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FDIC Enforcement Decisions and Orders |
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FDIC denied application for acquisition of control. Applicant, 26 years old, had been named trustee of a voting trust relating to shares of Bank's stock owned by Applicant's father, who was Bank's principal stockholder and who had recently been removed from Bank's Board of Directors and prohibited from participation in Bank's affairs. FDIC found that Applicant had not demonstrated requisite competency and that the voting trust violated prohibitions against participation
{{4-30-91 p.A-1517}}in Bank's affairs by Applicant's father. (This decision was affirmed by the United States Court of Appeals, 924 F.2d 350.)
[.1] Practice and ProcedureBurden of ProofChange in Control Proceedings
[.2] Civil Money PenaltiesParticipants in Conduct of AffairsVoting Trust
[.3] Change in Bank Control ActFactors ConsideredVoting Trust
[.4] Change in Bank Control ActFactors ConsideredQualifications of Applicant
In the Matter of
DECISION
I. BACKGROUND
The Applicant, chairman of the board of Pigeon Falls State Bank, Pigeon Falls, Wisconsin, is the oldest of four sons of George B. Sletteland who was, until his removal under 12 U.S.C. §1818(e)(1), the dominant force, principal owner and chairman of the board of the Bank. See FDIC 87-61e, 87k, 2 P-H Enf. Dec. ¶5113 (1988). The Sletteland family has controlled the Bank since its inception in the 1920s. A few months prior to his June 1, 1988, removal, George Slettleland nominated his son Peder for membership on the Bank's board of directors, to which Peder was subsequently elected. About a week prior to George Sletteland's removal, he nominated Peder as chairman of the board of the Bank, and again Peder was elected. On May 31, 1988, George Sletteland executed a voting trust agreement to cover 41.2% of the stock in the Bank and designated his son as the trustee. This trust is irrevocable for five years and may be renewed for a total period not to exceed twenty-four years.
[.1] A pre-trial issue arose concerning burdens of proof. The ALJ ruled by letter of June 12, 1989, that the FDIC has the initial burden to present a prima facie case at hearing and that subsequently the Applicant bears the burden of rebutting the prima facie case.1 FDIC enforcement counsel sought an interlocutory ruling on this issue on June 19, 1989. The Board declined enforcement counsel's request for special permission to appeal by Decision and Order of July 11, 1989.
II. THE ALJ'S RECOMMENDED
A. Witness Testimony
The ALJ's Recommended Decision summarizes and assesses the testimony, analyzes the relevant statutes, and considers the evidence in light of the factors set forth by statute. Concerning the Applicant's experience and competence, the ALJ noted that the Applicant was twenty-six years old at the time of the hearing. Beginning as a teenager, the Applicant had spent summers and school breaks working as a teller at a bank for approximately $6.50 an hour. The Applicant does not have a college degree although he has completed college courses in art, history, and economics. The Applicant's experience includes a sales position in a men's boutique and participation in an interior decorating firm.2 R.D. at 35.
B. The Change in Control Act
The ALJ analyzed the Change in Bank Control Act ("CBCA"), which states, in pertinent part:
III. DISCUSSION
A. Voting Trust Issue
[.2] The FDIC contended before the ALJ and in its exceptions that voting trusts are per se proscribed by section 1818(j). This section provides:7
[.3] The Applicant also states that he does not understand the ALJ's statement that the voting trust violated 12 U.S.C. § 1818(j) (Exceptions Nos. 10 and 14) and takes exception to the statement that George Sletteland remained a force at the Bank after his removal as demonstrated by his ability to place his son as chairman of the board of the Bank. Exception No. 11; R.D. at 18. In these exceptions the Applicant urges the Board (as he had urged the ALJ below) to view this matter in a vacuumlimited to whether the Applicant had the requisite background and experience to be a controlling shareholder.13 The Board disagrees, with this narrow view of the facts. The Applicant's competency, integrity, and financial independence and whether or not the voting trust was permissible under section 1818(j), were necessarily part of the ALJ's analysis. The ALJ properly considered all the facts and issues surrounding this CBCA application, which was necessary to a determination of whether approval of the application would "prejudice the interests of the depositors of the bank." 12 U.S.C. § 1817(j)(7)(C). Accordingly, the Board concludes that the majority of the Applicant's exceptions reargue matters previously raised and adequately dealt with by the ALJ, and none requires modification of the ALJ's Recommended Decision.
IV. CONCLUSION
Accordingly, the Board agrees with the ALJ's analysis of the issues and his conclusion that Peder Sletteland's application under the Change in Bank Control Act should be denied. The Board therefore adopts and incorporates by reference the Recommended Decision accompanying this Decision and Order with the modification discussed above concerning the voting trust issue.
ORDER
IT IS HEREBY ORDERED, pursuant to 12 U.S.C. § 1817(j) and the FDIC Rules of Practice and Procedure, 12 C.F.R. Part 308, that the proposed Notice of Acquisition of Control by Peder Sletteland pursuant to a voting trust be, and it hereby it, DISAPPROVED.
