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[¶11,944] In the Matter of Connecticut Bank of Commerce, Stamford, Connecticut,
Docket No. 02-101PCAD (6-25-02).
FDIC issues Prompt Corrective Action directive ordering dismissal.
[.1] Prompt Corrective Action—Order of Dismissal
In the Matter of
CONNECTICUT BANK OF COMMERCE
STAMFORD, CONNECTICUT
(Insured State Nonmember Bank)
PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL
FDIC-02-101PCAD
Connecticut Bank of Commerce, Stamford, Connecticut
("Bank"), is a "critically undercapitalized" insured
depository institution as that term is defined in section 38(b)(1) of
the Federal Deposit Insurance Act ("Act"), 12 U.S.C.
§1831o(b)(1), and section 325.103 of the Federal Deposit Insurance
Corporation ("FDIC") Rules and Regulations, 12 C.F.R.
§325.103. Capital levels reflected in the Bank's Reports of
Condition and Income as of March 31, 2002, which represented the Bank
as "adequately capitalized," when adjusted by preliminary results
of a joint examination of the Bank conducted by the FDIC and the State
of Connecticut as of April 1, 2002, result in a ratio of tangible
equity capital to total assets that equals negative 1.94 percent, thus
rendering the Bank "critically undercapitalized" for purposes of
the prompt corrective action provisions of the Act.
1. The FDIC has determined that the continued employment of Randolph W.
Lenz ("Respondent Lenz"), would not materially strengthen the
Bank's ability to become adequately capitalized. This is based upon
the finding that:
(a) Since 1992, Respondent Lenz has been Chairman of the Bank's
Board, the majority shareholder of the Bank, and is currently a member
of the Bank's Board Compensation and Credit Committees. He has been
previously criticized by the FDIC in its 2001 Report of Examination
("2001 Exam Report") for causing or permitting the Bank to engage
in lax, preferential and hazardous lending activities, and it is
evident that the volume of loans with undue risk he has referred and
continues to refer to the Bank has resulted in severe asset quality
problems that have ultimately resulted in the Bank's insolvency.
(b) The 2001 Exam Report cited loan administration weaknesses, credit
underwriting deficiencies and a lack of adherence to prudent credit
policy guidelines and other weaknesses in controls and procedures
necessary to guard against an elevated level of loan risk. These
weaknesses resulted in the Bank stipulating to the issuance by the FDIC
of a Cease-and-Desist Order dated November 30, 2001, to correct such
practices including addressing credit administration weaknesses,
revising the Bank's Credit Policy, reducing concentrations of credit,
and reducing the volume of adversely classified and criticized loans.
(c) Management of the Bank under the control of Chairman Lenz is poor.
Weak risk management practices in many areas of Bank supervision are
evident. Despite being warned of loan administration weaknesses,
Respondent Lenz has continued to cause or permit the Bank to approve or
allow renewal of loans despite the fact that prudent underwriting,
effective administration, or adequate oversight appears absent. The
findings of the 2002 examination of the Bank indicate that the Bank is
in noncompliance with numerous provisions of the November 30, 2001
Cease and Desist Order. The amount of adversely classified loans as of
the 2002 examination is $97,584,000.
(d) An example of such hazardous lending is a credit relationship to
finance gaming operations in Latin American countries
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which was referred to the Bank by Mr. Lenz. This relationship originated on
November 8, 2000 as a line-of-credit in the amount of $250,000, but was
amended and restated eleven times. Another line-of-credit was added on
December 1, 2001, for $1,125,000 for a sale-leaseback arrangement where
the Bank purchased gaming equipment (slot machines) located in Panama.
Since origination this credit relationship has grown to $3,795,000.
Origination and administration of the loan has been accomplished in a
manner contrary to the Bank's Credit Policy. Among other things,
repayment of these loans is solely dependent on the successful
operation of gambling facilities in Latin America, which have yet to
show a profit; the working capital line has been continually renewed
with additional advances to fund accrued interest, expenses, and cover
operating losses; at each renewal/extension and advance of funds Bank
management has capitalized the accrued interest; collateral coverage is
weak and since the activities are outside the jurisdiction of the US,
collecting or liquidating this loan would be difficult.
(e) The FDIC has discovered evidence that during the period beginning
the first quarter of 2000, Respondent Lenz engaged in a apparently
fraudulent scheme of unlawful and unsound lending whereby he caused or
permitted the Bank to purchase another financial institution, MTB Bank,
New York, New York ("MTB"), with $20 million of the Bank's own
existing funds instead of through the infusion of $20 million in new
Tier 1 capital, including not less than $10 million in common stock, as
was required by the FDIC as a condition to the acquisition. Respondent
Lenz represented to the FDIC that he would contribute of $20 million of
his own outside funds to purchase common and noncumulative perpetual
preferred stock. This scheme was accomplished through more than $20
million in loans that Respondent caused or permitted the Bank to make
to nominee borrowers and others, including related interests of
Respondent Lenz. That same money was later transferred to Respondent
Lenz or his related interests, who transferred it to the Bank in the
form of capital purportedly to satisfy the condition to purchase MTB.
The result was that the Bank's capital was inflated by $20 million
more than it actually was. Respondent Lenz subsequently concealed the
scheme from FDIC examiners.
(f) While he has provided capital contributions in the past, the
apparent fraudulent activities described above that resulted in at
least $20,000,000 of such contributions being obtained through loans by
the Bank itself, rather than independently from Respondent Lenz, draws
into serious question his ability to provide future capital
contributions in a quantity sufficient to assure the future viability
of the Bank.
