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FDIC Enforcement Decisions and Orders

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   [5270] In the Matter of Marsha Yessick, Cornerstone Community Bank, Chattanooga, Tennessee, Docket No. 00-050k (6-3-03).

   Respondent is ordered to pay a civil penalty in the amount of $5,000.

   [.1] Civil Money Penalties (CMP)-Statutory Threshold

   [.2] Civil Money Penalties (CMP)- Amount of penalty-Statutory factors

   [.3] Civil Money Penalties (CMP)-Mitigating circumstances

In the Matter of
MARSHA YESSICK,
individually and as an institution-affiliated party of
CORNERSTONE COMMUNITY BANK
CHATTANOOGA, TENNESSEE
(Insured State Nonmember Bank)
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DECISION AND ORDER OF ASSESSMENT OF CIVIL MONEY PENALTY

FDIC-00-050k

I. INTRODUCTION

   This matter is before the Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") following the issuance on February 14, 2003, of a Recommended Decision and Order by Administrative Law Judge Arthur L. Shipe ("ALJ") Assessing a Civil Money Penalty ("Recommended Decision") against Marsha Yessick ("Respondent"). The ALJ found that FDIC Legal Division Enforcement Counsel ("Enforcement Counsel") established the necessary elements, pursuant to sections 8(i)(2) and 18(j) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §§ 1818(i)(2) and 1828(j), to assess a civil money penalty ("CMP") against Respondent in the amount of $5,000. For the reasons discussed below, the Board adopts in full and affirms the Recommended Decision and issues an Order Assessing a $5,000 Civil Money Penalty against Respondent.

II. PROCEDURAL BACKGROUND

   The FDIC initiated this action on October 11, 2001, pursuant to section 8(i) of the FDI Act, 12 U.S.C. §1818(i), issuing a Notice of Assessment of Civil Money Penalty, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice") against Respondent, individually and as an institution-affiliated party of Cornerstone Community Bank, Chattanooga, Tennessee ("Bank"). The Notice charged that Respondent, as a director and institution-affiliated party of the Bank as defined in section 3(u) of the FDI Act, 12 U.S.C. §1813(u), violated sections 23A and 23B of the Federal Reserve Act, as amended, 12 U.S.C. §§ 371c and 371c-1("Section 23A" and "Section 23B"), which are made applicable to insured State nonmember banks by section 18(j)(1) of the FDI Act, 12 U.S.C. §1828(j)(1). Specifically, the Notice alleged that Respondent, by causing or allowing the Bank's holding company to overdraw its demand deposit account with the Bank, extended credit to the holding company without obtaining collateral in violation of Section 23A. The Notice further alleged that, because the holding company was not required to pay overdraft fees or interest on the extensions of credit, Respondent violated Section 23B in that such extensions were made on terms not generally available to the Bank's customers. The Notice also alleged that Respondent engaged in similar violations of Section 23A and Section 23B by causing or permitting the Bank to issue unfunded cashier's checks to the holding company's principal shareholder without obtaining a promissory note from the holding company or requiring the holding company to pay interest to the Bank.

   Although issued on October 11, 2001, the Notice was not officially served on Respondent until January 9, 2002. Respondent answered the Notice on January 28, 2002, and submitted an amended Reply on April 14, 2002.

   Subsequently, both parties filed motions for summary disposition. On July 31, 2002, after Enforcement Counsel, in its reply to Respondent's motion for summary disposition, raised new allegations concerning Respondent's role on the Bank's audit committee and Respondent objected to the new allegations, the ALJ ordered that allegations not raised in the Notice could not properly be considered part of the proceeding unless made subject to an amended Notice. Thereafter, on August 6, 2002, Enforcement Counsel issued an amended Notice including allegations that Respondent, in her role as a member on the Bank's Audit Committee, caused and/or permitted the violations of Section 23A and Section 23B. Respondent replied to the amended notice on August 19, 2002, denying all allegations of misconduct against her.

   A three-day oral hearing was held October 8–10 in Chattanooga, Tennessee. Enforcement Counsel presented evidence through four witnesses. Respondent, who acted as her own counsel throughout the proceedings, did not testify but presented three witnesses on her behalf.

