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FDIC Enforcement Decisions and Orders

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   [5132] Docket No. FDIC-88-180e(2-7-89).

   Executive officer and director prohibited from participation in any capacity in the affairs of, and the exercise of voting rights in, any insured bank.

   [.1] Prohibition, Removal, or Suspension—Notice of Intention to Prohibit— Failure to Answer
   Failure to file an answer to a Notice of Intention to Prohibit from Further Participation results in a waiver of the right to contest the allegations and facts alleged in the Notice are deemed admitted.

   [.2] Prohibition—Participation in Affairs of any Insured Bank
   [.3] Prohibition—Exercise of Voting Rights

In the Matter of
* * *, Individually and as an Executive
Officer, a Director, and a Person
Participating in the Conduct of the Affairs
of * * * BANK

(Insured State Nonmember Bank—In

I. Procedural History

   This proceeding, brought by the Federal Deposit Insurance Corporation ("FDIC"), seeks to remove * * * ("Respondent") in his capacity as an executive officer, a director, and as a person participating in the affairs of * * * Bank * * * (the "Bank"), pursuant to section 8(e) of the Federal Deposit Insurance Act (the "FDI Act"), 12 U.S.C. §1818(e).
   On August 19, 1988, the FDIC issued a Notice of Intention to Prohibit from Further Participation ("Notice") alleging that Respondent caused the Bank to engage in a series of "covered transactions" in which Respondent personally derived tangible economic benefit.1 Most of the assets, loan pools, etc. involved in the "covered transactions" were classified "loss" by FDIC examiners. Respondent's conduct violated laws and regulations and constituted a breach of his fiduciary duty as an officer and a director of the Bank, and resulted in substantial financial loss to the Bank.
   The Notice states (at 11) that, pursuant to section 308.06 of the FDIC's Rules of Practice and Procedures, Respondent is directed to file an Answer within twenty (20) days of service of the Notice. Although signed receipts indicating that the Notice was served on Respondent have been received by the FDIC, Respondent has not filed an Answer.
   On November 2, 1988, enforcement counsel for the FDIC filed a Motion for Recommended Decision based on the failure to file an Answer, as provided in section 308.06(a) of the FDIC regulations. 12 C.F.R. §308.06(a). Respondent did not respond to enforcement counsel's Motion. At no time has Respondent sought leave to file a late Answer or made any other effort to respond to the Notice.


   [.1] Section 308.06(a) of the FDIC Regulations, 12 C.F.R. §308.06(a), provides:

       Every party to a proceeding shall file an answer with the Executive Secretary within 20 days after service of the notice of hearing ... (emphasis added). 12 C.F.R. §308.06(a).
   The directive of this regulation could not be more clear. An Answer to the charges in the Notice must be filed by Respondent. Further, as noted above, the Notice to Respondent recited this requirement. Further, the effect of failing to file an answer, as set forth in the regulation, is that the Respondent waives his right to contest the allegations in the Notice. 12 C.F.R. §308.06(d). Thus, the facts alleged in the Notice are deemed admitted.
   The Board of Directors ("Board") of the FDIC has reviewed the Notice and finds that the Respondent's conduct meets the three-part test for removal of an officer or director set forth in section 8(e) of the FDI Act. The facts establish that Respondent committed violations of law and regulation, that the Bank suffered substantial financial loss due to this conduct, and that Respondent personally benefited in at least six transactions. On the basis of the facts of record, the Board finds that Respondent's

1 The Notice (at 4–5) describes six transactions in which, in each instance, at least $105,201 was transferred to Respondent for his direct personal use. "Covered transactions" within the context of 12 U.S.C. §371c(b)(7) refers to either a purchase of assets from an affiliate of the Bank or an extension of credit by the Bank to an affiliate.
{{4-1-90 p.A-1415}}conduct involved personal dishonesty and demonstrates a willful disregard for the safety or soundness of the Bank.
   Accordingly, the Board concludes that an order under section 8(e), in the form set forth below, should be issued against Respondent prohibiting him from further participation in the conduct of the affairs of the Bank or any other bank insured by the FDIC.


   [.2] IT IS HEREBY ORDERED, that * * * is prohibited from serving or acting as a director, officer, or employee of, or participating in any manner in the conduct of the affairs of, any bank insured by the FDIC without the prior written approval of the appropriate Federal banking agency as that term is defined in section 3(q) of the Act, 12 U.S.C. §1813(q).

   [.3] IT IS FURTHER ORDERED, that * * * is prohibited from voting for a director of any bank insured by the FDIC without the prior written approval of the appropriate Federal banking agency.
   This ORDER shall become effective ten (10) days after the date of its issuance.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 7th day of February 1989.

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