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FDIC Enforcement Decisions and Orders |
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Civil money penalties were assessed against bank directors for violating a cease and desist order by failing to increase the bank's capital within a reasonable time, failing to file amendments to Call Reports, and failing to submit written progress reports in accordance with the order.
[.1] Cease and Desist OrdersPenalty for Violation of
[.2] Civil Money PenaltiesAmount of PenaltyGood Faith Compliance
[.4] CapitalAdditional Capital Ordered
[.5] Civil Money PenaltiesFactors Determining LiabilityViolation of Cease and Desist Order
In the Matter of * * * , and,
STATEMENT OF THE CASE1
In this proceeding the Federal Deposit Insurance Corporation ("FDIC") seeks civil money penalties ("CMPs") under section 8(i)(2) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(i)(2), against the above-captioned officers and/or directors ("Respondents") of * * * Bank, * * * (the "Bank"). The basis for this action is Respondents' alleged violations of three paragraphs of the Cease-and-Desist Order consented to by the Bank's board of directors and issued on March 2, 1984, by the FDIC ("C&D Order"). Based upon those alleged violations, a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay and Notice of Hearing ("Notice") was issued by the FDIC on October 16, 1985.
THE DECISIONS OF THE ALJ
In his original Recommended Decision, the ALJ stated that the Respondents' Answer to the Notice effectively admitted the alleged violations. [R.D. at 3.] Upon consideration of all of the evidence, the ALJ concluded that Respondents had violated the three relevant provisions of the C&D Order. [R.D. at 9.] The ALJ further found that "[t]he Bank's delay in raising its capital to $2,000,000 was clearly unwarranted." [R.D. at 8.] In reaching this conclusion, the ALJ discussed and found unjustified and inexcusable the time it took the Bank to execute an acceptable charter amendment to increase permissible outstanding stock. The ALJ found that this charter amendment was a vitally necessary part of the Bank's increasing its capital through the sale of new stock and that the delay was "inexcusable in light of the Bank's numerous discussions with the Regional Office and guidelines provided for its assistance." [R.D. at 7.] The ALJ also found that the Bank and its directors were put on notice by the C&D Order that if a stock offering was to be used to raise new capital, an offering circular was required to comply with federal securities laws and regulations and that the circular must contain a full description of the securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, as well as any other material disclosures necessary to comply with federal securities law. [R.D. at 7.] The ALJ found that, although the C&D Order took effect on March 12, 1984, it was not until September 3, 1985, after four submissions of revised offering circulars to the FDIC, that the circular was acceptable to the FDIC. The ALJ further found that the Respondents offered "no legitimate explanation for these submissions. Virtually no mention is made in the written direct testimony submitted by the [Respondents] as to why [they] had such problems in filing an acceptable offering circular, nor do the minutes of the twenty Board meetings... contain sufficient justification." [R.D. at 7.]
RESPONDENTS' EXCEPTIONS
Respondents filed numerous exceptions, to the Recommended Decision and to the Recommended Decision on Remand, which are essentially an attempt by them to reargue their case by incorporating by reference several of their proposed findings of fact and by restating their version of the facts. Respondents' proposed findings of fact and other factual assertions, however, do not contain citations to the record. Upon review of those exceptions, the Board has concluded that many are not relevant or material to allegations in this proceeding, while those that are relevant, are not supported by the evidence in the record. In addition, several of the exceptions appear to argue the weight to be afforded certain of the evidence. Moreover, two of the exceptions relate to the appropriateness of the amounts of the civil money penalties with respect to the criteria set forth in section 8(i) of the Act and Interagency Policy Regarding the Assessment of Civil Money Penalties but each fails to state a factual or legal basis for such exception. Finally, Respondents complain of denial of procedural due process because the procedure used for the presentation of the direct cases was written testimony and because the ALJ would not later modify this procedure to permit a combination of written and oral testimony. However, the transcript of the prehearing conference of January 31, 1986, establishes that their counsel agreed to this procedure. Once Respondents, through their counsel, agreed to this procedure, they cannot later complain when they are held to that agreement.