   Following the parties' submission of post-hearing briefs and proposed findings of fact and conclusions of law and reply briefs, the ALJ issued his recommended decision. On March 17, 2003, Respondent filed Exceptions to the Recommended Decision and requested Oral Argument in this matter, or, in lieu of oral argument, a stay, modification, termination or setting aside of the recommended order ("Stay Request"). On March 27, 2003, Enforcement Counsel filed a Response in Opposition to Respondent's Request for Oral Argument.
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Request for Oral Argument

   The grant of a request for oral argument is an extraordinary matter within the discretion of the Board. In the Matter of Ronald J. Grubb, FDIC Enforcement Decisions and Orders ¶5181, A-2008 (1992); 1992 WL 813163, at *2. In the instant proceeding, the Board has a complete transcript of the hearing, a full set of exhibits submitted by both parties, as well as pleadings, briefs and other written submissions filed by the parties which, in the Board's view, adequately state the factual and legal contentions of both sides. For this reason, the Board sees no reason why it cannot make its determination based on the written record before it. Therefore, after considering Respondent's Stay Request and the entire record in this matter, the Board finds that (1) the factual and legal arguments are fully set forth in the parties' submissions, (2) no benefit will be derived from oral argument, and (3) Respondent will not be prejudiced by the lack of oral arguments. The Board therefore declines to exercise its discretion under section 308.40 of the FDIC's Rules of Practice and Procedure ("FDIC's Rules"), 12 C.F.R. §308.40, and denies Respondent's Request for Oral Argument. See, e.g. id.; In the Matter of the Bartlett Farmers Bank, FDIC Enforcement Decisions & Orders ¶5220, A-2505 (1994); 1994 WL 711717, at *3.

Request for Stay

   The Board also considered Respondent's Stay Request. A stay pending judicial review is an extraordinary action committed to the discretion of the FDIC. Section 8(h)(3) of the FDI Act, 12 U.S.C. §1818(h)(3), provides that the commencement of proceedings for judicial review shall not, unless specifically ordered by the court, operate as a stay of any order issued by the appropriate federal banking agency. See 12 C.F.R. §308.41; In the Matter of Stanley R. Hendrickson, FDIC Enforcement Decisions and Orders ¶5238, A-2797-2998 (1996), 1996 WL 627770, at *1. At this point, however, until such time as Respondent files a timely appeal from this Final Decision and Order, her Stay Request is premature. Moreover, the Board's decision to adopt in full the ALJ's Recommended Decision and Order effectively denies Respondent's request to terminate, modify or set aside the ALJ's decision.

III. DISCUSSION

A. Factual Overview

1. Bank Structure

   Because the ALJ provided a detailed and well-reasoned opinion replete with citations to the record, the Board finds it unnecessary to reiterate in full the contents of the Recommended Decision. The discussion below, however, provides a description of the context in which Respondent's violations occurred.

   Respondent, a Chattanooga business owner and an active member of local, civic, and business groups, was elected to the Bank's board of directors and appointed to its Audit Committee in the latter part of 1996, not long after the Bank first opened for business. R.D. at 2–3; FDIC Exh. 75, p. 8.1.1 In October 1997, the Bank of East Ridge, which was owned by a holding company, East Ridge Bankshares, merged into the Bank. R.D. at 2–3; Tr. Vol. 1 at 125. As a result of the merger, East Ridge Bankshares became the owner of the Bank but its name was changed to Cornerstone Bankshares, Inc. ("the Holding Company"). After the merger, Respondent was a director of both the Bank and the Holding Company and a member of the Bank's Audit Committee. R.D. FOF ¶6; Tr. Vol. 1 at 82. Respondent's violations relate to transactions between the Bank and the Holding Company. R.D. at 3.

2. Internal Audit Deficiencies

   From its inception, the Bank was criticized by regulators for deficiencies in its internal audit function. In January 1997, less than a year after the Bank first opened for business and before the merger, the FDIC commenced a safety and soundness examination of the Bank's books and records as of


1 Citations to the record shall be as follows:
Recommended Decision — "R.D. at —"
ALJ's Finding of Fact — "R.D. FOF ¶ —"
Transcript — "Tr. Vol. — at —"
FDIC Exhibits — "FDIC Exh. — "
Respondent's Exhibits — "Resp. Exh —"
Respondent's Exceptions — "Resp. Except. at —"
Notice — "Notice ¶ —"
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   September 30, 1996. Although the Bank received an overall CAMEL rating of 2, the examination report included findings that the Bank's Audit Committee was not active in 1996 and that the Bank had not implemented an internal audit program. R.D. FOF ¶8; FDIC Exh. 75 at 1.1, 8.2. During a February 18, 1997 meeting, the FDIC Examiner-In-Charge ("Examiner") notified the Bank's board that a functioning Audit Committee was needed. R.D. FOF ¶9; Tr. Vol. 1 at 39–40; FDIC Exh. 75 at 15.

