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FDIC Enforcement Decisions and Orders |
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Board denies Section 19 application of a convicted felon to serve as a bank director. Applicant had pleaded guilty to antitrust conspiracy in 1983 for participation in a bid-rigging scheme.
[.1] FDI Act Section 19ApplicationConvicted Individual"Dishonesty or Breach of Trust"
{{10-31-91 p.A-1767}}
[.3] FDI Act Section 19 Application Burden on Applicant
[.4] FDI Act Section 19 Factors for Consideration Position
[.5] FDI Act Section 19 Factors for Consideration Age
[.6] FDI Act Section 19 Factors for Consideration Rehabilitation
In the Matter of
This proceeding arises out of an application,1 dated November 21, 1989, submitted to the Federal Deposit Insurance Corporation's ("FDIC") New York Regional Office by Severn Savings Bank, FSB, Annapolis, Maryland ("Severn" or the "Bank"), pursuant to section 19 of the Federal Deposit Insurance Act, as amended, 12 U.S.C. § 1829 ("FDI Act"), seeking the FDIC's consent to the appointment of Donald A. Kary ("Kary") as a director thereof. The FDIC's consent to Kary's appointment to Severn's board of directors is required because Kary had pleaded guilty in 1983 of conspiring to restrain trade in violation of the antitrust provisions of section 1 of the Sherman Act, 15 U.S.C. § 1, for his participation in a bid rigging scheme a felony conviction.
A. The Section 19 Application
A. The Statute, Governing Regulations, and Guidelines
[.1] The statute does not define what constitutes a "criminal offense involving dishonesty or a breach of trust." In the FDIC's "Corporation Guidelines and Policies with Respect to Section 19," the term "dishonesty" is defined to mean "to cheat or defraud for monetary gain or its equivalent, directly or indirectly, or to wrongfully take from any person, property lawfully belonging to that person in violation of any statute or code." See Guidelines, FDIC Ex. No. 1. The guidelines also state that dishonest acts include acts which distort, deceive, or involve a lack of integrity. Id. There is no doubt that bid rigging on public contracts falls within the category of crimes contemplated by section 19. Indeed, there was no dispute over this fact in the proceedings below, and Enforcement Counsel and counsel for Kary and Severn stipulated at the outset of the hearing that bid rigging is an offense involving dishonesty or breach of trust.
[.2] In the FDIC's "Corporation Guidelines and Policies with Respect to Section 19," the FDIC indicates that it will focus on five (5) factors in considering the application, although review of the application will not be limited to those five factors. The factors set out in the guidelines are: 1) the nature and circumstances of the offense; 2) evidence of rehabilitation of the person for whom consent is sought to participate in the bank's affairs; 3) age of the person at the time of conviction; 4) position to be held in the bank; and 5) fidelity bond coverage applicable to the person. See Guidelines, FDIC Ex. No. 1. In the proceedings below, except for the issue of fidelity bond coverage, which was mentioned but not disputed, disagreement as to the effect of these factors forms the basis for this controversy.
[.3] Enforcement Counsel also argues that certain aggravating circumstances attended the conviction, and that Kary failed to disclose those circumstances at the time the section 19 application was submitted, including that Kary failed to disclose the full nature and circumstances of the conviction that he pleaded guilty to a single felony count as part of a plea agreement to avoid the
[.4] Little discussion is warranted regarding the fact that Kary seeks to occupy an important position of trust at Severn. Directors of a bank have a fiduciary relationship to the bank and its stockholders. They should exercise the utmost good faith in the discharge of their duties and give the bank the benefit of their best judgment. FDIC-83-21k, 1 P-H FDIC Enf. Dec. ¶5013 (December 5, 1983), citing Briggs v. Spaulding, 141 U.S. 132, 165-66 (1981); Lane v. Chouning, 610 F.2d 1385 (8th Cir. 1979).
[.5] Kary was 57 years old at the time he pleaded guilty to the bid rigging charge. Application, FDIC Ex. No. 1. The presiding officer observed that "[a]nti trust (sic) crimes like bid rigging or crimes in restraint of trade are, as opposed to the more direct or vicious forms of theft, generally committed by mature experienced people who have risen over time to positions of leadership and influence in their business." R.D. at 1213. How this observation led the presiding officer to conclude that Kary's age when he pleaded guilty to the bid rigging charge is not necessarily a critical factor is curious. FDIC witness Krichbaum testified that his office contrasts the situation of a mature person who commits a crime with that of a younger individual who might be in his first job or position. The inference, obviously, is that the younger individual may not be experienced enough to realize the true magnitude of his deeds, although there are certainly exceptions.
