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FDIC Enforcement Decisions and Orders

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{{1-31-99 p.TC-390}}
   [16,196A] Docket No. FDIC-89-105e

In the Matter of
individually and as an
executive officer and a
director of
(Insured State Nonmember Bank)


A. Introduction

   The FDIC received a January 21, 1998 from STEVEN N. BUERGE ("Respondent") requesting the Agency to modify the Order of Removal From Office and Prohibition From Further Participation, docket number 89-105e ("Order of Prohibition") issued against him on January 17, 1990 to permit him "to execute any and all bank holding company stockholder agreements which will likely occur in the future as other stockholders sell their stock or borrowings are necessary to increase capital".1 Respondent controls twelve (12) percent of Community Bancshares of Chanute, Inc. ("Community"), Chanute, Kansas, which owns one hundred (100) per cent of Community National Bank ("CNB"), Chanute, Kansas. If granted, the request would require the modification of the Order of Prohibition, issued in connection with Respondent's activities at Security State Bank, Fort Scott, Kansas ("Bank").

B. Background

   Prior to 1990, Respondent was a director and officer of the Bank. On June 14, 1989, the FDIC issued its notice that it sought to remove Respondent from the Bank and prohibit his further participation predicated on Respondent's abusive and self-dealing practices as an officer and director of the Bank. In January 4, 1990, Respondent entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER OF REMOVAL AND PROHIBITION FROM FURTHER PARTICIPATION ("CONSENT AGREEMENT"). On January 17, 1991, the Regional Director, under specific delegated authority, issued the Order of Prohibition, which became effective thirty (30) days later.
   Respondent lists his principal occupation as agricultural sales financial services. In addition to Respondent's stock interest in Community, he also owns stock in the Buerge Bancshares, Inc., Sarcoxie Bancorp, Inc., and Grand Lake Bancorp, Inc., all single bank holding companies.
   On four occasions the FDIC has granted limited exceptions to the Order of Prohibition. These limited exceptions were clearly defined and did not permit the Respondent to exercise any authority, directly or indirectly, at the Bank:

       On September 12, 1994, the FDIC gave Respondent permission to execute a holding company's Shareholder's Agreement.
       On October 17, 1996, the FDIC gave Mr. Buerge permission to execute a Grant of Options and Shareholder's Agreement.
       On September 18, 1997, the Regional Office, under delegated authority, approve Respondent's request to acquire additional shares, on a pro rata basis, but not to exceed his existing ownership percentage, as part of a holding company's request for capital from its shareholders.
       On February 23, 1998, the Regional Office, under delegated authority, approved Respondent's request to execute a "Consent and Waiver," which involves the holding company's purchase of stock currently owned by a holding company stockholder.

1In the same January 21, 1998 letter Respondent requested that the FDIC permit him to execute a "Consent and Waiver" which involves the one-time purchase by the holding company of specified stock. On February 23, 1998, Regional Director Steven K. Scholzen approved the request by letter.

   The FDIC has reviewed the facts and circumstances leading to the issuance of a Notice of Intention to Prohibit From Further Participation issued against the Respondent on June 14, 1989, which in turn led to the stipulation by the Respondent to the issuance of the Order of Prohibition. In addition, the FDIC has reviewed the Respondent's compliance with the Order of Prohibition and his employment history and activities since the issuance of the Order of Prohibition.
   A review of FDIC records indicates that investigations and the examination of the Bank conducted as of May 13, 1988, revealed serious irregularities in which the Respondent was directly or indirectly involved including concealing his ownership interests in companies that received credit from the Bank violating Section 23A(a)(1)(A) of the Federal Reserve Act and Regulation O. In addition, Respondent, as a director, knowingly failed to identify to FDIC examiners his related ownership interests in a borrower and thus the borrower's status as an affiliate; failed to meet collateral requirements; failed to obtain prior approval for the borrowings from the Bank's board of directors; and, granted preferential borrowing terms to companies in which he had an ownership interest. Moreover, Respondent was involved in a series of transactions that misapplied the Bank's funds. Further, Respondent made willful and knowing misrepresentations with respect to the credit quality and repayment performance of the borrower. These actions resulted in substantial losses or other damage to the Bank and financial gain to the Respondent.
   Section 8(e)(7)(B) of the Federal Deposit Insurance Act as amended, which establishes the requirement for Agency consent, provides in pertinent part:

    If on or after the date an order is issued under this subsection which removes or suspends from office any institution-affiliated party or prohibits such party from participating in the conduct of the affairs of an insured depository institution, such party receives the written consent of —
      (i)–the agency that issued such order; and
         (ii)–the appropriate Federal financial institution regulatory agency of the institution described in any clause of Subparagraph (A) with respect to which such party proposes to become an institution-affiliated party, subparagraph (A) shall, to the extent of such consent, cease to apply to such party with respect to the institution described in each written consent.
12 U.S.C. §1818(e)(7)(B).
   To meets this burden the Respondent must, inter alia, demonstrate: (1) his fitness to participate directly or indirectly in the conduct of the affairs of an insured depository institution; (2) that his participation would not pose a risk to the institution's safety and soundness; and (3) that his participation would not erode public confidence in the institution. See In the Matter of Michael D. McCormick, FDIC Enforcement Decisions and Orders, FDIC-92-248e, ¶5212, A-2408 (1994).
   Respondent did not provide any evidence consistent with the requirements of 12 U.S.C. §1818(e)(7)(B) in his January 21, 1998 letter to permit the requested modification of the Order of Prohibition. Upon review of the record as a whole, the FDIC finds that Respondent has failed to present any evidence to meet his burden for obtaining consent from the Agency to modify the Order of Prohibition pursuant to section 8(e)(7)(B) of the Act, 12 U.S.C. §1818(e)(7)(B). The FDIC additionally finds that Respondent has failed to present any evidence to demonstrate that granting his request to execute stockholder agreements, without prior approval from the primary regulator and the FDIC, will not let him assume more authority at the Bank, let him manage the institution, or exercise control of the Bank. The FDIC further finds that Respondent has failed to show that allowing his request would not undermine public confidence in the banking system and the regulatory process.
   Accordingly, the Application is hereby denied.
   Pursuant to delegated authority.
   Dated at Washington, D.C. this 14th day of July, 1998.

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