2. The FDIC has also determined that the continued employment of
J. Donald Weand, Jr. ("Respondent Weand") would not materially
strengthen the Bank's ability to become adequately capitalized. This
is based upon the finding that:
(a) Respondent Weand has been President and Chief Executive Officer
of the Bank since May 1999. He also served at various times as Senior
Vice President, Chief Lending Officer and Chief Operating Officer at
the Bank since 1996, and currently serves as a member of the Bank's
Management, Risk Management, and Asset and Liability Committees.
Respondent Weand has demonstrated no ability to restore a troubled
institution to a safe and sound condition and the financial condition
of the Bank has deteriorated under Mr. Weand's management, falling
from a "3" rated composite bank to a currently insolvent
"5" rated institution.
(b) Respondent Weand was responsible for and was the originating
officer for many of the loans that were involved in the scheme
described in paragraph 1(e) above, the proceeds of which were used to
purchase MTB. He has caused or permitted the Bank to engage in lax
underwriting and preferential and hazardous lending activities
described in paragraph 1(b) through (d), above. As President and Chief
Executive Officer, Mr. Weand has also been responsible for allowing
poor underwriting practices to continue.
(c) Respondent Weand's direction of the Bank has also strongly
contributed to weak risk management practices in many areas of Bank
supervision which will result in noncompliance with numerous provisions
of the November 30, 2001 Cease and Desist
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Order, as determined in the
FDIC/State 2002 Joint examination.
Furthermore, the FDIC has reason to believe that at present,
Respondents Lenz and Weand continue to cause the Bank to originate
risky loans and that, unless Respondents are dismissed, such
transaction could be similarly repeated, and could further weaken the
condition of the Bank, and/or otherwise prejudice the interests of the
depositors. The FDIC also has reason to believe that based upon
Respondents' participation in apparent fraudulent and hazardous
lending described above, and their previous concealment to examiners,
there is a strong potential asset dissipation and the possibility of
document destruction.
Therefore, the FDIC finds it necessary, in order to carry out the
purposes of section 38 of the Act, to issue this PROMPT CORRECTIVE
ACTION DIRECTIVE ORDERING DISMISSAL without providing notice as set
forth in section 308.201(a)(1) of the FDIC's Rules of Practice and
Procedure, 12 C.F.R. §308.201(a)(1), and hereby issues the PROMPT
CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL pursuant to section 38
of the Act, 12 U.S.C. §1831o, and section 308.201(a)(2) of the
FDIC's Rules of Practice and Procedure.
PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL
[.1] IT IS HEREBY DIRECTED that the Bank shall dismiss from office Randolph
W. Lenz, Chairman of the Board and J. Donald Weand, Jr., President and
Chief Executive Officer of the Bank. IT IS FURTHER DIRECTED that this
PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL shall become
effective and enforceable immediately upon its receipt by the Bank.
Each provision of this PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING
DISMISSAL shall be binding upon the Bank, its directors, officers,
employees, agents, successors, assigns, and other
institution-affiliated parties of the Bank.
The Bank may file a written appeal of this PROMPT CORRECTIVE
ACTION DIRECTIVE ORDERING DISMISSAL within fourteen (14) calendar days
from the date of issuance of this directive as provided in section
308.201(a)(2) of the FDIC's Rules of Practice and Procedure, 12 C.F.R.
§308.201(a)(2).
Within ten (10) calendar days from the receipt of a copy of this PROMPT
CORRECTIVE ACTION DIRECTIVE ORDERING DISMISSAL as required by section
38(n) of the Act, 12 U.S.C. §1831o(n), and 308.203(a) of the FDIC's
Rules of Practice and Procedures, 12 C.F.R. §308.203(a), Respondents
Lenz and Weand may each file a written request for reinstatement
pursuant to section 308.203(b) of the FDIC's Rules of Practice and
Procedure, 12 C.F.R. §308.203(b). Within such written response each
Respondent may request an informal hearing before the FDIC under
section 308.203(b)(2) of the FDIC's Rules of Practice and Procedure,
12 C.F.R. §308.203(b)(2). If either Respondent desires to present
oral testimony or witnesses at the hearing, he shall include a request
to do so with the request for an informal hearing, and such request
shall specify the names of the witnesses and the general nature of
their expected testimony.
The appeal and any request for reinstatement shall be filed with
Patrick J. Rohan, Regional Director, or his successor, Federal Deposit
Insurance Corporation, 15 Braintree Hill Office Park, Suite 100
Braintree, Massachusetts 02184. Copies of all papers filed in this
proceeding shall be served upon the Office of the Executive Secretary,
Federal Deposit Insurance Corporation, 550 17th Street, N.W.,
Washington, D.C. 20429, Michael J. Zamorski, Director, Division of
Supervision, Federal Deposit Insurance Corporation, 550 17th Street,
N.W., Washington, D.C. 20429, A.T. Dill, III, Senior Counsel, Legal
Division, Compliance and Enforcement Section, Federal Deposit Insurance
Corporation, 550 17th Street, N.W., Washington, D.C. 20429, and upon
David Schecker, Regional Counsel (Supervision), Federal Deposit
Insurance Corporation, 15 Braintree Hill Office Park, Suite 100
Braintree, Massachusetts 02184.
Each provision of this PROMPT CORRECTIVE ACTION DIRECTIVE ORDERING
DISMISSAL shall remain effective and enforceable except to the extent
that, and until such time as, any provision shall be modified,
terminated, suspended, or set aside by the FDIC.
Pursuant to delegated authority.
Dated at Washington, D.C., this 25th day of June, 2002.