THE VIOLATIONS OF THE CEASE
1. The Failure to Raise Capital
[.1] The fact that Respondents failed to raise the Bank's capital and reserves to at least $2,000,000 by the deadline specified in the C&D Order is an uncontested fact. Respondents have stipulated that the Bank's total capital and reserves was $1,012,000 on September 15, 1984, the deadline specified in the C&D Order a $988,000 shortfall. [Stip. 16.] While the Respondents argued that they made good faith efforts to comply and did submit some evidence of their efforts to raise the Bank's capital to the required level, the Board concludes that under the statute such efforts are not a defense to the violation of the C&D Order but relate only to the appropriateness of the amount of the penalty. See 12 U.S.C. § 1818(i)(2). Cf. Fitzpatrick v. FDIC, 765 F.2d 569, 578 (6th Cir. 1985). In any event as discussed below, the record discloses lengthy delays on the part of Respondents (as set forth in the Chronology of Key Events, attached hereto as Appendix A, and the Board's Findings of Fact, attached hereto as Appendix B), which ultimately caused the Bank to violate the capital requirement of the C&D Order.
2. Failure to File Amendments to Call Reports
The ALJ also found that the Bank had failed to file amendments to its Call Reports within 30 days after the effective date of the C&D Order for each quarterly period subsequent to June 11, 1983, as required by paragraph 6(c) of the C&D Order. Respondents presented no evidence whatsoever to suggest that the Bank did file the amended Call Reports as required by paragraph 6(c) of the C&D Order. Indeed, in the Stipulation of February 11, 1986, jointly submitted by the parties to this proceeding, it is conceded that the Bank did not file the amended Call Reports as required. [Stip. 18 & 19.]
3. Failure to Submit Written Progress Reports
Finally, the ALJ determined that the Bank had failed to submit written progress reports on a monthly basis to the Regional Director detailing the actions taken to effect compliance with the C&D Order, as required by paragraph 11 of the C&D Order. While Respondents did present evidence that some progress reports were filed with the Regional Director, such reports were not filed on a monthly basis beginning on May 31, 1984, as required by paragraph 11 of the C&D Order. The evidence establishes
{{4-1-90 p.A-1078}}that as of October 16, 1985 (the date the Notice was issued), only twelve out of a total of seventeen monthly reports had been filed, and of those twelve, three were found to be inadequate. Thus, of the seventeen required reports, almost half were either not filed, or if filed, were inadequate. Finally, it should be noted that Respondents have admitted in their Answer that "for a couple of months" the progress reports were not filed. [Answer, Para. 3(c).]
4. Conclusions
The ALJ found, inter alia, that on November 18, 1983, the Bank entered into a consent agreement whereby it agreed to an Order to Cease-and-Desist [R.D. at 9]; on March 2, 1984, the FDIC issued the Order to Cease and Desist which became effective on March 12, 1984; by September 15, 1984, the date by which compliance with the capital requirement of the C&D Order was required, Respondents had violated paragraphs 1(a), 6(c) and 11 of the Order. [R.D. at 9.] For the reasons set forth above and on the basis of the Board's Findings of Fact attached hereto as Appendix B, the Board concludes that the ALJ's findings are supported by the record and finds that the Respondents have violated paragraphs 1(a), 6(c) and 11 of the C&D Order.
THE APPROPRIATENESS OF THE PENALTIES
[.2] In determining the appropriate amount of any CMPs, the Board is required to consider, inter alia, the gravity of the violations and Respondents' good faith, or lack thereof. The ALJ's Recommended Decision on Remand considers those factors. In finding that the assessed penalties were appropriate, the ALJ considered various factors including (1) the delays which resulted in the Bank's inability to meet the $2,000,000 capital requirement of the C&D Order; (2) the failure to file the required amendments to the Call Reports and the monthly progress reports; (3) the fact that the assessed penalties are considerably below the maximum authorized by the Act for such violations;5 and (4) the gravity of the violations, including the importance of the capital requirement. In finding that the amounts of the assessed penalties are appropriate, the ALJ also considered the difference in the culpability of the Respondents and in their financial resources. The ALJ concluded that Respondent * * * was primarily responsible for insuring full compliance with the C&D Order and was therefore the most culpable. He was, therefore, assessed a $21,000 penalty. The ALJ concluded that Respondents * * * and * * * were less responsible for the violations of the C&D Order than the other directors. They had joined the Bank's board of directors after the effective date of the C&D Order and subsequent to the expiration of the dates for submission of the Call Reports and monthly progress reports. Thus their assessed penalties ($2,000 each) were less than the penalties of the other directors ($4,000 each).
[.3] In the Board's view, the Respondents should be held accountable for the Bank's failure to comply with the C&D Order. All of the Respondents knew or should have known that the Bank was violating the C&D Order, and failed to take corrective action. In addition, the record shows that Respondents were specifically on notice that they, as directors, were required to take "affirmative action" to meet the requirements of the C&D Order. [Exh. B-1; App. 5 to Exh. G-4.] The law is clear that bank directors cannot be insulated from liability, including liability for CMPs, by simply directing the Bank's management to comply with the provisions of the C&D Order. See Fitzpatrick, 765 F.2d at 577.
