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[¶8029] In the Matter of Paul E. Utterback, The Bank of Alton, Alton, Illinois, Docket No. FDIC-93-257e, 93-258k (6-3-94).
FDIC rejects respondent's application for a private hearing, finding no exceptional circumstances requiring privacy to protect the bank's safety and soundness.
[.1] Practice and Procedure—Private Hearing—
Assertion that public hearing would threaten bank's safety and soundness was mere speculation, and was contrary to respondent's earlier claim of great customer loyalty.
In the Matter of
PAUL E. UTTERBACK,
Individually, and as an institution-affiliated party of
THE BANK OF ALTON
ALTON, ILLINOIS
(Insured State Nonmember Bank)
Docket No. FDIC-93-257e
REMOVAL FROM OFFICE AND
PROHIBITION FROM FURTHER
PARTICIPATION
In the Matter of
PAUL E. UTTERBACK,
Individually, and as an institution-affiliated party of
THE BANK OF ALTON
ALTON,ILLINOIS
(Insured State Nonmember Bank)
Docket No. FDIC-93-258k
ASSESSMENT OF CIVIL MONEY PENALTY
DECISION AND ORDER ON REQUEST
FOR PRIVATE HEARING
BACKGROUND
On February 15, 1994, the Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Intention to Remove From Office and to Prohibit From Further Participation ("Notice") and a Notice of Assessment of Civil Money Penalty, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice of Assessment") against Paul E. Utterback ("Respondent") pursuant to section 8(e) and sections 8(i)(2) and 18(j)(4) of the Federal Deposit Insurance Act, §§ 1818(e), 1818(i)(2), and 1828(j)(4). The Notice alleges that Respondent, individually, and as an institution-affiliated party of The Bank of Alton, Alton, Illinois ("Bank"), engaged in unsafe or unsound banking practices, breached his fiduciary duty to the Bank, and violated the Federal Reserve Act and Regulation O. The Notice charges that Respondent has directly or indirectly participated or engaged in violations, unsafe or unsound banking practices and/or acts, omissions, or practices which constitute breaches of his fiduciary duty as a director and officer of the Bank; that the Bank suffered financial loss or other damage; that the interests of its depositors have been prejudiced or could be prejudiced and/or that Respondent has received financial gain or other benefit by reason of such violations, practices, and/or breaches of fiduciary duty; and that such violations, practices, and/or breaches of fiduciary duty demonstrate Respondent's personal dishonesty and/or his willful or continuing disregard for the safety or soundness of the Bank. The Notice of Assessment charges that these violations, practices and/or breaches of fiduciary duty were part of a pattern of misconduct, caused more than a minimal loss to the Bank, and/or resulted in pecuniary gain and/or other benefit to Respondent.
On March 11, 1994, Respondent filed with the Office of the Executive Secretary a request for a private hearing and an enlargement of time to file supporting information and analysis. Respondent's request for additional time was granted by the Acting
{{11-30-94 p.I-101}}Deputy Executive Secretary on March 15, 1994. On March 24, 1994, Respondent submitted a Memorandum in Support of Request for Private Hearing ("Memorandum"). The Memorandum alleges that an open hearing in this case would be contrary to the public interest because adverse publicity generated by a FDIC public hearing in these matters could threaten the Bank's safety and soundness. Respondent also maintains that competitors could capitalize on customer concerns caused by any adverse publicity of these proceedings further threatening the Bank's condition.
FDIC Enforcement Counsel filed their Opposition to Respondent's Request for a Private Hearing on April 4, 1994. On April 11, 1994, the Respondent filed a Response to FDIC's Opposition to Respondent's Request for Private Hearing. On April 18, 1994, FDIC Enforcement Counsel filed a Motion to Strike Response to FDIC's Opposition to Respondent's Request for Private Hearing.1
DISCUSSION
The Federal Deposit Insurance Act, 12 U.S.C. § 1818(u)(2), provides that:
[a]ll hearings on the record with respect to any notice of charges issued by a Federal banking agency shall be open to the public, unless the agency, in its discretion, determines that holding an open hearing would be contrary to the public interest.