   Yet when FDIC examiners returned to the Bank in August 1998, for a safety and soundness examination of the Bank's books and records as of June 30, 1998, they found that that although internal audit procedures had been adopted in July 1998, the criticized areas had not improved and that "[i]nternal audit is non-functioning." R.D. FOF ¶11; FDIC Exh. 76 at 1. The examiners also noted that although the Audit Committee met once in 1997, minutes were not maintained. FDIC Exh. 76 at 1, 6, 29–30. Even Bank management admitted that only minimal internal controls were in place. R.D. at 7; FDIC Exh. 33, p.2. The 1998 examination report included many findings relating to lack of internal controls and audit deficiencies, noting, among other things, a failure on the part of management to adequately direct and supervise, and lack of a written procedures manual for internal audit guidance. R.D. FOF ¶11; FDIC Exh. 76 at 1, 6, 39. It was during the course of the 1998 examination that Section 23A and Section 23B violations were discovered. R.D. at 7.

   Before discussing the violations, however, the Bank's conduct in the aftermath of the 1998 examination must also be considered because, despite the revelation of legal violations and sharp regulatory criticism two years in a row for the same deficiencies, the Bank continued to operate with a noted lack of internal audit controls. R.D. at 8–9. After the violations were found, the Examiner recommended the assessment of civil money penalties against each of the Bank's directors. R.D. at 7; FDIC Exh. 36; Tr. Vol. 2 at 208. While no immediate steps were taken in that regard, the Bank, in November 1998, entered into a Memorandum of Understanding ("MOU") which required, among other things, that the Bank "implement internal audit procedures." R.D. at 8; FDIC Exh. 50 at ¶12.

   When the FDIC examiners returned to the Bank in June 1999 to participate in a joint examination with the Tennessee Department of Financial Institutions examiners, they found that the deficient areas remained unimproved. R.D. at 8. The 1999 report of examination ("joint examination report") included findings of non-compliance with certain aspects of the MOU, deficient internal audit function, failure on the part of the audit committee to properly address the internal audit function, and a lack of minutes or quarterly meetings of the Audit Committee. R.D. at 8–9; R.D. FOF ¶¶29–30; FDIC Exh. 77 at 3, 13, 27.

3. Violations of Section 23A and Section 23B

a. Overdrafts

   The Holding Company maintained a demand deposit account with the Bank. During the 1998 examination, it was discovered that the Holding Company's account was overdrawn by $36,607 between January 8 through April 7, 1998, and by $22,444 between May 5 and May 26, 1998. As found by the FDIC examiners and by the ALJ, these overdrafts, which were not collateralized and bore no interest, amounted to extensions of credit in violation of Section 23A and Section 23B of the Federal Reserve Act. R.D. at 5; FDIC; R.D. FOF ¶¶12–20; FDIC Exh. 76 at 35. Specifically, Respondent, as a director of the Bank, caused or allowed the Bank to extend credit to the Holding Company in violation of Section 23A by permitting the Holding Company to remain overdrawn without requiring securitization.2 R.D. FOF ¶17. By the same token, Respondent, in violation of Section 23B, caused or allowed the Holding Company to remain overdrawn under terms not available in comparable transactions with non-affiliated parties, as it was not required to pay fees, or interest, or to execute a promissory note. R.D. FOF ¶18.3 2 Section 23A(c), made applicable to state nonmember banks by section 18(j)(i) of the FDI Act, 12 U.S.C. §1828(j)(1), requires that each loan, extension of credit, guarantee, acceptance or letter of credit issued on behalf of an affiliate by a bank or its subsidiary be secured at the time of the transaction by collateral of at least 100% of the amount of such transaction. 12 U.S.C. §371c(c)

   3 Section 23B, made applicable to state nonmember banks by section 18(j)(i) of the FDI Act, requires that any loans or extensions of credit between affiliates must be on terms and under circumstances that are substantially the same or at least as favorable as those prevailing at the time for comparable transactions with or involving non-affiliated companies. 12 U.S.C. §371c-1(a). In this case, the Holding Company did not reimburse the Bank for these overdraft charges and interest until December 1998, following notification of the violations by the FDIC examiners. R.D. FOF ¶19; FDIC Exh. 12 at 000176.
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b. The Young Puts

   As part of the merger transaction between the Bank's predecessor and the Bank of East Ridge, the Holding Company entered into a separate agreement with David E. Young ("Young"), the principal shareholder of the Bank of East Ridge's holding company, which permitted Young to put to the Holding Company certain amounts of his shares over a three-year period from 1998 through 2000. R.D. at 16. To exercise his put options, Young was required to notify the Holding Company of his intent in writing by March 1 of the respective year. Upon receipt of the notice, the Holding Company was required to redeem the stock within 30 days. R.D. at 4; R.D. FOF ¶21; FDIC Exh. 4.