[.4-.5] The C&D Order does not require nor does this Board imply that the Respondents are required to use their own funds to increase the Bank's capital. However, Respondents are required to make timely efforts in good faith to raise additional capital by whatever means may be available to them. There are at least four available ways of which the Board is aware that could be utilized by most banks: 1) the sale of controlling interest to an outside investor willing to inject additional capital; 2) a public sale of new shares in the Bank; 3) the sale of new shares to current shareholders; and 4) the collection/recovery of charged-off loans, insurance claims, etc. While Respondents were exploring several of these options, they failed to do so in a reasonably expeditious or timely way. Consequently, the Board concludes that CMPs are appropriate in this case. In determining the amount of the penalty, the Board considers more than just whether a violation occurred. In view of the substantial capital contribution that did occur and the fact that the record seems to indicate the Bank's overall financial condition was improving during the course of this proceeding, the Board finds that a lesser penalty than that recommended by the ALJ is appropriate.
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Upon review of the entire record in this proceeding and for the reasons set forth herein, the Board finds that Respondents violated paragraphs 1(a), 6(c), and 11 of the C&D Order. The Board, therefore, adopts and incorporates by reference the Findings of Fact set forth in Appendix B. The Board further finds that the proposed civil money penalties assessed against Respondents are somewhat high considering all of the circumstances of this case. The Board finds that more appropriate penalties in this case are $2,000 each for Messrs. * * *, * * *, * * * , * * * , and * * *; and $1,000 each for Messrs. * * * and * * *. The Board, therefore, adopts and issues the accompanying Order to Pay Civil Money Penalties.
APPENDIX A
CHRONOLOGY OF KEY EVENTS
APPENDIX B
FINDINGS OF FACT
The Cease and Desist Order
1. On or about November 18, 1983, the board of directors of * * * Bank, * * * ("Bank"), stipulated to the issuance of a cease and desist order ("C&D Order") by the Federal Deposit Insurance Corporation ("FDIC"). [Stip. 11.]
Violations of the Cease and Desist Order
A. Failure to Meet the Capital
10. As of September 15, 1984, the Bank's total capital and reserves equaled $1,012,000. [Stip. 16.]
11. The Bank's Call Reports for June 30, 1983, September 30, 1983, and December 31, 1983, did not reflect a provision for a loan valuation reserve adequate for the condition of the Bank. [App. 3 to Exh. G-4, at p. 6.]
{{4-1-90 p.A-1082}}
13. The total number of written progress reports due from the Bank to the FDIC during the period from May 31, 1984 through January, 1986, inclusive, was twenty-one. Thirteen reports were filed during the time period, nine of us which were adequate to comply with the C&D Order. Eight of the twenty-one reports due were never filed by the Bank and four reports were inadequate and did not comply with the C&D Order. [* * * , Exh. G-4, para. 3537; App. 7 to Exh. G-4.]
Appropriateness of the Civil Money Penalties
A. Efforts to Raise Capital
a. Sale of Stock to Outside Investors
15. A bank can be recapitalized through the sale of a controlling interest to outside investors who can contribute additional capital to the bank. [See Tr. * * * , pp. 1719; see also, * * * , Exh. B-4, paras. 925.]
b. Sale of Stock of Existing Shareholders
19. Respondent * * * had on deposit at the Bank in July, 1984, funds sufficient to purchase 60,000 new shares of stock at $10.00 per share. [* * *, Exh. B-4, p.4; * * * , Exh. B-5, p. 2; Tr. * * * , p. 106.]
C. Public Offering of Stock
23. A perquisite to any public offering of stock was the preparation of an offering circular by the Bank and receipt of FDIC approval for the circular. [Exh. B-1, para. 1(b).]
B. Good Faith of Respondents
a. Delays in Amending the Bank's Charter
29. One of the first things that the Bank was required to do in order to sell additional shares of its common stock was to increase the number of shares authorized by its charter. [* * *, Exh. G-5, para. 2.]
b. Delay in Submitting Offering Circular
38. On April 30, 1985, the FDIC's Registration and Disclosure Unit received the first draft of the Bank's offering circular. [ * * * , Exh. G-4, para. 7; App. 2 to Exh. G-6.]
c. Delayed Capital Contribution by
55. A $600,000 escrow account to be used to purchase capital stock of the Bank was established by Respondent * * * on March 23, 1985, approximately six months after the deadline specified in the C&D Order. [* * *, Exh. G-4, paras. 28 & 30; App. 1 to Exh. G-4.]
