Baker"), through a letter ("Application") addressed to Keith W. Seibold, Regional Director of the Dallas Regional Office of the Federal Deposit Insurance Corporation ("FDIC"), made application to the FDIC for written consent to a modification of the Order of Prohibition from Further Participation ("Order of Prohibition") entered on June 25, 1992. Respondent by his application seeks to remove any and all restrictions on his ability to vote his {{6-30-98 p.A-2893}}6.8 percent stock ownership interest in Community Bankers Inc., a registered multibank holding company ("CBI"), which owns 100% of Community Bank, Rockwall, Texas ("Rockwall Bank") and Community Bank, Granbury, Texas ("Granbury Bank") (collectively the "Banks"), institutions regulated by the FDIC. This Application arises under section 8(e)(7)(B) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(e)(7)(B) and section 8(j) of the Act, 12 U.S.C. § 1818(j).

Background

   On February 20, 1991 Respondent owned 42 percent of the outstanding stock of CBI and was the Chairman of the Board, a director and controlling shareholder of Rockwall Bank and Granbury Bank. In addition, Respondent owned in excess of 25 percent of the outstanding stock in Farmers & Merchants State Bank, Burleson, Texas, ("Burleson Bank") which has since been merged into Granbury Bank. The Respondent authorized several loan transactions on February 20, 1991 with Granbury Bank, Burleson Bank and Rockwall Bank which resulted in alleged violations of Regulation O, 12 C.F.R. § 215.4(c), unsafe and unsound practices and breaches of fiduciary duty to the Banks.
   On May 12, 1992, the FDIC issued a Notice of Intention to Prohibit from Further Participation ("Notice") pursuant to section 8(e) of the Act against Respondent alleging multiple violations of law, regulations, unsafe and unsound banking practices, willful and continuing disregard for the safety and soundness of the Banks, and a lack of fitness to participate in the conduct of the affairs of any financial institution.
   On May 29, 1992, Respondent consented to an Order or Prohibition. The Order of Prohibition was issued on June 25, 1992.

   The Application

   [.1] By letter dated April 1, 1997 as supplemented by letter dated July 17, 1997, Respondent made application to the FDIC for written consent to a modification of the Order of Prohibition. By his Application, Respondent sought to modify the language of the Order of Prohibition to eliminate any and all restrictions on his ability to vote his 6.8 percent stock ownership in CBI. To achieve this goal, he proposed to substitute present Paragraph 1 of the Order to wit:

    1. Charles E. Baker 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
       voting for a director, or serving or acting as an institution-affiliated party.
with the following language:
    1. Prior to
    (a) participating in any manner in the conduct of the affairs of any financial institution or organization enumerated in Section 1818(e)(7)(D) of the Federal Deposit Insurance Act (the "Act"); or
    (b) serving or acting as an institution-affiliated party, Baker shall request prior written approval of the FDIC and the appropriate Federal financial institutions regulatory agency."
Respondent proposes to make the modified Order effective immediately.
   In support of his Application, Respondent explains that anonymous letters have been circulating throughout the Granbury, Texas area attacking and questioning leadership of the Granbury Bank because of its prior association with Respondent.1 The Application states that modification of the Order is necessary for CBI and the Banks to properly defend themselves from such attacks because Respondent's ability to vote his CBI

1 Although Respondent currently owns a 6.8 percent interest in CBI, the Respondent's wife, from whom he was divorced on December 30, 1991 and to whom he was subsequently remarried on January 2, 1996, owns over 50 percent of CBI as a result of the 1991 divorce decree and subsequent purchase, sale and exchange transactions.
{{6-30-98 p.A-2894}}stock, combined with his ability to state, "I am not barred for life from banking, I must simply seek prior FDIC approval to work for a bank," will provide an effective rebuttal to the attacks. In addition, the Application argues that modification would allow Respondent "to regain respectability, honor and pride" by permitting him to "reclaim the title of banker so that he can live out the remaining years of his life without the negative implication associated with the Order of Prohibition."

Findings of Fact

   The Application for modification of the Order sets out several grounds for requesting such relief. Respondent alleges that anonymous letters have been circulating throughout Granbury, Texas questioning the leadership of Granbury Bank because of its prior association with Respondent Baker and attempting to induce Bank customers to withdraw their deposits. Respondent claims these attacks could ultimately pose a risk to the FDIC insurance fund because they could have a negative effect on the financial position of the Bank. Respondent states that "if negative publicity about Mr. Baker was never raised by competitors or other members of the community in an effort to harm CBI and the Banks, this [application] would not be submitted."
   The FDIC, however, finds that the facts do not support this contention.
   Although Respondent makes allegations of anonymous and defaming letters, no letters or other evidence were provided to the FDIC. Nevertheless, even assuming Respondent's allegations are true, it is difficult to imagine how modification of the Order to permit Respondent to vote his shares could effectively counter attacks against CBI and the Banks. Indeed, permitting Respondent to assume a more active role in CBI would more likely have the unintended effect of adding the appearance of credibility to these allegations through a closer association with the Bank.