   Although Young apparently did not provide the required written notice beforehand, he purported to exercise his puts, on March 23, 1998, by presenting a number of shares to Timothy Hobbs ("Hobbs"), who was then president of both the Bank and the Holding Company. In return, Hobbs issued two Bank cashiers checks to Young and a related affiliate, totaling $400,107.35 ("the cashier's checks"). Although the Holding Company was listed on the checks as the remitter, the Bank actually funded the checks because the Holding Company account was at that time overdrawn. The amount of money involved in these extensions of credits represented by the cashier's checks far exceeded Hobbs's lending authority. R.D. at 9. The Bank recorded the amounts due first in its general ledger as miscellaneous receivables but later moved the entries to a Due From Banks account. Finally, in September 1998, a group of the Bank's directors, using proceeds from a loan they obtained from another bank, bought the stock previously tendered by Young in order to clear the Holding Company's debt to the Bank. R.D. at 4; R.D. FOF ¶¶20-24; FDIC Exh. 76 at 36.

   The FDIC examiners and the ALJ concluded that the cashier's checks were extensions of credit from the Bank to the Holding Company and further determined that Respondent caused or allowed the Bank to violate Section 23A in that the Bank failed to secure the extensions of credit before it issued the cashier's checks. R.D. FOF ¶25–27; Tr. Vol. 1 at 145; FDIC Exh. 76 at 35–36. They also concluded that Respondent caused or allowed the Bank to violate Section 23B because she never sought to have the Bank obtain a promissory note from the Holding Company or require the Holding Company to pay interest or principal on the loan. R.D. FOF ¶28; FDIC. Exh. 12 at 00176.

B. Legal Analysis: Assessment of a CMP Pursuant to Section 8(i) is Warranted

   The Board finds that based on the Bank's violations of Section 23A and Section 23B, an assessment of a CMP against Respondent is appropriate. The pertinent factors are briefly analyzed below.

   [.1] 1. Statutory Threshold

   One of the statutory tools provided to the FDIC to make certain that bank directors comply with their fiduciary obligations is the imposition of CMPs for their violations or a bank's violations of law or regulation. See Lowe v. FDIC, 958 F.2d 1526 (8th Cir. 1992). Pursuant to section 8(i) (2) (A) of the FDIC Act, the FDIC has authority to impose CMPs by tiers in terms of the gravity of the offense and concomitant severity of the penalty. In this case, the FDIC sought to impose what is known as a First Tier CMP against Respondent as a result the Bank's violations of Section 23A and Section 23B.

   Unlike the imposition of Second or Third Tier CMPs, which require increasingly higher elements of proof, the assessment of a First Tier CMP requires only one element of proof — that a violation occurred. 12 U.S.C. §1818(i)(2)(A). In other words, to assess First Tier penalties, it is not necessary to demonstrate either knowledge or intent. Id.; R.D. at 6. Because no knowledge or culpability is required for the imposition of a First Tier CMP, Respondent cannot escape liability based on her claim that she did not know of violations until after they occurred. As the court in Lowe observed, "if a director's liability is triggered by his knowledge, the incentive is not to know too much." Lowe, 958 F.2d at 1536. Thus, the specter of First Tier CMPs should serve to keep directors mindful of their fiduciary obligations.
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   In this case, Enforcement Counsel established and the ALJ found that the Bank and the Holding Company had engaged in transactions which violated Section 23A and Section 23B of the Federal Reserve Act. Respondent, who has readily acknowledged that she did not learn of the violations until FDIC examiners notified the Bank's board, has claimed that as an outside director, she could not possibly have learned of the overdrafts and the cashier's checks as the violations were occurring. Resp. Except. at 3–4. She further argued that because outside directors do not routinely see the Bank's account and reconciliation statements, she could not have learned of the overdrafts before they were discovered by the examiners. Id.

   But Respondent seems to miss the point that although she was not expected to prevent the violations from occurring, had proper audit procedures and internal controls been in place, she could have, as a member of the Bank's board and Audit Committee, discovered and remedied the violations before the FDIC examiners uncovered them. R.D. at 7, 13. Moreover, Respondent cannot claim and has not claimed that she was not notified on many occasions of the regulators' concerns regarding audit and internal control deficiencies. As discussed above and in the Recommended Decision, the Bank's board of directors was notified repeatedly between 1997 and 1999 by the FDIC, the Tennessee Department of Financial Institutions, and its own auditors — both orally and in the reports of examination — that the Bank was operating with sorely insufficient internal controls and audit procedures. Significantly, even after the Bank's board was notified of the violations in 1998, it was cited for the same deficiencies in the 1999 joint examination report. R.D. at 8–9.