ORDER TO PAY CIVIL MONEY
FDIC-85-303k
The Board of Directors of the Federal Deposit Insurance Corporation ("Board") having considered the entire record in this proceeding, including the Administrative Law Judge's ("ALJ") Recommended Decision and Proposed Order dated April 21, 1986, as well as the ALJ's Recommended Decision on Remand dated January 13, 1987, for the reasons set forth in the Board's Decision and Findings of Fact in this proceeding, finds that Respondents were in violation of paragraphs 1(a), 6(c) and 11 of the Cease-and-Desist Order issued by the Federal Deposit Insurance Corporation against * * * Bank, * * * , on March 2, 1984. The Board having further taken into consideration the appropriateness of the penalties proposed by the FDIC enforcement staff and recommended by the ALJ with respect to the financial resources and good faith of Respondents * * * , * * * , * * * , * * * , * * * , * * * and * * * , the gravity of the viola-
{{4-1-90 p.A-1085}}tions, the history of previous violations, and such other matters as justice may require, finds that those penalties should be reduced in accordance with the discussion set forth in the Board's Decision in this proceeding.
RECOMMENDED DECISION AND
Civil money penalties assessed against
STATEMENT OF THE CASE
In this proceeding the FDIC seeks civil money penalties under § 8(i)(2) of the Federal Deposit Insurance Act (Act) [(12 U.S.C. § 1818(i)(2)] against the above-captioned officers and/or directors of the * * * Bank, * * * for alleged violations of certain provisions of the Cease-and-Desist Order issued by the FDIC on March 2, 1984. (This Order is attached to this Recommended Decision as Appendix A.) Based upon these alleged violations, a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing (hereinafter referred to as "Notice of Assessment" and attached to this Recommended Decision as Appendix B) was issued October 16, 1985. Respondents' answer was not timely filed and failed to specifically deny any of the allegations contained in the Notice of Assessment. At the Prehearing Conference held on January 31, 1986, in * * * , Respondents' late-filed Answer was nonetheless accepted on the condition that specific evidence refuting the allegations would be submitted through direct written testimony or documentary evidence.2 This procedure was adopted despite the absence of any material issues because of Respondents' claim (raised for the first time at the prehearing conference) that it was impossible for them to comply with the Cease and Desist Order.
FINDINGS OF FACT
A careful review of written direct and documentary evidence, and the transcript of October 7, the proposed findings of fact and conclusions of law submitted by the parties with accompanying briefs, and the reply briefs lead to the following findings of fact and conclusions with respect to the limited issue of the appropriateness of the amount of the civil money penalties:
DISCUSSIONS AND CONCLUSIONS
In determining the amount of civil money penalties for violation of a cease and desist order, the FDIC is required to consider the appropriateness of the penalties sought in relation to the financial resources and good faith of the persons charged, the gravity of the violation committed, the history of any previous violations, and other such matters as justice may require. See 12 U.S.C. § 1818(i)(2)(ii). One of those factors
{{4-1-90 p.A-1088}}namely the gravity of the violation, has been developed further and has been committed to a written policy statement. See Interagency Policy Regarding the Assessment of Civil Money Penalties by the Federal Financial Institutions Regulatory Agencies, 45 Fed. Reg. 59423 (August 28, 1980); Appendix B. Thus, in determining the gravity or seriousness of a violation, the following thirteen factors have been identified as relevant:
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Based upon the record in this proceeding and the foregoing statement of the case, including findings of fact and conclusions of law, it is RECOMMENDED that the following ORDER be entered by the Board of Directors of the FDIC: ORDERED: 1. That, by reason of violations determined against * * * , * * * , * * * , * * * , * * * , * * * and * * * , individually, the following penalties are assessed against each of them pursuant to § 8(k) of the Act, 12 U.S.C. § 1818(k):
2. That the civil money penalties assessed against each of the named individuals shall not be paid directly or indirectly by * * * Bank but shall be paid by the individual against whom the penalty is assessed.
