Federal Deposit
Insurance Corporation

{{4-1-90 p.A-1155}}
   [¶5093] FDIC Docket No. FDIC-85-133K (8-4-87)

   A bank director was ordered to pay a civil money penalty of $25,000 for receiving extensions of credit for his own benefit or for the benefit of related interests which, in the aggregate, exceeded the legal lending limit. The penalty was assessed on a summary judgment motion after the director failed to defend against the charges.

   [.1] Civil Money Penalty—Summary Judgment—Failure to Respond
   A bank director who failed to answer a Motion for Summary Judgment and failed to defend against the charges against him may be assessed a civil money penalty.

In the Matter of * * * AND
INDIVIDUALLY, AND AS OFFICERS
AND/OR DIRECTORS OF * * * BANK
(INSURED STATE NONMEMBER
BANK)


DECISION AND ORDER TO PAY
FDIC-85-133k

STATEMENT OF THE CASE

   These proceedings arise under section 18(j)(3) of the Federal Deposit Insurance Act (the "Act"), 12 U.S.C. § 1828(j)(3). On May 8, 1985, the Board of Review of the Federal Deposit Insurance Corporation (the "FDIC"), pursuant to delegated authority, issued a written Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, and Order to Pay ("Notice") against * * *, * * *, * * *, * * *, * * *, * * *, * * *, * * *, * * *, * * * and * * * ("Respondents"), individually and as officers and/or directors of the * * * Bank * * * (the "Bank"), pursuant to section 18(j)(3) of the Act. The Notice charged Respondents with violations of section 23A of the Federal Reserve Act (12 U.S.C. § 371c), made to apply to insured State nonmember banks by section 18(j)(1) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(j)(1)); section 22(h) of the Federal Reserve Act, as amended (12 U.S.C. § 375b), and Regulation O of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 215) ("Regulation O") as promulgated thereunder and made applicable to insured State nonmember banks by section 18(j)(2) of the Act (12 U.S.C. § 1828(j)(2)), and section 337.3(a) of the FDIC's Rules and Regulations (12 C.F.R. § 337.3(a)). The Notice sought civil money penalties against Respondents in the following amounts: $25,000 against * * *; $2,500 each against * * * and * * *; and $1,000 each against * * *, * * *, * * *, * * *, * * *, * * *, * * *, and * * *.
   The violation of section 23A of the Federal Reserve Act arose from a number of extensions of credit to Respondent * * * , * * * (Respondent's wife), * * * (Respondent's son) and a corporate interest related to Respondent * * * (which were secured by shares issued by an affiliate of the Bank) the aggregate of which exceeded ten percent of the Bank's unimpaired capital and surplus. The violations of Regulation O arose from seventeen extensions of credit to five parties involving over seven hundred thousand dollars. The aggregate amount of the loans to each party exceeded the limit for such extensions of credit. Furthermore, many if not all of the extensions of credit: were made without a repayment plan; were made without supporting documentation; were unsecured; were in excess of borrowing authorization; and involved more than a normal risk of repayment.
   All of the named Respondents, except for * * *, successfully sought either dismissal or settlement of the charges and assessments, thus, this matter proceeded against Respondent * * * only. Respondent * * * requested a hearing pursuant to section 308.69 of the FDIC's Rules of Practice and Procedures, 12 C.F.R. § 308.69, but neither Respondent nor his counsel appeared at the Final Pre-Hearing Conference held August 25, 1986, after having been duly notified thereof, and * * * failed to defend himself in any way thereafter. As a consequence, {{4-1-90 p.A-1156}}the FDIC enforcement counsel filed a motion for summary judgment. In light of Respondent * * * default and because there was no genuine issue of material fact, Administrative Law Judge Kenneth E. Stewart ("ALJ") granted enforcement counsel's motion for summary judgment in a Recommended Decision dated April 27, 1987. This Recommended Decision and Order found the FDIC's assessment of a twenty-five thousand dollar ($25,000) civil money penalty to be proper. Neither party filed exceptions to the Recommended Decision and Order.

OPINION

   The Board of Directors of the FDIC (the "Board") finds the ALJ's Proposed Findings of Fact and Conclusions of Law to be supported by the evidence in the record. We therefore adopt and incorporate herein by reference the Proposed Findings of Fact and Conclusions of Law on pages 3 through 8 of the Recommended Decision. The Board also agrees with the analysis of the law set forth in the ALJ's Recommended Decision. We find that analysis to be supported both by statute and established precedent. The Board, therefore, adopts and incorporates herein by reference the ALJ's discussion of law on pages 3 through 8 of the Recommended Decision.
   Having found that Respondent * * * engaged in violations of Regulation O as set forth in the ALJ's Recommended Decision, the Board finds the ALJ's recommended ORDER TO PAY ("ORDER") is appropriate as a penalty and as a deterrent for future abuses. Therefore, the Board adopts herein that ORDER, as set forth below as its final ORDER TO PAY in this proceeding.