   A fundamental duty of a bank board of directors is "to monitor operations to ensure that they are controlled adequately and are in compliance with laws and policies." Pocket Guide for Directors, p. 1. (FDIC 1997). A director cannot ignore this duty even after warnings and expect her inattention to protect her from First Tier penalties when regulatory violations flourish because of her laxity. Moreover, as a member of the Bank's Audit Committee who had been alerted to the Bank's audit deficiencies, Respondent had a heightened duty to follow up on the cited problems. See, e.g., In the Matter of Baker, FDIC Enforcement Decisions & Orders ¶5199, A-2285 (1993); 1993 WL 853609, at *7 (director's failure to inquire, investigate, verify, clarify or explain is a breach of an officer or director's fiduciary duty); In the Matter of Leuthe, 1 FDIC Enforcement Decisions and Orders, ¶5249, A-1235 (1998), 1998 WL 438323, at *13 , aff'd, 194 F. 3d 174 (D.C. Cir. 1999) ("The greater the authority of the director or officer, the broader the range of his duties; the more complex the transaction, the greater the duty to investigate, verify, clarify and explain.") . In the Matter of ***, FDIC Docket No. 80-35K, Adjudicated Decision ¶5004-A-53 (1980); 1980 WL 140861, at *19 ("[N]either the Board's passivity nor its lack of knowledge concerning overdrafts will excuse it from [the statute's] reach.").

   [.2] 2. The $5,000 CMP Assessment is Warranted

   Because the statutory requirements authorizing the assessment of the CMP have been met, the appropriate amount of the penalty can be calculated. Leuthe ¶5249, A-2965. Pursuant to section 8(i)(2)(A) of the FDI Act, 12 U.S.C. §1818(i)(2)(A), the agency may assess a First Tier CMP against an institution or an institution-affiliated party of as much as $5,500 for each day during which the violation continued.4 But before assessing a CMP, the FDIC, pursuant to section 8(i)(2)(G) of the FDI Act, 12 U.S.C. §§ 1818(i)(2)(G), and section 308.132(b) of the FDIC's Rules, 12 C.F.R. §308.132(b), must consider as possible mitigating factors the financial resources and good faith of Respondent, the gravity of the violations, Respondent's history of previous violations, and other matters as justice may require.

   [.3] As is evident from the record in this case, the Examiner considered the statutory mitigating factors found at 12 U.S.C. §1818(i)(2)(G) as well as the 13-factor analysis found in the Interagency Policy Regarding the Assessment of Civil Money Penalties 4 Section 308.132(c)(3)(i) of the FDIC's Rules adjusted upward the statutory penalty from $5,000 per day to $5,500 per day. 12 C.F.R. §308.132(c)(3)(i). The Board notes that the FDIC Examiner in his May 31, 2002 Affidavit filed in support of his CMP calculation ("Affidavit") mistakenly cited to section 308.116(4) of the FDIC's Rules in referring to the increased daily penalty. Resp. Exh. 19 at 7 n.1. However, his reliance on that provision — which applies only to willful violations of the Change in Bank Control Act — is harmless because the ceiling for First Tier CMPs was increased in both sections to $5,500 per day.
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   by the Federal Financial Institutions Regulatory Agencies, 45 Fed. Reg. 59,423 (Sept. 9, 1980) ("Interagency Policy").5 FDIC Exh. 36. The Examiner found and Respondent agreed that Respondent had sufficient resources to pay the $5,000 CMP. Tr. Vol. 3 at 373–374; Resp. Exh. 19 at 8. The Examiner also found that Respondent was cooperative with the regulators and showed genuine concern about remedying the Bank's violations. Even though the joint examination report revealed that the Bank still lacked internal audit procedures, Respondent had, upon notification of the Section 23A and Section 23B violations, personally requested that Bank management routinely forward overdraft reports to the Bank's board. FDIC Exh. 37 at 6; R.D. at 14. She was also involved in discharging Hobbs and hiring new management. Resp. Except. at 3, 6; Tr. Vol. 3 at 527.

   Among other factors considered by the Examiner was the length of time the violations remains undiscovered and uncorrected as well as the amount of money—more than $450,000—involved. Resp. Exh. 19 at ¶¶18–19. After reviewing all of the pertinent factors, including the Bank's continued failure to establish an audit program and internal controls in compliance with the MOU, the Examiner recommended that each of the Bank's 14 board members pay a CMP of $5,000. Resp. Exh. 19 at 12.6

   After reviewing the entire record and considering the statutory and regulatory factors, the Board is satisfied that the imposition of a $5,000 CMP against Respondent is appropriate.

C. Respondent's Exceptions

   Respondent has filed Exceptions to the Recommended Decision, some of which have been addressed by the ALJ in the Recommended Decision and by the Board in the discussion above. The issues raised by Respondent's Exceptions can be divided into two categories: (1) challenges to various aspects of the proceedings and the ALJ's findings, and (2) mitigating factors. The Board will address in turn both categories of exceptions.