Appendix A
ORDER TO CEASE AND DESIST
FDIC-84-10b
* * * Bank, * * * ("Bank") having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and regulations alleged to have been committed by the Bank and of its right to a hearing on the alleged charges under Section 8(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(b)(1)), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated November 18, 1983, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations of law and regulations, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
ORDER TO CEASE AND DESIST
IT IS HEREBY ORDERED, that the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank, cease and desist from the following unsafe or unsound banking practices and violations of law and regulation:
Appendix B
NOTICE OF ASSESSMENT OF CIVIL
FDIC-85-303k
NOTICE OF ASSESSMENT OF CIVIL
The Federal Deposit Insurance Corporation ("FDIC") is of the opinion that * * * , * * * , * * * , * * * , * * * , * * * and * * * ("Respondents"), individually and as officers and/or directors of * * * Bank, * * * ("Bank"), each has violated certain provisions of a "Cease-and-Desist Order which has become final" as that term is defined in section 8(k) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. § 1818(k)). The FDIC hereby issues this NOTICE OF ASSESSMENT OF CIVIL MONEY PENALTIES, FINDINGS OF FACT AND CONCLUSIONS OF LAW, ORDER TO PAY, AND NOTICE OF HEARING ("NOTICE OF ASSESSMENT") pursuant to the provisions of section 8(i)(2) of the Act (12 U.S.C. § 1818(i)(2)) and the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). In support thereof, the FDIC finds and concludes as follows:
FINDINGS OF FACT AND
1. The Bank is a corporation existing and doing business under the laws of the State of * * * and having its principal place of business in * * *. The Bank is and was, at all times pertinent to this proceeding, an insured State nonmember bank subject to the Act (12 U.S.C. §§ 1811-1831d) and the Rules and Regulations of the FDIC (12 C.F.R. Chapter III). * * * , * * * , * * * , and * * * , each is and was, at all times pertinent to this proceeding, a director and/or an officer of the Bank. * * * and * * * each was elected to the Bank's board of directors in July, 1984, and was a director of the Bank at times pertinent to these proceedings. * * * was, at times pertinent to these proceedings, a director of the Bank until March 20, 1985. The FDIC has jurisdiction over the Bank, each Respondent, and the subject matter of the proceeding.
ORDER TO PAY
After taking into account the appropriateness of each penalty with respect to the financial resources and good faith of each Respondent, the gravity of the violations of each Respondent, the history of previous violations of each Respondent, and such order matters as justice may require, it is:
NOTICE OF HEARING
FURTHER ORDERED, that if any Respondent requests a hearing with respect to the charges in the NOTICE OF ASSESSMENT, the hearing shall commence 60 days from the date of receipt of such request at * * *. The hearing will be conducted in accordance with the provisions of the Act (12 U.S.C. §§ 18111813d), the Administrative Procedure Act (5 U.S.C. §§ 551559), and the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). The hearing will be held before an Administrative Law Judge to be appointed by the U.S. Office of Personnel Management pursuant to 5 U.S.C. § 3344. The exact time and location of the hearing will be determined by the Administrative Law Judge. The FDIC is preliminarily of the view that a public hearing is necessary to protect the public interest. The hearing will be public unless the FDIC, after considering the views of the Respondent, shall determine that a private hearing is necessary to protect the public interest.
Appendix C
RECOMMENDED DECISION AND
By DANIEL J. DAVIDSON,
Statement of the Case
The Federal Deposit Insurance Corporation (FDIC) seeks Civil Money Penalties pursuant to § 8(i)(2) of the Federal Deposit Insurance Act (Act) [12 U.S.C. § 1818(i)(2)] against * * * , * * * , * * * , * * * , * * * , * * * and * * * (Respondents) individually and as Officers and/or Directors of * * * Bank, * * * (Bank) for violating certain provisions of a "Cease-And-Desist Order which has become final" as that term is defined by section 8(k) of the Act [12 U.S.C. § 1818(k)]. (The Cease-and-Desist Order issued March 2, 1984, is attached to this Decision as Appendix A.) The Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing (hereinafter referred to as "Notice of Assessment" and attached to this Decision as Appendix B) was issued by direction of the Board of Review, acting under direction of the FDIC, on October 16, 1985.
Statement of Facts
* * * Bank (Bank) is a corporation existing and doing business under the laws of the State of * * * and has its principal place of business in * * *. At all times pertinent to this proceeding, the Bank is and was an insured state nonmember bank subject to the Act [12 U.S.C. §§ 1811-1831(d)] and Rules and Regulations of the FDIC (12 C.F.R. Chapter III). * * * and * * * each is and was, at all times pertinent to this proceeding, a Director and/or Officer of the Bank. * * * has been a Director since December 14, 1983. * * * and * * * each was elected to the Bank's Board of Directors in July, 1984. * * * was elected a Director on December 14, 1983 but resigned this position on March 20, 1985.
