Federal Deposit
Insurance Corporation

⁹ Respondent, without citing any legal authority in support of his position, suggests that the July and September 1992 extensions of credit cannot serve as bases for his removal because the actual amount of credit extended in July 1992 was $800,000—an amount which did not in and of itself exceed the $976,000 lending limit but only reached the $1.6 million cited amount when combined with previous extensions of credit made outside the statute of limitations period on the same line of credit. Opp. Brief at 13–14. Respondent's contention is without merit. Regulation O by its own terms prohibits loans to bank insiders "in an amount that when aggregated with the amount of all other extensions of credit by the member bank to that person and to all related interests of that person exceeds the lending limit of the member bank as specified in §215.2(l)." 12 C.F.R. §215.4(c). As such, it is proper to find violations based on an aggregation of loan amounts regardless of when the loans were originated. See, e.g., Fitzpatrick v. FDIC, 765 F.2d 569, 572 (6th Cir. 1984). Thus, regardless of when these transactions originated, so long as the lending limit violations occurred within the statutory period—which they clearly did—these loans may serve as bases for Respondent's removal. To accept Respondent's reasoning would severely undermine the concept of aggregation and create a clearly unintended loophole which would permit bank insiders to structure loans in such a way as to render meaningless the spirit of Regulation O.
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   3. A July 20, 1995, loan in the amount of $763,000 to FPTC, which combined with an outstanding balance of $800,000 on the loan to RVDM and/or the September 9, 1992, $800,000 loan to Respondent exceeded the Bank's lending limit of $814,000;

   4. An August 11, 1995, loan in the amount of $1,350,000 to FPTC, which alone and/or combined with the $800,000 balance on the RVDM loan and/or the $800,000 loan to Respondent exceeded the Bank's lending limit of $814,000;

   5. An October 27, 1995, loan in the amount of $750,000 to NEI, which combined with the $800,000 balance on the RVDM loan exceeded the Bank's lending limit of $854,000;

   6. A November 8, 1995, loan in the amount of $600,000 to FPTC, which combined with the $800,000 balance on the RVDM loan and/or the $750,000 loan to NEI exceeded the Bank's lending limit of $854,000;

   7. A December 18, 1995, loan in the amount of $200,000 to C.T. Produce, which combined with the $800,000 balance on the RVDM loan, the $600,000 loan to FPTC and/or the $750,000 loan to NEI exceeded the Bank's lending limit of $854,000; and

   8. A December 28, 1995, loan in the amount of $800,000 to FPTC, which combined with the $800,000 balance on the RVDM loan, the $600,000 loan to FPTC, the $750,000 loan to NEI and/or the $200,000 loan to C.T. Produce exceeded the Bank's lending limit of $854,000. Id. at 1215–16; R.D. FOF Nos. 351–372.

   In addition to Respondent's misconduct in the form of Regulation O violations, Respondent's wrongdoing in connection with the collateral substitution and PCA transactions is also well documented. See De La Fuente v. FDIC, 332 F.3d at 1221–26. The Ninth Circuit affirmed the Board's findings that Respondent's activities in connection with the collateral substitution and PCA transactions amounted to unsafe or unsound banking practices which demonstrate misconduct under section 8(e). De La Fuente v. FDIC, 332 F.3d at 1222, 1224; see also Simpson v. Office of Thrift Supervision, 29 F.3d 1418, 1425 (9th Cir. 1994) (An unsafe practice is "one which is contrary to generally accepted standards of prudent operation, the possible consequences of which, if continued, would be abnormal risk or loss or damage to an institution, its shareholders, or the agencies administering the insurance funds and that it is a practice which has a reasonably direct effect on an association's financial soundness."). The Ninth Circuit also affirmed the Board's findings that Respondent's participation in the collateral substitution transaction was in breach of his fiduciary duty to the Bank and, as such, also constituted misconduct under section 8(e). De La Fuente v. FDIC, 332 F.3d at 1222. See, e.g., Seidman v. Office of Thrift Supervision, 37 F.3d 911 at 935 n.34 ("A fiduciary's duty of candor is encompassed within the duty of loyalty. The duty of candor requires corporate fiduciaries to disclose all material relevant to corporate decisions from which they may derive a personal benefit."). Thus, as shown, Respondent's activities in connection with the Regulation O violations that occurred after June 11, 1992, as well as his involvement in the collateral substitution and PCA transactions amount to ten instances of misconduct as contemplated by section 8(e).

