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   [5274] In the Matter of Richard A. Lawson, First Mountain Bank, Big Bear Lake, California, Docket No. 99-070e(9-8-03).

   The FDIC denied Richard A. Lawson's application to terminate the order of prohibition, finding he failed to meet his burden for obtaining consent from the FDIC to modify or terminate the order.

   [.1] Prohibition, Removal, or Suspension—Motion to Modify—Burden of Proof

   Burden is on applicant seeking to modify or terminate order of prohibition.

   [.2] Rehabilitation—Reemployment application

   Applicant failed to provide adequate information as to his rehabilitation, or information about the firm that offered him a job.

   [.3] Rehearing—Standard for reconsideration

   The purpose of reviewing an application to modify or terminate an order of prohibition is not to re-litigate the merits underlying a final consent order.

In the Matter of
RICHARD A. LAWSON,
individually and as an
institution-affiliated party of
FIRST MOUNTAIN BANK
BIG BEAR LAKE, CALIFORNIA
(Insured State Nonmember Bank)
DECISION AND ORDER
DENYING APPLICATION
TO MODIFY OR TERMINATE
ORDER OF PROHIBITION
FROM FURTHER
PARTICIPATION

FDIC-99-070e
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STATEMENT OF THE CASE

INTRODUCTION

   This application to terminate an existing order of prohibition arises from the FDIC's issuance on December 8, 1999 of an order of prohibition against Richard A. Lawson ("Applicant"), pursuant to his consenting to the issuance of the order. At the time of the underlying misconduct here, the Applicant was senior vice president and loan department manager of First Mountain Bank, Big Bear Lake, California ("Bank").

   The order was based on the Applicant: (A) increasing the overdraft protection line of credit for his personal checking account at the Bank from $2,000 to $35,000 without approval or authorization by the Bank, (B) misappropriating Bank funds to pay his personal expenses, and (C) making false statements on his loan applications for additional credit and overdraft protection at the Bank, by not accurately disclosing his living expenses and other relevant facts.

   Those actions occurred over an 11-month period from 1998 to 1999 and caused the Bank to extend credit to the Applicant, which he knew or should have known that he could not repay. He wrongfully increased his overdraft protection at least 13 times and used the credit to cover checks drawn on his account at the Bank, for personal expenses, and without sufficient funds.

   As a result of that misconduct, the Applicant realized an unlawful gain totaling $51,708, and the Bank suffered a loss of $51,708. The Applicant executed a promissory note, payable to the Bank, which was secured by a third mortgage on a condominium, but has not yet made payment on the note.

BACKGROUND

   The Applicant served as senior vice president and loan department manager of the Bank from April 13, 1998 until March 1, 1999, when he left the bank, following discovery of his misconduct. Prior to working in the Bank, the applicant served as a financial consultant for several years.

   Approximately two-and-one-half years after the FDIC issued the order of prohibition in December 1999, the Applicant filed an undated application, which was forwarded to the FDIC San Francisco Regional Office on August 15, 2002. The application requested the FDIC to terminate the order of prohibition, under sections 8(e)(7)(B) and (j) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §§1818(e)(7)(B) and (j).

   The application stated that the Applicant wished to participate in an unspecified capacity with an unnamed firm or company and that this misconduct consisted mainly of documentation errors and misunderstandings between the Applicant and other Bank employees.

   On August 28, 2002, the FDIC San Francisco Regional Director wrote to the Applicant, asking for additional information on certain items and advising the Applicant that the application was incomplete since he had presented no or inadequate evidence: (A) as to his fitness to participate in the conduct of the affairs of an FDIC-insured institution, (B) that his participation would not pose a risk to the institution's safety and soundness, and (C) that his participation would not erode public confidence in the institution or firm.

   To assist the Applicant in meeting his burden of proof, the Regional Director's August 2002 letter thus requested him to: (A) provide information as to his activities since the issuance of the order of prohibition that evidenced his rehabilitation, (B) identify controls, audits and/or safeguards that would be in place at any firm related to or part of an FDIC-insured depository institution that employed him, (C) disclose whether he had made any prior request to modify or terminate the order of prohibition, and (D) provide any other information relevant to the FDIC's determining whether to terminate the order of prohibition.

   On January 10, 2003, the Regional Director received the Applicant's reply, dated December 2002, which stated that the termination of the order would allow him to "accept employment with a private sector company that has made [him] an offer of employment pending [his] release from [the] order." The Applicant, though, failed again to identify the private firm and did not describe the nature of the duties involved or the nature of the private firm's business. The Applicant's December 2002 letter did note that he wanted to work in the "private financial sector" but not in banking, without addressing whether or not the private financial firm in question was related to an FDIC-insured institution and whether his employment with the private
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   financial firm required that the order of prohibition be modified or terminated.

