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FDIC Enforcement Decisions and Orders |
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FDIC removed bank officers and directors and prohibited them from further participation in the affairs of the bank for extending credit without disclosure to the entire board of directors, for granting unauthorized credit in excess of the bank's legal lending limit, and for failing to take effective action to prevent further extensions of unauthorized credit. (Further proceedings in FDIC-83-153e appear at [¶
[.1] DirectorsDuties and ResponsibilitiesInforming Other Directors
[.2] Prohibition, Removal, or SuspensionExtending Unauthorized Credit
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[.4] Extension of CreditUnposted Debit
[.5] Extension of CreditUnsafe or Unsound Practices
[.6] Extension of CreditImproper Entries in Bank Records
[.7] DirectorsDuties and ResponsibilitiesCorrection of Violations
In the Matter of * * * and * * * BANK
STATEMENT OF THE CASE
These proceedings arise under Section 8(e)(1) of the Federal Deposit Insurance Act (the "Act") (12 U.S.C. § 1818(e)(1)). On July 5, 1983, the Federal Deposit Insurance Corporation ("FDIC" and "Proponent") issued Notices of Intention to Remove from Office against * * * and * * * ("Respondents"), pursuant to Section 8(e)(1) of the Act and Part 308 of the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). The Notices charged the Respondents, in their capacities as officers1 and directors of the Bank of * * * , (the "Bank") with engaging in unsafe or unsound banking practices, violations of law, or breaches of their fiduciary duties which evinced a willful or continuing disregard for the safety and soundness of the Bank. The Notices also alleged that the Bank had or probably would sustain substantial financial loss or other damage as a result of the Respondents' conduct. Respondents filed Answers on July 25, 1983, admitting certain allegations contained in the Notices, and denying others.
BACKGROUND
Based on examinations, the FDIC alleged that the Respondents had demonstrated "a willful and/or continuing disregard" for the safety or soundness of the Bank, and had breached their fiduciary duties as officers and directors, as evinced in the following acts, practices, or omissions:
ANALYSIS OF THE ALJ'S
There is no genuine dispute as to the facts in these proceedings. The fundamental issue is whether the remedy sought by the FDIC (removal of Respondents from their positions as both officers and directors of the Bank, and the barring of Respondents from further participation in the conduct of the affairs of the Bank) is appropriate to the facts and circumstances.
DECISION
Upon review of the record as a whole in these proceedings, the FDIC's Board of Directors adopts that portion of the ALJ's Recommended Decision preceding the proposed remedy and order in its entirety, except as noted below. The FDIC's Board adopts the remedy and order2 requested by the FDIC, removing the Respondents from their positions as both officers and directors of the Bank, and prohibiting them from further participation in any manner in the conduct of the affairs of the Bank.
[.1] The FDIC's Board also finds that the Respondents breached their fiduciary duties in failing to inform the other two directors of * * * 's deeds before December, 1982. While the ALJ may be correct in assuming that Chairman * * * and President * * * would have taken no action to stop * * * , due to their various infirmities, this is no more than speculation, and does not excuse the Respondents from their duties to inform their fellow directors of the danger to the Bank.3
[.2] Under Section 8(j), as the FDIC points out in its exceptions, one who has been removed from any office pursuant to Section 8(e) may not "serve... or act ... as a director, officer, or employee of any bank" without the prior written approval of the FDIC, under threat of criminal penalty. The removal of one found in violation of Section 8(e) from all offices held by him is thus explicitly contemplated by Section 8(j). Therefore, the removal of the Respondents not just from their posts as directors, but from their positions as officers as well, is the remedy called for in the law and appropriate to the facts and circumstances.
The FDIC's Board of Directors adopts the Findings of Fact of the ALJ in their entirety.
Conclusions of Law
The ALJ did not provide any specific conclusions of law in his Recommended Decision. Inasmuch as the ALJ supported the FDIC's position to the extent reflected in the FDIC's Proposed Conclusions of Law, save for paragraphs 5 and 6 and portions of paragraph 8 and paragraph 9, it is appropriate to accept the conclusions of law proposed by the FDIC, with appropriate modifications. Paragraph 5 and 6 and the following words in paragraph 8, "and their participation in the violations of law and unsafe or unsound practices described above," and in paragraph 9, "and participation in the violations of law and unsafe or unsound practices described above," should be omitted, as they pertain to the Respondent's approval of notes signed by * * * in excess of the lending limit to replace unposted debits, and are not supported by the ALJ's Findings of Fact.