ORDER TO PAY

   After taking into account the appropriateness of the penalty with respect to the financial resources and the good faith of Respondent * * *, the gravity of these violations, the history of previous violations, and all of the circumstances, it is:
   ORDERED, that by reason of the violations found herein, a penalty of $25,000 be, and hereby is, assessed against Respondent * * * pursuant to section 18(j)(3) of the Act (12 U.S.C. § 1828(j)(3)).
   FURTHER ORDERED, that the penalty assessed hereby shall be payable and collected not later than 20 days from the date this ORDER TO PAY becomes final and unappealable.
   FURTHER ORDERED, that the penalty assessed herein shall be paid by Respondent * * * and shall not be paid directly or indirectly by the * * * Bank, * * *.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 4th day of August, 1987.

/s/ Hoyle L. Robinson
Executive Secretary

ASSESSMENT OF CIVIL MONEY
PENALTIES

FDIC-85-133k

RECOMMENDED ORDER GRANTING
MOTION FOR SUMMARY
JUDGMENT AND RECOMMENDED
DECISION

   [.1] This matter coming on to be heard upon the motion of Petitioner, F.D.I.C., for Summary Judgment, seeking entry of an Order of Summary Judgment in its favor and against Respondent, * * *; all other named Respondent's in the matter having either been dismissed or settled; the undersigned having examined and considered the Notice of Charges, Respondent's answer thereto, Petitioner's motion, brief, and supporting affidavit of * * *, Petitioner's exhibits A-1 to A-30 previously admitted herein, as well as arguments of counsel; and now being fully advised, FINDS as follows:
   1. Respondent, * * *, has wholly failed to answer or otherwise respond, either individually or through counsel, to Petitioner's Motion for Summary Judgment despite both the Respondent and his counsel having been duly served with notice of said motion and despite Respondent and his counsel having been duly served with the March 2, 1987 Order of the undersigned directing a response or answer to said motion by not later than March 16, 1987.
   2. Other than filing an initial answer to the Notice of Charges and a Request for Hearing, the Respondent, * * *, has similarly failed, either individually or through counsel, to state any defense to the charges against him, has not introduced any responsive document, affidavit, or even a single piece of evidence in support of his position despite having been afforded repeated opportunities to do so. He has likewise failed to appear, without explanation, at the Final Pre-Hearing Conference held August 25, {{4-1-90 p.A-1157}}1986, after having been duly notified thereof.
   3. Review of the pleadings on file, the affidavit in support of Petitioner's motion, the other evidence of record, and the record as a whole, shows that there is no genuine issue as to any material fact presented herein.
   4. Petitioner's Motion for Summary Judgment should be allowed and Petitioner is entitled to judgment herein as a matter of law.
   Wherefore, IT IS THE RECOMMENDED ORDER of the undersigned that:
   1. Petitioner's Motion for Summary Judgment be, and hereby is, granted.
   2. The Petitioner's Proposed Findings of Fact, numbering 1 to 32 inclusive, and Conclusions of Law, lettered A to K inclusive, copies of which are attached hereto and made a part hereof, be, and the same hereby are, adopted as the Findings of Fact and Conclusions of Law of the undersigned.

RECOMMENDED DECISION

   Based upon the foregoing Findings of Fact and Conclusions of Law and taking into consideration all the evidence of record herein, it is the decision of the undersigned that Respondent, * * *, has violated Sections 215.4(a), (b) and (c) of Regulation O of the Board of Governor of the Federal Reserve System (12 CFR sections 215.4(a), (b), and (c) respectively) and section 23A of the Federal Reserve Act (12 U.S.C. 371c) as charged and that civil money penalties should be assessed against him pursuant to 18(j)(3) of the Federal Deposit Insurance Act. Considering the appropriateness of the penalty sought in light of the factors cited by Section 18(j)(3)(B) of the Act (12 U.S.C. 1828(j)(3)(B)), the undersigned finds the assessed penalty of twenty five thousand dollars ($25,000.00) to be proper.
   Accordingly, it is the recommendation of the undersigned that the Board of Directors of the FDIC issue to Respondent, * * *, the attached Order to Pay, which order is hereby made a part of this Recommended Decision.