   In a letter to the Applicant dated March 31, 2003, the Regional Director requested additional information, including evidence of rehabilitation, and stated that the Applicant's December 2002 letter failed to provide additional information on any of the items listed in the Regional Director's August 2002 letter. The Regional Director also advised the Applicant that his supplemental response was incomplete since it failed to provide the information previously requested or provide any of the information required under the Act that would justify termination of the order of prohibition, and that the Regional Office would recommend to the FDIC Director of the Division of Supervision and Consumer Protection that the application be denied unless the Applicant provided the requested information within 45 days, which time-period expired on May 15, 2003. As of this date, the Regional Office has not received any response from the Applicant.

DISCUSSION

   [.1] In matters involving an application to modify or terminate orders of prohibition, an applicant has the burden of establishing: (A) the applicant's current fitness to participate in the banking industry, (B) that the applicant's participation would not pose a risk to an institution's safety and soundness, and (C) that the applicant's participation would not erode public confidence in an institution. In the Matter of Gerald P. Brickner, FDIC Enforcement Decisions and Orders ¶   16,172, pp. TC-371 at TC-373 (June 18, 1997). The Applicant has failed to meet that burden and, as a result, the application is denied for the following reasons.

   [.2] As stated, the Applicant's written submissions to the Regional Director failed to provide adequate information as to his rehabilitation, the name of the financial firm that had offered him a job, the nature of that position, the particular segment of the financial industry in which the firm participated, and any internal controls and limitations that the firm might place on his activities, despite requests from the Regional Director that he provide that information. See 12 C.F.R. §303.3(2003)("The FDIC may require the applicant to submit additional information").

   As a result, the FDIC is justified in denying this application. The FDIC Board of Directors has made clear that the burden is on applicants that seek modification or termination of orders of prohibition and that applicants are to present a complete record. In the Matter of Frederick M. Pfeiffer, FDIC Enforcement Decisions and Orders, ¶   5163A, p. A-1656 at A-1656.2 (Feb. 28, 1991) ("the Board finds that Mr. Pfeiffer has failed to present any sufficient evidence or persuasive argument warranting FDIC approval of his return to banking"). See also In the Matter of ***Bank***, FDIC Enforcement Decisions and Orders, ¶   5117, p. A-1303 at A-1304 (Aug. 9, 1988)("When an individual is making application to obtain Board or Regional Office approval for a particular action, it is incumbent upon that applicant to provide a complete record to the Board or the Regional Office in order to obtain that approval" and rejecting argument that "the Board [had a duty] to request additional information from the applicant to help it in rendering its decision").

   An applicant seeking modification or termination of an order of prohibition bears a "strong burden" of proof as to his or her current fitness to serve in banking, since termination of an order would allow an applicant to return to banking, despite any claim by an applicant to the contrary when submitting an application to the FDIC. That burden is consistent with the fact that "banking [involves] the highest standards of fiduciary duty" involving the life savings of others. In the Matter of Douglas A. Winter, FDIC Enforcement Decisions & Orders ¶   16,180, p. TC-379 at TC-381 & TC-382 (Aug. 20, 1997). See also In the Matter of Stephen F. Redman, FDIC Enforcement Decisions & Orders ¶   5257, p. A-3081 at A-3085 & A-3086 (June 25, 1999) ("Respondent must demonstrate complete rehabilitation so that the FDIC will not need to rely on changed conditions of employment or changed location of employment as the sole bulwark against a repetition of misconduct").

   The focus in proceedings such as this is on an applicant's rehabilitation or current fitness to participate in an FDIC-insured institution and the effect that such participation would likely have on an institution and the public confidence in the institution.

   [.3] The purpose of reviewing an application to modify or terminate an order of prohibition is not to re-litigate the merits underlying a final litigated or consent order (as
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   the Applicant might have attempted to in referring to his actions as a documentation error and as a misunderstanding with other employees at the Bank). Once an order is final and non-appealable, the matter is res judicata for purposes of taking action on applications to modify or terminate the order. See Greenberg v. Board of Governors of the Federal Reserve System, 968 F.2d 164, 168 (2d Cir. 1992) ("res judicata applies to judgments by courts and by administrative agencies acting in an adjudicative capacity"). See also Henry v. OTS, 43 F.3d 507, 512-3 (10th Cir. 1994) (no distinction between litigated and consent orders under 12 U.S.C. §1818(i)(1)); Amal. Sugar Co., LLC v. NL Inds., Inc., 825 F.2d 634, 639 (2nd Cir. 1987) ("The general rule is that a final consent decree is entitled to res judicata effect.   .   .   . This is so because the entry of a consent judgment is an exercise of judicial power [Supreme Court cite omitted] that is entitled to appropriate respect and because of the policy favoring finality of judgments"), cert. den., 484 U.S. 992 (1987).

   In sum, the Regional Director requested the Applicant on two separate occasions to provide evidence of his rehabilitation. The Applicant failed to do so. Thus, the application should be denied.

DECISION AND ORDER

   Upon review of the entire record, the FDIC finds that the Applicant has failed to meet his burden for obtaining consent from the FDIC to modify or terminate the order of termination.

   Accordingly, the Application submitted by Richard A. Lawson, and as supplemented by letter received by the Regional Office on or about January 10, 2003, is hereby DENIED.

   Pursuant to delegated authority.

   Dated at Washington. D.C. this 8th day of September, 2003.

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