Substantiation of the Violations
The written direct testimony and documentary evidence received from the Bank focuses on its efforts to gain approval of a charter amendment for the issuance of additional shares of bank stock. It was this step which was to facilitate the accumulation of $2,000,000 in total capital and reserves as required by paragraph 1(a) of the Order. However, the Bank's execution of this effort was replete with error. The Bank initially submitted a charter amendment in March of 1984 to * * * , Executive Assistant to the * * * Commissioner of Banks and Trust Companies, calling for an issuance of 60,000 shares of bank stock at a price of $20.00 per share and a par value of $10.00 per share. Ex. No. G-5 at 2, Ex. No.
Findings of Fact and Conclusions of Law
The Bank entered into a Consent Agreement whereby it agreed to an Order to Cease-and-Desist on November 18, 1983. The Bank accepted the terms of the Consent Agreement and agreed to the Order on December 15, 1983. The Order was issued by the FDIC on March 2, 1984, became effective March 12, 1984, and was a final Order as that term is defined by § 8(k) of the Act [12 U.S.C. § 1818(k)]. The Order is effective as to all of the Directors at the time of its issue and as to all subsequent Directors of the Bank until such time as the Order is revoked, modified or set aside by the FDIC. As of September 15, 1984, 180 days from the effective date of the Order and the date by which compliance was required, Respondents had violated paragraphs 1(a), 6(c)4, and 11 of the Order. By virtue of these violations, it is appropriate that a civil money penalty be assessed against each Respondent under § 8(i)(2) of the Act. [12 U.S.C. § 1818(i)(2)]. According to § 308.68 of the FDIC Rules and Regulations (12 C.F.R. § 308.68), the amount of each penalty should be assessed by taking into account the financial resources and good faith of each Respondent, the gravity of the violations of each Respondent, the history of previous violations of each Respondent, and other such matters as justice requires. Violation of the capital provision of the Order is considered most critical, and thus the amount assessed for noncompliance should be greater than for noncompliance with the other two provisions. Distinction with respect to culpability among the Board members is also necessary; because Mr. * * * was a salaried Chief Executive Officer and Chairman of the Board during the period of compliance with the Order, he was ultimately responsible for insuring full conformance with all of its provisions. His penalty should therefore reflect this responsibility. The financial resources of each Director must also be considered; however, only Mr. * * * provided any information in this regard, though all were invited to do
PROPOSED ORDER
Based upon the record in this proceeding and the foregoing statement of the case, including findings of fact and conclusions of law, it is RECOMMENDED that the following ORDER be entered by the Board of Directors of the FDIC:
2. That the civil money penalties assessed against each of the named individuals shall not be paid directly or indirectly by * * * Bank but shall be paid by the individual against whom the penalty is assessed.
DECISION AND ORDER TO
FDIC-85-303k
STATEMENT
In this proceeding the Federal Deposit Insurance Corporation ("FDIC") seeks civil money penalties under § 8(i)(2) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. § 1818(i)(2)) against the above-captioned officers and/or directors ("Respondents") of * * * Bank, * * *. The basis for this action is Respondents' alleged violation of certain provisions of the Cease-and-Desist Order issued by the FDIC on March 2, 1984 ("1984 Order"). Based on alleged violations of the 1984 Order, the FDIC issued to Respondents a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay and Notice of Hearing ("Notice"). Respondents did not file a timely Answer, but at the January 31, 1986, prehearing conference their Answer was accepted by Administrative Law Judge Daniel J. Davidson (the "ALJ") on the condition that Respondents would offer at the hearing specific evidence which denied the allegations. Respondents' initial Answer did not deny the principal operative facts alleged in the Notice, but rather sought to excuse or mitigate the seriousness of Respondents' and * * * Bank's violations of the 1984 Order.
DISCUSSION
Summary
For the reasons set forth below, the Board finds that the hearing must be reopened at the point at which it was suspended for the limited purpose of affording the parties an opportunity for cross-examination on the issue of the amount of the penalties. By remanding, the Board is in no way prejudging whether the amounts of the penalties set forth in the Notice are appropriate.
CONCLUSION
For the foregoing reasons, the Board reopens and remands this case to Administrative Law Judge Daniel J. Davidson for further proceedings consistent with this Decision. The ALJ shall reconvene the hearing as promptly as possible, and no later than 45 days after the date of this Decision and Order.5The ALJ shall afford each party an opportunity for cross-examination, and the ALJ shall consider evidence of mitigation in determining the appropriate amount of civil money penalty to be assessed against each Respondent.
