Federal Deposit
Insurance Corporation

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   [¶5224] In the Matter of Allan Hutensky, First Central Bank, Hartford, Conn., Docket No. FDIC-92-300e (5-3-95)

   FDIC issues an order of prohibition against former bank director, finding that he breached his fiduciary duty, violated Regulation O, and engaged in unsafe and unsound banking practices when he failed to disclose that two loans would benefit his tangible economic interests. He participated in obtaining the two loans as a means of circumventing the prior-board-approval requirements of Regulation O.
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The respondent also breached his fiduciary duty and violated Regulation O by participating in a board discussion on the modification of another loan made to the respondent and his business partner. He intentionally misled the bank for the purpose of inducing it to release its security interest. (See ¶5224A and ¶5243 for later decisions.) (This decision has been partially reversed and remanded by the Court of Appeals, 82 F.3d 1234)

   [.1] Practice and Procedure—Oral Argument
   The grant of a request for post-hearing oral argument is an extraordinary matter within the discretion of the board.

   [.2] Directors—Duties—Conflict of Interest
   The fiduciary duty of loyalty which bank directors owe their institutions requires a bank director to investigate the possibility of a conflict of interest and be completely candid with his colleagues. When a director finds himself in a situation involving a conflict of interest, it is incumbent on him to make a complete disclosure to affirmatively avoid a conflict.

   [.3] Regulation O—Nominee Loans
   A director's fiduciary duty to the bank he serves is absolute in that culpability is not relevant to establishing a violation of Section 22(h) of the Federal Reserve Act. It is no defense that a director did nothing affirmative to advance a loan that would be used for the tangible economic benefit of his related interest.

   [.4] Regulation O—Nominee Loans
   It is not a defense for a bank director to assume that it is sufficient that bank employees are aware of the true nature of an insider loan. The obligation to investigate, identify and disclose insider loans runs to the board of directors, so that the board may act to control employees.

   [.5] Regulation O—Nominee Loans
   The debtor's ability to repay a loan does not automatically make the transaction genuine, but the likelihood or expectation that the debtor actually intends to service and repay the loan must be considered.

   [.6] Regulation O—Definitions—Extensions of Credit
   The phrase "regarding an extension of credit" in Section 215.4(b)(3) of Regulation O is not limited to a new extension of credit. Changing the terms and conditions of a credit previously extended is itself an extension of credit, as is the approval of a participation with recourse.

   [.7] Prohibition, Removal, or Suspension—FDIC Authority
   The power of removal and its counterpart, prohibition from further participation in the conduct of the affairs of an insured depository institution, is an extraordinary power that should be carefully exercised in strict accordance with the law.

In the Matter of
ALLAN HUTENSKY, individually, and
as an institution-affiliated party of
FIRST CENTRAL BANK
,HARTFORD,CONNECTICUT
(Former Insured State Nonmember Bank)
DECISION AND ORDER
Docket No. FDIC-92-300e

   tk;3A Notice of Intention to Prohibit from Further Participation ("Notice") was issued by the Federal Deposit Insurance Corporation ("FDIC") on December 22, 1992, against Respondent Allan Hutensky ("Hutensky" or "Respondent") and four others.¹ The FDIC and all respondents except Hutensky entered into Stipulations and Consents to the Issuance of Orders of Prohibition from Fur-

   [.1] The grant of a request for posthearing oral argument is an extraordinary matter within the discretion of the Board. 12 C.F.R. § 308.40(b). Respondent offered five reasons as support for his request for oral argument: 1) because of the severity of a prohibition order, the Board should consider its imposition with great care; 2) the matter is of substantial personal importance to Hutensky; 3) the factual matters are complex and the record voluminous; 4) the legal issues raised by Hutensky's Exceptions to the ALJ's conclusions of law are substantial and worthy of careful consideration; and 5) oral argument would facilitate the Board's careful consideration of this matter.
   The Board has considered Respondent's Request and Brief in support thereof and determined that none of Respondent's arguments compels the grant of oral argument. The relevant factual and legal arguments are adequately set forth in the voluminous written record; notwithstanding the personal importance of the matter, or the severity of the penalty, the Board will not be aided in deciding this matter by oral argument; and Respondent will not be prejudiced by the lack of oral argument. Therefore, the Board concludes that Respondent has failed to show good cause for oral argument, as required by 12 C.F.R. § 308.40(b), and declines to exercise its discretion to order oral argument.