   [.2]2. Effects

   The record also establishes satisfaction of the "effects" test. As a direct result of the Regulation O violations, Respondent and his related interests benefited by more than $5 million. R.D. FOF 319–401.¹⁰ A loan made

 ¹⁰ This analysis excludes benefits to Respondent and his related entities incurred prior to June 11, 1992.
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   in violation of law to an institution-affiliated party or his related interest, like those to Respondent, has been held to be a benefit in and of itself. See Leuthe ^¶5249, A-2929, 1998 WL 438323, at *15; In the Matter of Wayne Lowe, FDIC Enforcement Decisions and Orders, ^¶5153, A-1537 (1990), 1990 WL 711070, at *8, aff'd, 958 F.2d 1526 (11th Cir. 1992). Thus, each of the eight loans made to Respondent or his related interests in violation of Regulation O resulted in a gain or benefit to Respondent for purposes of section 8(e).¹¹ Id. Moreover, the Ninth Circuit affirmed the Board's finding that Respondent's orchestration of the collateral substitution transaction met the "effects" test established under section 8(e) and found that his involvement in the deal not only caused him to benefit from the sale of the original property but also caused the Bank to suffer losses of more than $700,000. De La Fuente v. FDIC, 332 F.3d at 1221–23. Finally, the Ninth Circuit affirmed the Board's conclusion that Respondent's misrepresentation in connection with the PCA transaction spared him from having to make a capital contribution to the Bank. Id. at 1225–26. Thus, although it is unnecessary to establish both alternatives under the section 8(e) "effects" requirement, the findings in this case demonstrate both a benefit to Respondent as well as a loss to the Bank. See id. at 1226.

   [.3]3. Culpability

   The term "personal dishonesty" as it is used in section 8(e) has been held to mean "a disposition to lie, cheat, defraud, misrepresent, or deceive. It also includes a lack of straightforwardness and a lack of integrity." In the Matter of Allan Hutensky, FDIC Enforcement Decisions and Orders, ^¶5224, A-2566 (1995), 1994 WL 812351 at *26, aff'd. 82 F.3d 1234 (2nd Cir. 1996). The Board finds, as it did in the earlier Decision and Order adopting the ALJ's Recommended Decision, that Respondent engaged in many instances of deceitful behavior. As found by the ALJ, Respondent deliberately concealed from the Bank his control over certain entities and engaged in other dishonest conduct which resulted in the Regulation O violations and the misconduct involved in the collateral substitution and PCA transactions. In the Matter of Roque De La Fuente II, ^¶5265, A-3208, A-3209.

   The Board finds too that Respondent's conduct demonstrates "willful or continuing disregard." Although proof of either willful or continuing disregard is enough to meet the culpability threshold for purposes of section 8(e) of the FDI Act, in this case Respondent's conduct was sufficiently egregious to meet both tests. See, e.g., Brickner v. FDIC, 747 F.2d 1198, 1202–1203 (8th Cir. 1984). "`Willful disregard' means `deliberate conduct which exposed the bank to abnormal risk of loss or harm contrary to prudent banking practices.'" De La Fuente v. FDIC, 332 F.3d at 1223, quoting Grubb v. FDIC, 34 F.3d 956, 961–62 (10th Cir. 1994). In this case, Respondent took deliberate steps—including knowingly misrepresenting facts to the Bank's board and to FDIC examiners—to conceal his related interests and, in so doing, benefited from the Regulation O violations. As for the collateral substitution and PCA transactions, the Ninth Circuit specifically affirmed the Board's conclusion that Respondent's actions in both instances evidenced personal dishonesty and, therefore, satisfied the "culpability" requirement under section 8(e). De La Fuente v. FDIC, 332 F.3d at 1223–24, 1226.

   "Continuing disregard" refers to that conduct which is voluntarily engaged in over time, with heedless indifferences to the possible consequences. Grubb v. FDIC, 34 F.3d at 962; In the Matter of Henry P. Massey, FDIC Enforcement Decisions and Orders ^¶5204, A-2330 (1993), 1993 WL 853749 at *21; In the Matter of Constance C. Cirino, FDIC Enforcement Decision and Orders, ^¶5261, A-3166 (2000), 2000 WL 1131919, at *53–54. The Board finds that Respondent's conduct exemplifies the "willful or continuing disregard" standard. On eight