ORDER
The Board of Directors of the Federal Deposit Insurance Corporation having considered the record in this proceeding, it is hereby
Civil money penalties assessed against
By DANIEL J. DAVIDSON,
Statement of the Case
The Federal Deposit Insurance Corporation (FDIC) seeks Civil Money Penalties pursuant to § 8(i)(2) of the Federal Deposit Insurance Act (Act) [12 U.S.C. § 1818(i)(2)] against * * * , * * * , * * * , * * * , * * * , * * * and * * * (Respondents) individually and as Officers and/or Directors of * * * Bank, * * * (Bank) for violating certain provisions of a "Cease-And-Desist Order which has become final" as that term is defined by section 8(k) of the Act [12 U.S.C. § 1818(k)]. (The Cease-and-Desist Order issued March 2, 1984, is attached to this Decision as Appendix A.) The Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing (hereinafter referred to as "Notice of Assessment" and attached to this Decision as Appendix B) was issued by direction of the Board of Review, acting under direction of the FDIC, on October 16, 1985.
Statement of Facts
* * * Bank (Bank) is a corporation existing and doing business under the laws of the State of * * * and has its principal place of business in * * *. At all times pertinent to this proceeding, the Bank is and was an insured state nonmember bank subject to the Act [12 U.S.C. §§ 1811-1831(d)] and Rules and Regulations of the FDIC (12 C.F.R. Chapter III). * * * and * * * each is and was, at all times pertinent to this proceedings, a Director and/or Officer of the Bank. * * * has been a Director since December 14, 1983. * * * and * * * each was elected to the Bank's Board of Directors in July, 1984. * * * was elected a Director on December 14, 1983 but resigned this position on March 20, 1985.
Substantiation of the Violations
The written direct testimony and documentary evidence received from the Bank focuses on its efforts to gain approval of a charter amendment for the issuance of additional shares of bank stock. It was this step which was to facilitate the accumulation of $2,000,000 in total capital and reserves as required by paragraph 1(a) of the Order. However, the Bank's execution of this effort was replete with error. The Bank initially submitted a charter amendment in March of 1984 to * * * Executive Assistant to the * * * Commissioner of Banks and Trust Companies, calling for an issuance of 60,000 shares of bank stock at a price of $20.00 per share and a par value of $10.00 per share. Ex. No. G-5 at 2, Ex. No. B-7 at 2 * * *. However, at a meeting with members of the Bank's Board on March 15, 1984, Mr. * * * explained that the charter amendment application was returned because it was improperly completed; i.e., it was not sufficiently descriptive of the transaction. Id. See Bank's Answer at 2. When it became apparent that the price per share was too high in light of the Bank's condition, the Board amended the purchase price to $10.00 a share at a July, 1984 shareholders' meeting. Bank Answer at 2, Ex. No. B-
Findings of Fact and Conclusions of Law
The Bank entered into a Consent Agreement whereby it agreed to an Order to Cease-and-Desist on November 18, 1983. The Bank accepted the terms of the Consent Agreement and agreed to the Order on December 15, 1983. The Order was issued by the FDIC on March 2, 1984, became effective March 12, 1984, and was a final Order as that term is defined by § 8(k) of the Act [12 U.S.C. § 1818(k)]. The Order is effective as to all of the Directors at the time of its issue and as to all subsequent Directors of the Bank until such time as the Order is revoked, modified or set aside by the FDIC. As of September 15, 1984, 180 days from the effective date of the Order and the date by which compliance was required, Respondents had violated paragraphs 1(a), 6(c)4, and 11 of the Order. By virtue of these violations, it is appropriate that a civil money penalty be assessed against each Respondent under § 8(i)(2) of the Act. [12 U.S.C. § 1818(i)(2)]. According to § 308.68 of the FDIC Rules and Regulations (12 C.F.R. § 308.68), the amount of each penalty should be assessed by taking into account the financial resources and good faith of each Respondent, the gravity of the violations of each Respondent, the history of previous violations of each Respondent, and other such matters as justice requires. Violation of the capital provision of the Order is considered most critical, and thus the amount assessed for noncompliance should be greater than for noncompliance with the other two provisions. Distinction with respect to culpability among the Board members is also necessary; because Mr. * * * was a salaried Chief Executive Officer and Chairman of the Board during the period of compliance with the Order, he was ultimately responsible for insuring full conformance with all of its provision. His penalty should therefore reflect this responsibility. The financial resources of each Director must also be considered; however, only Mr. * * * provided any information in this regard, though all were invited to do so by the "10-day" letter of February 22, 1985. Directors * * * and * * * joined the Board after the effective date of the Order, and subsequent to the expiration of the time frames for the Call Reports and monthly reports to be resubmitted. (The requirements of paragraphs 6(c) and 11 of the Order.) Accordingly, the penalty assessed against each of them, $2,000.00, is only with respect to violation of 1(a) of the Order. Directors * * * , * * * , * * * and * * * should also be assessed this penalty,
PROPOSED ORDER
Based upon the record in this proceeding and the foregoing statement of the case, including findings of fact and conclusions of law, it is RECOMMENDED that the following ORDER be entered by the Board of Directors of the FDIC:
2. That the civil money penalties assessed against each of the named individuals shall not be paid directly or indirectly by * * * Bank but shall be paid by the individual against whom the penalty is assessed.