In the Matter of
I. Introduction
The Applicant is the oldest of four sons of George B. Sletteland who was, until his removal under 12 U.S.C. § 1818(e)(1), the dominant force, principal owner and Chairman of the Board of the Bank. TR 1112. See FDIC Enf. Dec. §5113 (1988). Indeed, the Sletteland family has controlled the Bank since its inception in the 1920s. As will be set forth in more detail below, a few months prior to his removal effective June 1, 1988, George Sletteland nominated Peder for membership on the Bank's board of directors, to which Peder was elected; and about a week prior to the removal, again on George's nomination, Peder was elected Chairman of the Board.
II. Testimony
A. Peder B. Sletteland
The Applicant was 26 years old at the time of the hearing. TR 11. During his teenage years he spent summers and school breaks working at the Park Bank in Madison, Wisconsin, in which his father and mother owned stock. TR 1214. Among other things, he worked as a teller for approximately $6.50 per hour. TR 13.
B. James P. Kielczewski
Deputy Regional Director James P. Kielczewski has worked for the FDIC 27 years. He testified that he has reviewed more than fifty change in control applications. TR 123. Kielczewski's review of the instant application raised several concerns. Principally he had doubts as to whether the Applicant could be independent of his father, particularly given their financial ties in Health Care Providers. TR 130.
C. George Sletteland
George Sletteland testified that he owns a beneficial interest in Bank stock, the voting rights of which he transferred to his son. TR 193. He testified that the voting trust is irrevocable for five years and he cannot replace the trustee. TR 232.
D. John Kulig
President Kulig testified that the Applicant became a member of the Board in January of 1988 and has subsequently developed into a good member, that he can read and analyze financial statements and is familiar with the Bank's lending procedures. TR 256, 257. Kulig expressed his opinion that in the role of board chairman the Applicant does not act on behalf of his father. TR 257.
E. Frederick J. Berns and David Peat
Frederick J. Berns testified, in general, that he is an attorney and member of the Bank's Board of Directors. He testified that Peder Sletteland is an able member and chairman and has done nothing to facilitate his father's participation in the affairs of the Bank.
III. Analysis
A. Contentions of the Parties
In essence, the FDIC contends that: 1) voting trusts are per se proscribed by Section 1818(j), but even if permitted 2) under the facts here, the trust is bogus and 3) in any event, the Applicant lacks the demonstrated competence, experience and integrity under Section 1817(j)(7)(D) to justify the agency's approval of the change of control application.
B. The Statute
The CBCA was enacted as Title VI of the Financial Institutions Regulatory and Interest Rate Control Act of 1978 Pub. L. No. 95-630, 92 Stat. 3641, 3683 (1978), and is codified at 12 U.S.C. § 1817(j). Paragraph I of that subsection provides:
The legislative history of the CBCA is clear on several points directly material to this case. First, it reveals that Congress intended to grant the Federal banking regulators broad discretion under the Act to disapprove the transfer of control in an existing bank, similar to the discretion that the regulators possess in chartering a new bank. Second, this discretion includes the authority to disapprove a proposed acquisition not only because of known and documented problems, but also when the regulator anticipates that problems might result from the change in control. Third, the legislative history provides examples where, under the competence and financial condition standards, members of Congress and bank regulators agreed that the disapproval of a proposed change in bank control would be warranted.
[.4] However, from the legislative history, I conclude the FDIC Board has broad discretion to evaluate the qualifications of an applicant for a change in bank control and to reject applicants for known and reasonably anticipated problems which could result from the acquisition of control.
C. Analysis and Concluding Findings
The evidence presented by the FDIC, including the Applicant's lack of competence and experience, establishes that the voting trust violates Section 1818(j)(ii), which prohibits a removed person from voting for directors, and therefore cannot be the basis for a change of control.
1. Legality of the Voting Trust
Counsel for the FDIC argues that voting trusts are not favored in the law and therefore the trust "violates Section 1818(j)(i)'s prohibition against the transfer of voting rights." (FDIC Brief at 27) However, voting trusts are in fact specifically authorized in Wisconsin:
2. The Applicant's Competence and Experience
The second basis for denying the application was the agency's conclusion that the Applicant's "competence, experience or integrity. . . is such that the proposed acquisition is not in the interest of the Bank's depositors or in the interest of the public...." This is separate from, but intertwined with, the voting trust issue.
FINDINGS OF FACT
1. On April 25, 1988, the Board of Directors of the FDIC issued a final Decision and Order pursuant to section 8(e)(5) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(e)(5), whereby George B. Sletteland was removed as an officer and director of Pigeon Falls State Bank, Pigeon Falls, Wisconsin (the Bank) an insured state nonmember bank, and prohibited him from participation in any manner in the conduct of the affairs of the Bank or any other FDIC-insured institution. FDIC-87-61e, FDIC-87-62k, 2 P-H FDIC Enf. Dec. ¶5113.
CONCLUSIONS OF LAW
1. The Bank is subject to the provisions of 12 U.S.C. §§ 1811-1831d, and the FDIC Rules of Practice and Procedure.
ORDER
IT IS HEREBY ORDERED, pursuant to 12 U.S.C. § 1817(j) and the FDIC Rules of Practice and Procedure, 12 C.F.R. Part 308, that the proposed Notice of Acquisition of Control be, and it hereby is, DISAPPROVED. |
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Last Updated 6/6/2003 | legal@fdic.gov |