4000 - Advisory Opinions
Management Official Interlock
May 7, 1985
Francis X. Grady, Attorney
This is in response to your letter to Ms. Pamela LeCren dated March 15, 1985, concerning the applicability of the Depository Institution Management Interlocks Act ("Interlocks Act," 12 U.S.C. § 3201, et seq.) and Federal Deposit Insurance Corporation ("FDIC") regulations implementing the Interlocks Act (12 C.F.R. Part 348) to an alleged management official interlock between *** Bank (located in ***) and *** Savings and Loan Association (located in ***). Specifically, your letter asked whether certain relationships among ***, his brother *** and *** make *** the representative or nominee of ***. Were the FDIC to determine that there is a representative or nominee relationship, *** service as a director at *** would violate the Interlocks Act.
You state that *** is a federally chartered, FSLIC-insured savings and loan association located in ***, with assets of approximately $99 million. *** is a newly chartered state nonmember bank located in the same *** metropolitan statistical area. You further report that *** is a director of *** Bank, that he owns 5.8% of *** common stock, and that his brother, ***, owns 4.64% of *** common stock. You also allege that ***, who owns .9% of *** common stock, and whom *** nominated to be a director at ***, is a "representative or nominee" of ***. You suggest that *** schedule 13-D securities filing (particularly page 2, item 4) illustrates this "nominee" status perfectly. You ask us to make a preliminary determination that *** is the representative or nominee of ***.
As you know, the Interlocks Act and § 348.3(b) of the FDIC's rules and regulations provide that where two depository institutions are located in the same relevant metropolitan statistical area, they may not share management officials unless both have assets of less than $20 million. Your letter notes that *** has assets over $20 million. The term "management official", as defined by § 202(4) of the Interlocks Act and § 348.2(h) of the FDIC's rules and regulations, includes "a director . . . or any person who has a representative or nominee" serving as a management official. Section 348.2(k) of the FDIC's rules and regulations, in turn, defines representative or nominee to mean "a person who serves as a management official and has an express or implied obligation to act on behalf of another person with respect to management responsibilities." That same subsection continues, "Certain relationships (including family, employment, and agency relationships), or the ability and the exercise of ability by a shareholder of a depository organization to elect a director, may be evidence of such an express or implied obligation." (emphasis added)
Based on the facts your March 15, 1985 letter provided us, we are unable to make a preliminary determination that a representative or nominee relationship exists between *** and ***. The considerations underlying this position include the following.
Turning to the highlighted language in § 348.2(k) ("the ability and the exercise of ability by a shareholder . . . to elect a director''), it is not clear that *** has the ability to elect a director within the meaning of 12 C.F.R. § 348.2(k). As your letter notes, *** has a brother, ***, who owns 4.64% of the common stock shares of ***. 12 C.F.R. § 348.2(b) states that, for the purpose of 12 U.S.C. § 3201, "an individual's shares include shares of members of his or her immediate family''. "Immediate family", in turn, is defined as including a brother. Ibid. With the aggregation of the two brothers' interests, *** is considered to have a 10.44% ownership interest in ***. In the context of a $100 million institution, 10% control likely does not amount to the ability to elect a director. The likely absence of this ability to elect a director militates against the finding of a representative or nominee relationship. Even if *** 10% interest did give rise to the ability to elect a director, that ability may be evidence of a representative or nominee status but does not necessarily result in such a relationship. Although the FDIC has found on several occasions that stock ownership in and of itself will result in a nominee or representative relationship, that finding has only been occasioned by the ownership of at least 50% of the stock of a bank.
The fact that *** was nominated to be a director by *** does not cause *** to be *** representative or nominee. Nor can we agree that *** schedule 13-D filing, by itself, establishes *** as a representative or nominee. That theory is misplaced. The statement in the SEC filing ("*** is seeking to obtain representation on the Board of Directors of United . . .") has no carryover effect for the purposes of the Management Interlocks Act as the purposes underlying the securities statutes and this banking statute are dissimilar.
In brief, your letter would have the FDIC make a preliminary determination of representative or nominee status based on three things: (1) *** 10.44% interest in the bank, (2) the fact that *** placed *** name in nomination, and (3) *** schedule 13D filed with the SEC in which *** indicated that he is seeking representation on the bank's board of directors. As indicated above, we are unable to find that a nominee or representative relationship exists between *** and *** based on the facts as presented in your letter. While the statement in *** schedule 13-D may show that *** wishes to have representation on the board, that desire does not mean that *** will, in fact, constitute *** representative or nominee unless some other facts support that finding. No such facts are present here. This is not to say that sufficient facts to determine whether a representative or nominee relationship exists may not arise in the future, in which case the FDIC will take appropriate action.