1. Challenges Regarding the Proceeding

Respondent's Failure to Testify

   Respondent claims that she was disadvantaged because she did not testify at the hearing. Resp. Except. at 2, 8. Although the decision about whether or not to testify was clearly Respondent's choice, she argues that because she is not an attorney and has never participated in a trial, she mistakenly assumed that Enforcement Counsel would have called her as a witness, at which point she would have had the opportunity to tell her story in a narrative fashion. Id. at 2.

   Having considered Respondent's argument, the Board finds that it is for several reasons without merit. First, Respondent, as she was free to do, chose to represent herself in this proceeding.7 Because she decided to proceed pro se, she cannot now claim a disadvantage or use her lack of expertise to 5 The Board notes that the 1980 Interagency Policy cited by the Examiner in his Affidavit was updated in June 1998 and, therefore, should have been referenced by the Examiner. See 63 Fed. Reg. 30,226 (June 3, 1998); Resp. Exh. 19 at ¶19. The Board finds, however, that the Examiner's reliance on the earlier Interagency Policy is inconsequential because the 13 factors cited for consideration in determining a CMP assessment are virtually identical in both versions of the Interagency Policy. The 13 factors contained in the Interagency Policy are:

       1. Whether the violation was committed with a disregard for the law or the consquences to the institution;

       2. The frequency or recurrence of the violations, and the length of time the violation has been outstanding;

       3. The continuation of the violation after the Respondent became aware of it;

       4. Failure to cooperate with the agency in effecting an early resolution of the problem;

       5. Evidence of concealment of the violation or its voluntary disclosure;

       6. Threat of or actual loss or other harm to the institution;

       7. Evidence that participants or their associates received financial or other gain or benefit or preferential treatment as a result of the violation;

       8. Evidence of restitution by the participants in the violation;

       9. A history of similar violations;

       10. Previous criticism of the institution for a similar violation;

       11. The presence or absence of a compliance program and its effectiveness;

       12. The tendency to create unsafe or unsound banking practices or a breach of fiduciary duty; and

       13. The existence of agreements, commitments, or orders to prevent the violations.

   6 Except for the Respondent, each of the Bank's directors agreed, prior to the issuance of the Notice, to pay a $5,000 CMP. R.D. at 5.

   7 Section 308.6(a)(2) of the FDIC's Rules permits a non-attorney to appear on his or her own behalf in FDIC adjudicatory proceedings. 12. C.F.R. §308.6(a)(2).
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   challenge the ALJ's Recommended Decision.8 But more importantly, the Board finds that Respondent was not in fact disadvantaged by her failure to testify. Respondent's factual and legal arguments were fully elicited through her witnesses, her written submissions, her exhibits and her closing argument to the ALJ. Because neither the ALJ nor the Board drew an adverse inference from Respondent's silence, the issue is not material to the Board's decision.9 See In the Matter of Harold Hoffman, FDIC Enf. Decisions & Orders ¶5140, A-1494 (1989); 1989 WL 609345, at *7.

Duration of the Violations

   Respondent also asserts that the FDIC never properly notified her regarding the length of time of the underlying violations. While it is difficult to determine the precise nature of her complaint in this regard, the Board notes that the period of time that each of the overdrafts was outstanding was specifically delineated in the Notice. Notice ¶¶13-20. Moreover, section 8(i) of the FDI Act, 12 U.S.C. §1818(j)(2)(G), plainly states that a CMP may be assessed for each day a violation continues. In addition, because the contents of the Notice fully complied with the requirements of section 308.18(b) of the FDIC's Rules, 12 C.F.R. §308.18(b), Respondent's claim insofar as it appears to attack the sufficiency of the Notice is baseless.

Singled Out

   Respondent also argues that unlike her fellow Bank directors, she was singled out in the amended Notice with additional charges relating to her duties as a member of the Bank's Audit Committee. But in fact, as noted above, each of the Bank's other 13 directors consented to the issuance of a $5,000 CMP against them before any formal Notice was filed. Thus, as expected, because she was the sole Bank director who did not consent to a CMP beforehand, Respondent was the only institution-affiliated party named in the Notice. As discussed above, Enforcement Counsel, pursuant to the ALJ's order, amended the Notice ten months after it was originally issued to include allegations relating to Respondent's Audit Committee duties. There was nothing improper about amending the Notice and, in fact, section 308.20(a) of the FDIC's Rules confers on all parties broad authority to amend pleadings.10 The amendment served to provide additional detail of the charges that were already set forth in the original Notice, to all of which charges Respondent was offered an adequate opportunity to respond. See Leuthe ¶5249 at A-2925; 1998 WL 438323, at *10. Thus, Respondent's due process rights were not violated and her claim that she was deliberately treated differently from her fellow directors is baseless. So long as it was established that Respondent was an institution-affiliated party and that a violation occurred, the agency was free to proceed against her. Id. at ¶5249, A-2923, 1998 WL 438323, at *7 ("[T]he decision to proceed with this matter was an appropriate exercise of the FDIC's discretion and wholly consistent with the legal requirements for the remedies applied.")