This section specifies that a "public interest" test shall be used in determining whether an exception should be made and a private hearing allowed. In In the Matter of The Citizens Bank of Clovis, Clovis, New Mexico, FDIC-91-406b, 2 P-H FDIC Enf. Dec. & Ord. ¶8012 (Mar. 2, 1992), the Board of Directors ("Board") of the FDIC set forth the standard for judging requests for private hearings. Because of the statutory presumption in favor of public hearings, the Board concluded that "private hearings are to be granted under exceptional circumstances and only on the basis of safety and soundness concerns." In the Matter of The Farmers Bank, Windsor, Virginia, FDIC-92-292b, 2 P-H FDIC Enf. Dec. ¶8025 (Dec. 16, 1992). Furthermore, in order to justify a request for a private hearing, "a bank needs to demonstrate in a concrete fashion how the effects of [a particular] proceeding differ so significantly from those involving other banks as to warrant special treatment." (Emphasis added). Clovis, at I-48.
[.1] Upon review under this standard, Respondent has failed to demonstrate that a public hearing will threaten the safety and soundness of the Bank. The Respondent's arguments are speculative and provide no legal basis for granting this request for a private hearing.
Essentially, the Respondent argues that the "adverse publicity generated by a [public] hearing in these matters could very easily undermine the public confidence in the Bank of Alton,...cause unusual deposit withdrawals, and notwithstanding the Bank's extraordinary good capital position, threaten its safety and soundness." Memorandum, p.2. The Respondent asserts that past deposit withdrawals following a prior FDIC investigation of the Respondent reported in a local newspaper is evidence that any adverse publicity of these proceedings against the Respondent could cause "unusual deposit withdrawal," which could threaten the safety and soundness of the Bank despite the Bank's current extraordinarily good capital position. Respondent's assertion of potential harm is based on the fact that the Bank suffered a net loss of eleven accounts and $369,674.21 in deposits (3 percent of asset size) over a 45 day period after adverse publicity related to a prior FDIC investigation. However, the fact that (1) accounts were opened at the Bank and deposits made as well as accounts closed and deposits withdrawn,2 (2) the activity occurred over a substantial time period (45 days), (3) there is little evidence of a specific causal connection between the newspaper articles and the withdrawals,3 and (4)
1Section 308.23(d) of the FDIC Rules and Regulations, 12 C.F.R. § 308.23(d), does not permit the filing of a reply memorandum. However, the Respondent's reply memorandum merely contains duplicative evidence and arguments raised in its Motion. In light of the conclusion reached herein, the motion to strike is moot.
2While thirty-two accounts were closed, twenty-one accounts were opened.
3Although the Memorandum alleges that "some depositors who withdrew funds from the Bank in that period went so far as to expressly inform Respondent that they were doing so because of what they had read in the newspaper about the FDIC investigation," only one supporting affidavit of a Bank depositor was provided in Respondent's request for a private hearing. The sole affiant, Mr. Matsche, does not state that he closed any accounts after reading the newspaper articles. Rather, he states that he withdrew $100,000 from the Bank in October 1992 because he was concerned about the safety and soundness of the Bank.
{{11-30-94 p.I-102}}the volume of such activity does not seem extraordinary for a bank of this size (and there is no specific evidence that it is unusual) refutes Respondent's argument. Therefore, the evidence does not establish a sufficient threat to the Bank to meet the test for a private hearing.4
Respondent also contends that competitors, in particular, a new bank that employs two former officers and directors of the Bank, may be able to capitalize on customer concerns caused by any adverse publicity of these proceedings. This contention is speculative and not unique to the Bank. Moreover, the Respondent's contention is contrary to the evidence of great customer loyalty to the Bank as the Respondent represented to the FDIC in December of 1992, seventy-six days after the newspaper articles were published. In a letter to FDIC, Respondent's former counsel, Stanley M. Huggins, stated that despite the adverse publicity, great customer loyalty to the Bank and Respondent accounted for the Bank's tremendous success in retaining Bank customers after the publication of the newspaper articles. Customer loyalty to the Bank and the Respondent should extinguish any customer concerns relating to possible adverse publicity of Respondent's public hearing and, thereby, prevent competitors from luring customers away from the Bank.
CONCLUSION
The Respondent has failed to provide sufficient evidence that "exceptional circumstances" exist which would cause a public hearing to threaten the safety and soundness of the Bank. Respondent's request for a private hearing is denied.
ORDER
For the foregoing reasons, it is hereby ORDERED that the request for private hearing is DENIED.
Pursuant to delegated authority, upon the advice and recommendation of the General Counsel.
Dated at Washington, D.C., this 3rd day of June, 1994.
4The amount of lost deposits sufficient to pose a threat to the safety and soundness of an institution differs from case-to-case and is not absolute, but is determined by multiple factors such as the institution's financial condition, the state of the economy, and the nature of the deposits.