SO ORDERED
/s/ Kenneth E. Stewart
Administrative Law Judge
APR 27 1987

PROPOSED FINDINGS OF FACT AND
CONCLUSIONS OF LAW

FINDINGS OF FACT

   1. The Bank is a corporation existing and doing business under the laws of the State of * * *, having its principal place of business in * * * (Admitted in Answer)
   2. The Bank is and was, at all times pertinent to this proceeding, an insured state nonmember bank subject to the Federal Deposit Insurance Act ("the Act") 12 U.S.C. § 1811-1831(d), the Rules and Regulations of the FDIC. 12 C.F.R. Chapter III and the laws of the State of * * *, (Admitted in Answer)
   3. * * * was, at all times pertinent to this proceeding, a "director" of the Bank as that term is defined in section 215.2(c) of Regulation O, 12 C.F.R. § 215.2(c). (Admitted in Answer)

CONCLUSION OF LAW

   A. The FDIC has jurisdiction over the Bank, each Respondent and the subject matter of this proceeding.

FINDING OF FACT

   4. On May 17, 1983 and May 20, 1983, Respondent possessed a one-third ownership interest in * * * and was president of the corporation. Respondent also signed checks on behalf of the corporation. (* * * p.3; Exhibit A-30, p.6-a)

CONCLUSION OF LAW

   B. * * * was a "related interest" of Respondent as that term is defined in section 215.2(k) of Regulation O, 12 C.F.R. § 215.2(k).

FINDINGS OF FACT

   5. The Bank extended credit to * * * on May 17, 1983 in the amount of $37,500, and on May 20, 1983 in the amount of $122,500. (Exhibits A-14; A-15)
   6. At the time the extensions of credit were made by the Bank, * * * was a corporation organized under the laws of * * *, for the purpose of engaging in a farm operation located in that country. The loan was classified substandard in the September 28, 1984 FDIC Report of Examination. A substandard asset demonstrates more than the normal degree of risk. (* * * p.3; Exhibit 30, pp.2-a and 2-a-1)
{{4-1-90 p.A-1158}}
   7. The extensions of credit to * * * were made without a repayment plan, without supporting documentation, were unsecured, and were in excess of the corporation's borrowing authorization. (Exhibit A-30; p.2-a-1)

CONCLUSION OF LAW

   C. The extensions of credit made by the Bank to * * * involved more than the normal risk of repayment and presented other unfavorable features in violation of section 215.4(a) of Regulation O, 12 C.F.R. § 215.4(a).

FINDINGS OF FACT

   8. The Bank extended credit to * * * in the amount of $91,519 on September 15, 1982 and in the amount of $5,000 on August 24, 1984. (Exhibit A-17)
   9. The extensions of credit to * * * were guaranteed by * * * (Exhibit A-18)

CONCLUSION OF LAW

   D. The guarantee by Respondent * * * of the indebtedness of * * * constitutes an extension of credit to the Respondent pursuant to section 215.3(a)(8) of Regulation O, 12 C.F.R. § 215.3(a)(8).

FINDINGS OF FACT

   10. On January 5, 1984, the Bank extended credit to * * *, wife of Respondent, in the amount of $235,000. (Exhibit A-13).
   11. * * * repaid none of the principal or interest on the loan made by the Bank through September 28, 1984. (* * * p.2)
   12. The proceeds of the extension of credit to * * * were deposited in the * * * Real Estate Account at the Bank and, therefore, were used for the benefit of * * *. (Exhibits A-24; A-23)

CONCLUSION OF LAW

   E. Pursuant to section 215.3(f) of Regulation O, 12 C.F.R. $215.3(f), the Bank extension of credit to * * * is considered to have been made to the Respondent.

FINDINGS OF FACT

   13. Through September 28, 1984, 15 percent of the Bank's unimpaired capital and unimpaired surplus never exceeded $290,550. (* * * p.3; Exhibit A-30, p.6-a-1)
   14. The Bank extended credit to the Respondent in the aggregate amount of $235,000 on the following dates and in the following amounts:

   15. From the dates that the above extensions of credit were made through September 28, 1984, no principal was repaid on the extensions of credit. (* * * p.2)

CONCLUSION OF LAW

   F. The extensions of credit to the Respondent and his related interests as identified in Proposed Findings of Fact 5, 8, 10 and 14 exceeded the Bank's aggregate lending limits imposed by section 215.2(f) of Regulation O, 12 C.F.R. § 215.2(f), in violation of section 215.4(c) of Regulation O, 12 C.F.R. § 215.4(c).

FINDINGS OF FACT

   16. None of the extensions of credit granted to * * *, * * *, * * *, or Respondent were secured by readily marketable collateral having a fair market value as determined by reliable and continuously available price quotations. (* * * p.3)
   17. Through September 28, 1984, five percent of the Bank's capital and surplus never exceeded $96,850. (* * * p.5)
   18. The Board of Directors of the Bank failed to give prior approval to the extensions of credit to * * *, * * * and * * * (* * * p.4, Exhibit A-30, p.6-a-1)
   19. The aggregate extensions of credit to * * * as of June 17, 1982 equaled $143,000. (* * * p.1)

CONCLUSION OF LAW

   G. The Bank extensions of credit to * * * , * * * and * * * were made in violation of section 215.4(b) of Regulation O, 12 C.F.R. § 215.4(b).