Elements of Proof

   Respondent also argues in her Exceptions that some element of intent or willfulness must be shown in order to impose a CMP. Resp. Except. at 8. However, as discussed in greater detail above, the imposition of First Tier CMPs requires just one element of proof — that a violation occurred that can be attributed to the individual charged. In this case, Enforcement Counsel has demonstrated and Respondent has acknowledged that the Bank violated Section 23A and Section 23B. Thus, regardless of intent, a First Tier CMP may be assessed, since in her position as a director, Respondent is an affiliated party to whom the violation is attributable.11 See Fitzpatrick v. FDIC, 765 F. 2d 569, 576 (6th Cir. 1985).

Lack of Knowledge

   In a similar vein, Respondent takes issue with the ALJ's finding that because she was a Bank director, she was 8 The Board notes too that Respondent is not the typical pro se litigant to whom courts normally afford great leniency — an indigent with limited education. See Neitzke v. Williams, 490 U.S. 319,330 (1989). Respondent is a successful businesswoman who could have obtained qualified legal counsel to represent her during this proceeding.

   9 In fact, the Board, in reviewing the record in this case — in particular the hearing transcripts and Respondent's written submissions — is favorably impressed by Respondent's written and oral advocacy skills,, notwithstanding the ruling on the merits of her claims.

   10 The notice or answer may be amended or supplemented at any stage of the proceeding." 12 C.F.R. §308.20(a).

   11 A violation includes "any action (alone or with others) for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation." 12 U.S.C. §1813(v). As discussed above, Respondent's breaches of fiduciary duty and unsafe practices by permitting the overdrafts constituted such violations.
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   likely solicited by Bank management to buy the Young stock and, as such, should have been tipped off about the cashier's checks before the FDIC examiners discovered the overdrafts. Resp. Except. at 1; R.D. at 12–13. Respondent, for her part, flatly denies that she was asked to participate in the Young stock purchase. Id. at 1–2. However, whether or not Respondent knew about the cashier's checks in advance of the examiners' discovery is beside the point. The important detail is that Respondent, as a member of the Bank's board and its Audit Committee, should have learned of the violations at some point before hearing it from the examiners, but that due to lax oversight and the absence of internal controls, she did not.

   For the same reason, Respondent's claim, to the effect that the ALJ erred in assessing the CMP because it was the Bank's president who circumvented the lending limit parameters, is also baseless. Resp. Except. at 3. The fact that the environment allowed for such violations underscores the importance of internal audit controls. The FDIC examiners had warned in 1997 that internal audit functions needed improvement. As a Bank director and a member of the Audit Committee, Respondent is properly held accountable for the violations that might have been prevented (or at least detected much sooner) if Respondent had insisted that the Bank's systems function as they were supposed to. R.D. at 17; FDIC Exh. 76 at 1, 6, 29.

Delays

   Finally, Respondent argues that she has been prejudiced by the FDIC's delay in initiating the formal CMP proceeding against her. R.D. at 9. Respondent is correct that more than four years have passed since she first learned from FDIC examiners of the Section 23A and Section 23B violations. FDIC Exh. 37 at. 3; FDIC Exh. 76 at 7. Although the FDIC considered assessing CMPs against the directors when the violations were discovered in 1998, the FDIC decided not to pursue them at that point. R.D. at 7–8; Tr. Vol. 2 at 208. It was not until after the MOU had been put in place and the joint examination report revealed that the Bank's internal audit program remained woefully deficient, that the FDIC regulators decided to take action. R.D. at 9; Tr. Vol. 3 at 438.

   In February 2000, Respondent and her co-directors received notice from the FDIC Regional Director that the FDIC was considering recommending CMPs against each of them for the 1998 violations. In the spring of 2000, each Bank director except Respondent, instead of going to hearing, settled the matter by signing a Stipulation and Consent to the Issuance of an Order to Pay and agreeing to pay a CMP of $5,000. FDIC Exh. 64.

   Shortly thereafter, Respondent was informed by letter from the Regional Director that the FDIC intended to proceed against her with the civil money penalty assessment pursuant to section 8(i) of the FDI Act. Resp. Exh.18. Fifteen months later, on October 11, 2001, the FDIC issued the Notice, which was served on Respondent three months after that in January 2002.