/s/ Daniel J. Davidson,
Appendix A
ORDER TO CEASE AND DESIST
FDIC-84-10b
* * * Bank, * * * ("Bank") having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and regulations alleged to have been committed by the Bank and of its right to a hearing on the alleged charges under Section 8(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(b)(1)), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated November 18, 1983, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations of law and regulations, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
ORDER TO CEASE AND DESIST
IT IS HEREBY ORDERED, that the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank, cease and desist from the following unsafe or unsound banking practices and violations of law and regulation:
Appendix B
NOTICE OF ASSESSMENT OF CIVIL
FDIC-85-303k
NOTICE OF ASSESSMENT OF CIVIL
The Federal Deposit Insurance Corporation ("FDIC") is of the opinion that * * * , * * * , * * * , * * * , * * * , * * * and * * * ("Respondents"), individually and as officers and/or directors of * * * Bank, * * * ("Bank"), each has violated certain provisions of a "Cease-and-Desist Order which has become final" as that term is defined in section 8(k) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. § 1818(k)). The FDIC hereby issues this NOTICE OF ASSESSMENT OF CIVIL MONEY PENALTIES, FINDINGS OF FACT AND CONCLUSIONS OF LAW, ORDER TO PAY, AND NOTICE OF HEARING ("NOTICE OF ASSESSMENT") pursuant to the provisions of section 8(i)(2) of the Act (12 U.S.C. § 1818(i)(2)) and the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). In support thereof, the FDIC finds and concludes as follows:
FINDINGS OF FACT AND
1. The Bank is a corporation existing and doing business under the laws of the State of * * * and having its principal place of business in * * *. The Bank is and was, at all times pertinent to this proceeding, an insured State nonmember bank subject to the Act (12 U.S.C. §§1811-1831d) and the Rules and Regulations of the FDIC (12 C.F.R. Chapter III). * * * , * * * , * * * , and * * * , each is and was, at all times pertinent to this proceeding, a director and/o an officer of the Bank. * * * and * * * each was elected to the Bank's board of directors in July, 1984, and was a director of the Bank at times pertinent to these proceedings. * * * was, at times pertinent to these proceedings, a director of the Bank until March 20, 1985. The FDIC has jurisdiction over the Bank, each Respondent, and the subject matter of the proceeding.
ORDER TO PAY
After taking into account the appropriateness of each penalty with respect to the financial resources and good faith of each Respondent, the gravity of the violations of each Respondent, the history of previous violations of each Respondent, and such other matters as justice may require, it is:
NOTICE OF HEARING
FURTHER ORDERED, that if any Respondent requests a hearing with respect to the charges in the NOTICE OF ASSESSMENT, the hearing shall commence 60 days from the date of receipt of such request at * * *. The hearing will be conducted in accordance with the provisions of the Act (12 U.S.C. §§1811-1831d), the Administrative Procedure Act (5 U.S.C. §§551559), and the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). The hearing will be held before an Administrative Law Judge to be appointed by the U.S. Office of Personnel Management pursuant to 5 U.S.C. § 3344. The exact time and location of the hearing will be determined by the Administrative Law Judge. The FDIC is preliminarily of the view that a public hearing is necessary to protect the public interest. The hearing will be public unless the FDIC, after considering the views of the Respondent, shall determine that a private hearing is necessary to protect the public interest.
/s/ Janet M. Reddish |
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Last Updated 6/6/2003 | legal@fdic.gov |