 ¹¹ Respondent, in his Opposition Brief, argues that many of the transactions in question did not ultimately result in a financial benefit to himself or his related entities and, in certain instances, benefited the Bank. See, e.g. Opp. Brief. at 15–19, 23–25, 31–34. Regardless of whether Respondent's statements on this point are factually correct, his argument is unpersuasive for purposes of this analysis because, as noted, the fact that he was able to obtain loans to his related interests without regard to regulatory limitations was enough of a benefit to satisfy the "effects" test under section 8(e). As the Board noted in Leuthe, "[i]t has been a substantial benefit to Respondent to be able to go repeatedly to the till for funds, without ever giving a thought to lending limit restrictions, approval requirements, collateral requirements, reporting requirements and other statutory and regulatory requirements created to protect depositors from just these abuses." 1998 WL 438323, at *17. ^¶5249, A-2931–A-2932.
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   occasions over a three and a half year period, Respondent deliberately violated Regulation O. See, e.g., In the Matter of Ramon M. Candelaria, FDIC Enforcement Decisions and Orders, ^¶5242, A-2842 (1997), 1997 WL 211341, at *6 ("continuing disregard" found by two nominee loans over a period of six months); In the Matter of Frank E. Jameson, FDIC Enforcement Decisions and Orders, ^¶5154A, A-1541–1542.1, 1542.6 (1990), 1990 WL 711218, at *8, aff'd. 931 F.2d 290 (5th Cir. 1991) (two incidents of falsifying loan records to hide self-serving transactions occurring within three months held to be "continuing disregard"). In addition to our finding here that Respondent acted culpably with respect to the Regulation O violations, the Ninth Circuit affirmed the Board's findings in the Decision and Order that Respondent's participation in the collateral substitution transaction evidenced willful and continuing disregard for the safety and soundness of the Bank and, thus, demonstrated "culpability" pursuant to section 8(e). De La Fuente v. FDIC, 332 F.3d at 1223.

   [.4]B. Mitigating Factors

   Respondent, citing mitigating factors, urges that the Board consider lesser sanctions such as imposing lending restrictions and requiring that he attend remedial courses. Opp. Brief at 35–44. While Respondent's active participation in local civic and business organizations is laudable, these factors do not touch on the issue of his fitness to serve in a regulated industry. Moreover, each of the additional arguments offered by Respondent in favor of mitigation is equally unpersuasive and can be dismissed summarily. For example, Respondent's claim that each of the transactions was approved by disinterested persons (i.e., the Bank's board) is particularly disingenuous as the facts clearly show that, for many of the transactions, Respondent withheld critical information from the board regarding his control over the loan recipients. Likewise, his argument regarding the FDIC's prior review of some of the transactions has already been discounted by the Ninth Circuit. De La Fuente v. FDIC, 332 F.3d at 1220. Moreover, the Board disputes Respondent's claim that he received only minimal benefits as a result of the violations because, regardless of how much or how little he personally profited, Respondent, by placing himself above the law, created an environment where he was in the advantageous but improper position of having ready funds at his disposal for himself and his related entities. Finally, Respondent's claim that he has been punished enough by having been barred from the Bank for three years is not persuasive because, although a respondent may experience adverse effects as the result of being the subject of a section 8(e) proceeding, the statute was designed as a remedial measure to "protect the banking industry from the predatory behavior of bank insiders." In the Matter of Hutensky, FDIC Enforcement Decisions and Orders, ^¶5243, at A-2854 (1997), 1997 WL 557612, at *2.¹²

   Contrary to what Respondent would have the Board believe, his violations were not merely minor technical infractions. Rather, his conduct was deliberate and unremitting, and as such, threatened the Bank and its depositors. There is no room in the banking industry for individuals committing such misconduct. As the Board noted in Hutensky after remand by the Second Circuit:¹³ "Declining to issue an order to 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." In the Matter of Hutensky, ^¶5243, at A-2854, 1997 WL 557612, at *2. (Prohibition order issued upon finding that two loans violated Regulation O). See also, In the Matter of Ronald Grubb, FDIC Enforcement Decisions and Orders, ^¶5181, A-2006 (1992), 1992 WL 813163, aff'd. Grubb v. FDIC, 34 F.3d 956 (10th Cir. 1994) (Prohibition order issued based on respondent's numerous extensions of credit for his related interests.); In the Matter of Stoller, FDIC Enforcement Decisions and Orders, ^¶5174, A-1865 (1992), 1991 WL 789616 (Prohibition order issued based on finding that respondent obtained 11 loans for related interests in violations of Regulation O). ¹² The Board's view regarding the remedial purpose of the statute is consistent with the D.C. Circuit Court of Appeals' ruling in Proffitt v. FDIC, 200 F.3d 855 (D.C. Cir. 2000),—discussed in further detail below—that a removal under section 8(e) constitutes a penalty for purposes of the limitation period established under 28 U.S.C. §2462. As the Court found in Proffitt, "the FDIC's expulsion of Proffitt from the banking industry had the dual effect of protecting the public from a dishonest banker and punishing Proffitt for his misconduct . . . ' Id. at 861.