   The Board notes at the outset that the Notice was filed within the five-year statute of limitations established in Proffit v FDIC, 200 F. 3d 855 ( D.C. Cir. 2000) (FDIC has five years to issue a notice beginning from the date of the transaction or occurrence that gives rise to the enforcement action). Nonetheless, the better practice would have been to issue the Notice earlier in time. The assessment of CMPs against directors for a Bank's legal misconduct will have the maximum regulatory impact if such assessment closely follows the alleged improper conduct.

   Notwithstanding the above, the Board is not persuaded that Respondent was harmed by the delay. In terms of the amount of the penalty, the FDIC demanded nothing more from Respondent in the formal Notice than it asked in 2000 from all of the Bank directors including Respondent. Moreover, Respondent has not claimed and the record does not show that she was harmed by unavailable testimonial or documentary evidence, faulty memory or any of the other circumstances that might arise with the passage of time. Thus, there is no basis for concluding that the ALJ would have made different findings or imposed a lesser penalty had the Notice been filed in 2000 and, as such, the FDIC's delay cannot serve as a basis for disturbing the Recommended Decision and Order.

2. Mitigating Factors

   Respondent's remaining exceptions relate to mitigating factors. As discussed above,
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   the ALJ found that the FDIC had fully justified its CMP assessment in accordance with the statutory and regulatory requirements. R.D. at 14. As described in detail in his affidavit, the Examiner fully considered the mitigating factors set forth in 12 U.S.C. §1818(j)(2)(G) and 12 C.F.R. §308.132(b). He also reviewed and considered the 13 factors set forth in the Interagency Policy. Resp. Exh. 19.

   Based on his analysis, the Examiner concluded that the FDIC could have assessed a total CMP as high as $1.6 million ($5,500 per day for each day that the overdrafts were outstanding). Resp. Exh. 19 at 7. However, after considering the mitigating factors, he arrived at a CMP of a flat $5,000.

   Each mitigating factor raised by Respondent in her Exceptions was addressed by the Examiner. He considered, for example, that she had no prior banking experience and was unfamiliar with the pertinent law. Resp. Except. at 1; Resp. Exh. 19 at 8. He also noted in her favor that she had been cooperative with the FDIC and had taken corrective steps. Resp. Except. at 6; Resp. Exh. 19. at 8, 10. Finally, the Examiner took into account the fact that the Bank had not been previously cited for Section 23A and Section 23B violations. Resp. Except. at 4, 6; Resp. Exh. 19 at 8, 11. Thus, because it is clear that the Examiner carefully considered each of the mitigating factors as it relates to Respondent and the Board has found no basis for second-guessing either his thoughtful analysis or the ALJ's conclusion, each of Respondent's exceptions in this regard are denied. See, In the Matter of Anderson County Bank, Clinton, Tennessee. 2 FDIC Enforcement Decisions and Orders ¶5165A, A-1734.4 (1991) (considerable deference and weight should be given to the opinions and conclusions of FDIC examiners.); accord Sunshine State Bank v. FDIC, 783 F.2d 1580, 1582–83 (11th Cir. 1986).

IV. CONCLUSION

   After a thorough review of the record in this proceeding, and for the reasons set forth above, the Board finds that an Assessment of a CMP against Respondent in the amount of $5,000 is warranted. The Bank's violations of Section 23A and Section 23B were clearly established and the dollar amount of the assessment is appropriate under the statute, even as the Board accepts the ALJ's acknowledgement of Respondent's positive contribution to the Bank.

   Based on the foregoing, the Board affirms the Recommended Decision of the ALJ, adopts in full the findings of fact and conclusions of law included therein, and issues the following Order implementing its Decision.

ORDER TO PAY CIVIL MONEY PENALTY

   The Board, having considered the entire record in this proceeding, taking into account the appropriateness of the penalty with respect to the size of the financial resources and good faith of Respondent, the gravity of the violations and such other matters as justice may require, it is hereby ORDERED and DECREED that:

       1. A civil money penalty is assessed against Marsha Yessick in the amount of $5,000 pursuant to 12 U.S.C. §1818(i).

       2. This ORDER shall be effective and the penalty shall be final and payable 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.

   IT IS FURTHER ORDERED that copies of this Decision and Order shall be served on Marsha Yessick, Enforcement Counsel, the ALJ, and the Commissioner of Banking for the State of Tennessee.

   By direction of the Board of Directors.

   Dated at Washington, D.C., this 3rd day of June, 2003.

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Last Updated 11/16/2003 legal@fdic.gov