   [.2] The facts support the conclusion that increased participation by the Respondent could result in additional controversy within the local community and indirectly affect CBI and the Banks. At least one lawsuit containing significant allegations of breach of fiduciary obligations recently concluded against Respondent. On or about December 8, 1994 a civil jury found the Respondent liable for breach of fiduciary obligations for failing to fully and completely disclose all material facts regarding a transfer by the Bank of certain mineral interests for the benefit of the Respondent, President of Citizens State Bank, Princeton, Texas at the time. In answer to certain special issue questions, the jury found that Respondent acted knowingly or recklessly with respect to the mineral interest of the Bank and in willful, wanton or malicious disregard of its rights and accessed actual and punitive damages in excess of $270,000 against Respondent. Subsequent to the verdict, the parties reached a settlement agreement that reversed the mineral interest transfer and awarded certain mineral interest income to the Plaintiff. Although circumstances giving rise to the 1994 jury verdict initially occurred in 1982, financial benefits derived from the actions made the basis of the lawsuit, flowed to Respondent until settlement of the matter in July 1995. When asked to comment on the lawsuit, which was undisclosed by Respondent but discovered during the course of the investigation of this Application, Respondent simply responded that the property was returned to the Bank and the case resolved with no loss to the Bank. Although an accurate reflection of the ultimate result, this is hardly a satisfying explanation of the facts and circumstances surrounding the lawsuit and an excellent example of the continuing controversy surrounding Respondent. Permitting the Respondent to modify the Order of Prohibition while still embroiled in matters such as this recently concluded lawsuit could only lead to more controversy.
   Respondent also argues that modifying the Order of Prohibition will provide him with a means of validating his career by lessening the detrimental impact of the Order of Prohibition. Voting CBI stock will provide Respondent with the opportunity to "regain some measure of respectability, both personally and within the banking community." Toward this end, Respondent describes volunteer work for the American Cancer Society, Habitat for Humanity and considerable time spent caring for his family.
   The FDIC, however, finds that while modifying the Order of Prohibition would benefit the Respondent, the facts do not support such an action.

   Decision and Order

   Upon review of the record as a whole, the FDIC finds that Respondent Baker has failed {{10-31-03 p.A-2895}}to present any persuasive evidence of persuasive argument which meets the burden for obtaining consent from the FDIC to modify the Order of Prohibition to become an institution-affiliated party pursuant to section 8(e)(7)(B) of the Act, 12 U.S.C. § 1818 (e)(7)(B).
   Section 8(e)(7)(B) of the Act states in pertinent part:

    (7) INDUSTRYWIDE PROHIBITION—
    (B) EXCEPTION IF AGENCY PROVIDES WRITTEN CONSENT.—
    If, on or after the date an order is issued under this subsection which removes or suspends from office any institution-affiliated party or prohibits such party from participating in the conduct of the affairs of an insured depository institution, such party receives the written consent of—
       (i) the agency that issued such order; and
       (ii) the appropriate Federal Financial institutions regulatory agency of the institution described in any clause of subparagraph (A) with respect to which such party proposes to become an institution-affiliated party,
       subparagraph (A) shall, to the extent of such consent, cease to apply to such party with respect to the institution described in each written consent.
   To meet this burden, Respondent must demonstrate: (1) his fitness to participate directly or indirectly in the conduct of the affairs of an insured depository institution; (2) that his participation would not pose a risk to the institution's safety and soundness; or (3) that his participation would not erode public confidence in the institution. See In the Matter of Charles E. Floyd, FDIC ENFORCEMENT DECISIONS AND ORDERS, Par. 5177, A-1976 (1992); In the Matter of Frederick M. Pfeiffer, FDIC ENFORCEMENT DECISIONS AND ORDERS, Par. 5193A, A-1656; Docket No. FDIC-83-153e, FDIC ENFORCEMENT DECISIONS AND ORDERS, Par. 5117, A-1303 (1988).

   [.3] Respondent has produced no persuasive evidence to support his Application, only allegations that anonymous persons are attacking the credibility of the Banks and some evidence of charitable work. With regard to his activities after the Order, the Respondent provides some evidence of rehabilitation but fails to provide sufficiently persuasive evidence he is now fit to participate directly in the conduct of the affairs of CBI and the Banks through voting. Assuming the existence of the anonymous letters, to permit Respondent a more active association in the affairs of CBI and the Banks might only add unintended credibility to these allegations. At a minimum, his presence would be disruptive. Anonymous attacks against the Banks, Respondents recently concluded jury trial and his past problems persuade us that a closer association at this time between Respondent, CBI and the Banks would be controversial within the local community and erode public confidence in the Banks.
   Finally, telephonic contact with representatives of the Texas Department of Banking on October 6, 1997 disclosed that the agency does not support any current modification of the Order of Prohibition.
   Accordingly, the Application dated April 1, 1997 is hereby DENIED.
   Pursuant to delegated authority.
   Dated at Washington, D.C. this 17 day of April, 1998.

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