Order
The order proposed by the ALJ, which would allow the Respondents to retain their voting rights and their positions as officers, is rejected; and the FDIC's proposed order, which would strip the Respondents of their capacities as officers4 and directors and prohibit them from further participation in any manner in the conduct of the affairs of the Bank, is adopted, with the reference to participation in illegality stricken, for the reasons which appear in the above discussion.
EXCEPTIONS
The parties submitted exceptions to the ALJ's Recommended Decision. A review and consideration of these exceptions follows.
Proponent's Exceptions
The FDIC filed fairly lengthy exceptions to the Recommended Decision. Although these exceptions will not be discussed individually, the salient points of the FDIC's arguments will be presented and addressed here.
Respondents' Exceptions
The Respondents dispute not the factual findings of the ALJ, but the conclusions he draws from them.
FINDINGS OF FACT
1. general findings
8. The Bank has 1,000 shares outstanding. (Ex. 2 p. 10) The * * * family owns 533 shares. (Ex. 2 p. 10, Ex. 18 p. A, Ex. 7 p. A) In the last election of directors, 835 shares were voted. (Ex. 2 p. 10)
[.3] 30. An unposted debit includes a check that would normally be posted against an individual's checking account but is not. (Tr. 39, 687-88)
[.4] 31. Unposted debits held by a bank for more than one business day become extensions of credit for the benefit of the account holder. (Tr. 3940)
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89. Both respondents saw this financial statement and believed that collateral existed to support the extensions of credit detailed on the financial statement. (Tr. 717, 719)
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CONCLUSIONS OF LAW
1. The FDIC has jurisdiction over the Bank, the Respondents and the subject matter of this proceeding and has authority to issue a Removal Order against Respondents pursuant to Sections 8(e)(1) and (5) of the Act.
[.5] 3. The extension of credit to a borrower through the practice of holding or failing to post to or charge debit items against the borrower's record of account for two or more consecutive days is an unsafe or unsound banking practice.
[.6] 4. The extension of credit for the benefit of a borrower through the practice of making improper entries or failing to make entries on a bank's record of its correspondent account is an unsafe or unsound banking practice.
[.7] 5. Respondents' failure to take appropriate action to effectively curb or otherwise curtail the violations of law and unsafe or unsound practices described above and their failures to disclose all of the facts and circumstances surrounding such violations and unsafe or unsound banking practices to all members of the board of directors of the bank for a period of six months, constitute breaches of their fiduciary duties as directors of the Bank.
ORDER OF REMOVAL
Having found and concluded that Respondents * * * and * * * , in their capacities as directors of the Bank of * * * , * * * ("Bank"), have engaged in breaches of their fiduciary duties which evidenced a continuing disregard for the safety and soundness of the Bank, and
FDIC-83-152e and FDIC-83-153e
PRELIMINARY STATEMENT
On July 5, 1983, the Federal Deposit Insurance Corporation issued Notices of Intention to Remove from Office * * * and * * * pursuant to the provisions of Section 8(e)(1) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. § 1818(e)(1)). The Notices charged the respondents, in their capacities as officers and directors of the Bank of * * * (the "Bank"), * * * with engaging in unsafe or unsound banking practices, violations of law or breaches of their fiduciary duty which evidenced a willful or continuing disregard for the safety and soundness of the Bank. The Notices further alleged that, as a result of respondents' actions and conduct, the Bank had or would probably sustain substantial financial loss or other damage.
FINDINGS
1. general findings
8. The Bank has 1,000 shares outstanding. (Ex. 2 p. 10) The * * * family owns 533 shares. (Ex. 2 p. 10, Ex. 18 p. A, Ex. 7 p. A) In the last election of directors, 835 shares were voted. (Ex. 2 p. 10)
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89. Both respondents saw this financial statement and believed that collateral existed to support the extensions of credit detailed on the financial statement. (Tr. 717, 719)
DISCUSSION
The FDIC initiated this removal action under 12 U.S.C. § 1818(e)(1). Proof has been narrowed to whether respondents have demonstrated a continuing disregard for the safety or soundness of the Bank.
REMEDY
Respondents did not violate their duty as officers of the Bank. The order of removal therefore is limited to their capacity as directors. |
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Last Updated 6/6/2003 | legal@fdic.gov |