[.6] Applicants have presented evidence in the form of letters and testimony from members of the local community supporting Kary and attesting to his character. In addition, Kary presented testimony on his own behalf that would seem to indicate that he learned some lessons from his crime and the resulting punishment. The Board believes that this is some evidence of Kary's rehabilitation. In addition, conditions of a sentence serve not only penal goals, but seek to deter and reform as well. See 21 Am. Jur. 2d, Criminal Law, § 588 at 977. Rehabilitation is clearly an aspect of punishment and is invariably one of the factors considered by a court in imposing a sentence. See, e.g., Kelly v. Robinson, ____ U.S. ____, 107 S.Ct. 353, 362-63, 93 L.Ed.2d 216 (1986) (restitution debt not discharged in bankruptcy proceeding, because it was imposed following criminal conviction to serve State's [Connecticut] rehabilitative interests in punishment and rehabilitation). Kary's successful completion of the conditions of his sentence also serves as positive evidence of his rehabilitation.
For the reasons set forth herein, the Board declines to adopt the recommended decision of the presiding officer and sustains the denial of Severn's and Kary's application under section 19.
The Board of Directors of the Federal Deposit Insurance Corporation, having considered the entire record in this proceeding, including the documentary and testimonial evidence and the briefs and other submissions of the parties, rejects the recommendation of the presiding officer to approve the section 19 application.
Frederick S. Mittleman, Esq., and Stephen Miller, Esq.,
On November 31, 1989, Severn Savings Bank (Bank) submitted an application to the Federal Deposit Insurance Corporation (FDIC or agency) seeking the latter's approval under Section 19 of the Federal Deposit Insurance Act (ACT) 12 U.S.C. section 1829, for the appointment of Donald A. Kary (Applicant) to the Bank's board of directors. Section 19 provides in pertinent part that no person shall serve as director of an insured bank who has been convicted of a criminal offense involving dishonest or breach of trust
Witness Meekins, Executive Vice President and Managing Officer of the Bank testified. The Bank has assets of $92 million, maintains two offices, does most of its business in and around Anne Arundel County, and accepts no brokered deposits. It has 70 common stockholders and about 170 preferred stockholders holding 311,000 non voting shares in the aggregate of which 3000 shares or less than one per cent is owned by applicant. The witness came to be acquainted with applicant in late 1985 when the latter was placed on the advisory board serving the Glen Burnie office. Applicant served capably providing business advice and soliciting deposits.
Witness Dionne, Assistant Regional Director of the New York Regional office, testified. He is college educated with a graduate degree in banking and has attended many professional level courses with a banking emphasis. He has been with the agency 23 years beginning as a bank examiner. The witness is in charge of the section responsible for all matters relating to savings banks including Section 19 applications. The considered application was received, reviewed, and finally evaluated in terms of whether to recommend approval or denial. Pursuant to delegated authority a decision to approve can be made at the regional level in the person if the Deputy Regional Director acting on behalf of the Regional Director. If the regional office believes denial is warranted then the dispute must be referred to the Washington office of the Division of Supervision. Between the time the application was submitted in November 1989 to July 1990 when it was referred to Washington (FDIC 4) there were discussions concerning the adequacy of the information in the application relating
Before considering the application on its merits a preliminary matter must be resolved. Because the Bank is a savings and loan institution the application seeking approval of applicant to the Bank's board of directors was filed first with the Federal Home Loan Bank Board on May 8, 1989. Because of the passage of FIRREA which became effective August 9, 1989, 12 U.S.C. 1829, jurisdiction of the matter was transferred to FDIC. Subsequently on November 21, 1989, the considered application was filed. At the time of filing, Section 19 applications were processed pursuant to the guidelines and policies as set forth in page 1 of FDIC No. 1. Subsequently the procedure and standards to be applied to Section 19 cases were changed effective December 31, 1989. I conclude that the application should be considered pursuant to the procedure which were in effect at the time the application was filed even though additional information such as the letters of endorsements and perhaps other materials were forwarded to the New York Regional Office subsequent to December 31, 1989. |
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Last Updated 6/6/2003 | legal@fdic.gov |