¹³ Hutensky v. FDIC, 82 F.3d 1234 (2nd Cir. 1996).
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   [.5]C. Statute of Limitations Issue

   On January 21, 2000, shortly before the Recommended Decision was issued in this matter, the District of Columbia Circuit Court of Appeals ruled in Proffitt v. FDIC, 200 F.3d 855, 860–62 (D.C. Cir. 2000), that an action under section 8(e) of the FDI Act imposes a penalty and, therefore, triggers the five-year statute of limitations of 28 U.S.C. § 2462. Before Proffitt—and at the time the Notice in this case was issued on June 11, 1997—the FDIC took the position that 28 U.S.C. §2462 was not applicable to section 8(e) proceedings.

   The Ninth Circuit noted that as a result of Proffitt, a statute of limitations defense would be applicable to each of the four transactions in this case that occurred prior to June 11, 1992. But because Respondent raised the defense only as to a 1990 loan, the Ninth Circuit disallowed only that one transaction. De La Fuente v. FDIC, 322 F.3d at 1219. Although the Ninth Circuit indicated that the three other loans cited in the original Decision and Order which were made prior to June 11, 1992, might be barred as well, it invited the FDIC to exercise its discretion to consider on remand the argument "that the statute of limitations should be equitably tolled to these other loans due to De La Fuente's fraud or concealment." Id. at 1219–20. Because the Board finds that the eight Regulation O violations which occurred after June 11, 1992, along with the collateral substitution and PCA transactions (both of which occurred after June 11, 1992), form more than a sufficient basis to remove Respondent pursuant to section 8(e), the Board finds it unnecessary to consider the statute of limitations issue and declines to do so in this matter.

   After a thorough review of the record in this proceeding, including the Ninth Circuit's decision in De La Fuente v. FDIC, the Board, for the reasons set forth above, finds that an Order of Prohibition is warranted against Respondent. In this case, the record plainly shows that on eight occasions Respondent—in addition to profiting at the Bank's expense by engineering the collateral substitution transaction and the PCA transaction—engaged in a series of self-dealing transactions which resulted in violations of Regulation O. Because he deliberately concealed from the Bank's board and the FDIC his control over the entities involved in the transactions, Respondent was able to continue his misconduct over a period of more than three years.

   Although the Ninth Circuit remanded this case to the Board for consideration of certain legal issues (which have been resolved herein), the Court by no means suggested (as does Respondent in his pleadings) that Respondent was an innocent businessman caught up in a bureaucratic morass created by heavy-handed regulators. On the contrary, the Ninth Circuit was unequivocal in its view that Respondent acted in his own self-interest at the expense of the Bank and other interested parties: "We also cannot help but note that De La Fuente's use of FIB as his personal piggy bank was in shocking disregard of sound banking practices and the law to the detriment of depositors, shareholders, and the public." De La Fuente v. FDIC, 332 F.3d at 1226–27. In view of Respondent's continuing misconduct and, in particular, his purposeful dishonesty, the Board concludes that Respondent must be permanently barred from the banking industry.

   For the reasons set forth above, and pursuant to section 8(e) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e), it is hereby ORDERED that:

   1. Roque De La Fuente II is hereby removed from First International Bank, Chula Vista, California.

   2. Roque De La Fuente II shall not participate in any manner in any 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).

   3. Roque De La Fuente II 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
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   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).

   4. Roque De La Fuente II 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).

   5. Roque De La Fuente II 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).

   Inasmuch as this ORDER is identical to the Order issued by the FDIC Board of Directors on November 21, 2000, and that Order remains in full force and effect, this ORDER shall be effective immediately.

   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 counsel for the parties, the ALJ, the U.S. Court of Appeals for the Ninth Circuit, and the Commissioner of Financial Institutions for the State of California.

   By direction of the Board of Directors.