FINDING OF FACT

   20. * * * is a one-bank holding company owning 100 percent of the outstanding shares of the Bank. The Respondent was, at all times pertinent to these proceedings, {{4-1-90 p.A-1159}}president of the holding company. (* * * pp. 2–3; Exhibit A-30, p.6-c)

CONCLUSION OF LAW

   H. * * * is and was an "affiliate" of the Bank as defined in section 23A(b)(1)(A) of the Federal Reserve Act, 12 U.S.C. § 371c(b) (1)(A).

FINDINGS OF FACT

   21. The Bank extended credit to * * * , son of Respondent, on the following dates and in the following amounts:

   The loans were classified substandard in the September 28, 1984 FDIC Report of Examination, (* * * p.2; Exhibit A-30, p.2-a-2)
   22. From the dates that the above extensions were made through September 28, 1984, * * * repaid none of the principal on the extensions of credit made by the Bank. The amount of principal outstanding was $78,521.25. (* * * p.2; Exhibit A-30, p.6-a)
   23. On August 11, 1984, the Respondent pledged 2,497 shares of * * * stock to secure all extensions of credit to him by the Bank. (Exhibit A-19)
   24. Between August 11, 1984 and September 28, 1984 the Respondent pledged 2,497 shares of * * * stock for loans to * * * , * * * and * * * (Exhibit A-20; A-21; A-22)
   25. On and after August 11, 1984, the aggregate extensions of credit to the Respondent, * * * , * * * and * * * exceeded 10 percent of the Bank's unimpaired capital and surplus. (* * * p.4; Exhibit A-30, p.6-a-2)

CONCLUSION OF LAW

   I. The aggregate extensions of credit to Respondent, * * *, * * * and * * * which were secured by the shares of * * * exceeded 10 percent of the Bank's unimpaired capital and surplus in violation of section 23A of the Federal Reserve Act, 12 U.S.C. § 371c.

FINDING OF FACT

   26. Officers of the Bank were informed by the FDIC Examiner on July 27, 1984 that the Bank was engaged in violations of law. The violations were not corrected prior to the examination conducted by the FDIC as of September 28, 1984. (* * * p.4)
   27. * * * showed a net worth of $2,888,000 in a financial statement submitted to the Bank as of September 1, 1983. (* * * p.4; Exhibit A-30, p.8)
   28. The Bank may suffer loss as a result of the extensions of credit outlined above. (* * * p.4)
   29. The Respondent dominated the officers, directors and affairs of the Bank. (* * * p.5; Exhibit A-30, p.A)
   30. The transactions by Respondent are self-serving in nature and the loan to * * * evidences an effort to deceive the Bank's board of directors regarding the true purpose of the loan. (* * *, pp. 4–5; Exhibit A-30, p.A)

CONCLUSION OF LAW

   J. The assessment of a civil money penalty against Respondent in the amount of $25,000 is appropriate in consideration of the statutory factors required to be considered by section 18(j)(3)(B) of the Act, 12 U.S.C. § 1828(j)(3)(B).

FINDINGS OF FACT

   31. * * * has been a commissioned bank examiner with the FDIC since 1968. He has participated in approximately 500 bank examinations, of which he was the examiner-in-charge for approximately 150. He is presently a field office supervisor in * * * where he manages a staff of 14 assistant examiners and coordinates the examination of 133 state nonmember banks. (* * * p.1)
   32. * * * was the examiner-in-charge of the FDIC examination of the Bank conducted as of September 28, 1984. (* * * p.1)

K. CONCLUSION OF LAW

   The conclusions and opinions of * * * in bank regulatory matters are entitled to great weight and deference. (See also, Sunshine State Bank v. Federal Deposit Insurance Corporation, 783 F.2d 1580 (1986)).

{{4-1-90 p.A-1160}}
ORDER TO PAY

   After taking into account the appropriateness of the penalty with respect to the financial resources and good faith of * * *, the gravity of the violations, history of previous violations, and such other matters as justice may require, it is:
   ORDERED, that by reason of the transactions and violations of law and regulation evidenced in the record of this action, a civil money penalty in the amount of $25,000 be, and is, assessed against * * * pursuant to section 18(j)(3) of the Act (12 U.S.C. § 1828(j)(3)).
   FURTHER ORDERED that this Order shall be effective upon service upon * * * and the penalty ordered shall be payable after 20 days from the date of such service.
   By direction of the Board of Directors.
   Dated in Washington, D.C. this ____ day of ____, 1987.