   Central and First Central were two of three separate banks owned and operated by a holding company, Cenvest.⁴ At all relevant times Hutensky, an attorney and real estate developer/manager, was a director and participant in the conduct of the affairs of First Central. From March 1989, until December 31, 1990, he was a director and participation in the conduct of the affairs of Cenvest. Hutensky was a member of the Joint Loan and Investment Committee of the Cenvest companies and then served as its chairman beginning in May 1990. Although Hutensky was not an elected member of the board of Central, he

A. Respondent's Exceptions.

   Respondent excepts to all of the ALJ's findings of fact and conclusions of law against him and he denies any violation of Regulation O and any breach of his fiduciary duty. Generally, the Exceptions restate Respondent's previously made arguments. They are adequately addressed by the ALJ and his R.D., and are not adopted. Two Exceptions merit discussion, however.
   Respondent claims the R.D. sanctions Hutensky for violating Regulation O with respect to the Harding loan, although Hutensky was only charged with unsafe and unsound practices in connection with that loan. Resp. Exc. No. 8 at 5. While a cursory reading of the pleadings might support Respondent, careful review of Amended Notice ¶56, and the record, leads to the conclusion that Hutensky was on notice that he was charged with actions that constituted the elements of violations of Regulation O, whether or not

   Unsafe or unsound banking practices committed by Hutensky with regard to this transaction, include, but are not limited to, the following:
   i) Hutensky allowed materially false or misleading representations to be made to First Central as to the purpose of the loan when he knew, or should have known, that these statements were materially false or misleading;
   ii) Hutensky failed to disclose to First Central that this loan was being made to a "straw" or "nominee" borrower, under circumstances such that he knew or should have known that Harding was acting as a straw or nominee borrower; and
   iii) Hutensky failed to make full disclosure to the Board of First Central that he and/or an affiliated company or entity would receive a direct or indirect benefit from this credit.

because the events contemplated by the August 27, 1990 proposal never cam to pass (i.e., the anticipated sale of Bronson & Hutensky's partnership interests to Simon never took place, due to Homart's buy-out), Bronson & Hutensky could not meet the condition for the proposed release of collateral by Central. Thus, the $9.5 million line of credit was never modified according to the terms approved by Central's board on August 27, 1990, and Central never released its collateral for the $9.5 million credit line, as contemplated by that proposal because Bronson & Hutensky could not pay the requisite $2.2 million to obtain such release.

Bronson & Hutensky took steps to reverse [the $9.5 million loan]. They are in the process of selling their interest in the partnership presently held as collateral ... B&H intend to borrow additional funds from other lenders based on a sales contract and their interest in the partnership. Upon the sale of the property the $5,700,000 outstanding will be paid ...$2,200,000 out of the sale proceeds.

B. FDIC Exceptions.

   The FDIC excepts to the ALJ's omission of certain findings of fact and conclusions of law necessary to conform the Findings of Fact and Conclusion of Law to the proof offered by the FDIC and the findings made by the ALJ elsewhere in the R.D. The Board adopts these Exceptions and issues additional Findings of Fact and Conclusions of Law.
   The FDIC also points out numerous apparently inadvertent errors in testimony citation, syntax, and punctuation contained in the R.D. The Board adopts these Exceptions and will incorporate them into the published R.D.
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   Regulation O, 12 C.F.R. Part 215, regulates extension of credit by member banks to officers and directors. Section 215.3(f) provides:

An extension of credit is considered made to a person covered by this part to the extent that the proceeds of the extension of credit are used for the tangible economic benefit of, or are transferred to, such a person. 12 C.F.R. § 215.3(f).

(1) is made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions by the bank with other persons that are not covered by this part and who are not employed by the bank, and
(2) does not involve more than the normal risk of repayment or present other unfavorable features. 12 C.F.R. § 215.4(a).

(b) Prior approval.
(ext2}}(1) No member bank may extend credit (which term includes granting a line of credit) to any of its executive officer, directors, or principal shareholders or to any related interest of that person in an amount that, when aggregated with the amount of all other extensions of credit to that person and to all related interests of that person, exceeds the higher of $25,000 or 5 percent of the member bank's capital and unimpaired surplus, unless:
(i) the extension of credit has been approved in advance by a majority of the entire board of directors of that bank; and
(ii) the interested party has abstained from participating directly or indirectly in the voting.
(2) In no event may a member bank extend credit to any one of its executive officers, directors, or principal shareholders, or to any related interest of that person, in an amount that, when aggregated with all other extensions of credit to that person, exceeds, $500,000, except by complying with the requirements of this paragraph.
(3) Participation in the discussion, or any attempt to influence the voting, by the board of directors regarding an extension of credit constitutes indirect participation in the voting of the board of directors on an extension of credit. 12 C.F.R. § 215.4(b).

   There is evidence that in several instances Hutensky appropriately carried out his duties as a director and exhibited conscientious concern for the interests of the institutions he served.⁹ FDIC Enforcement Counsel concede that "Hutensky almost certainly had no intention of harming either bank, to the contrary, he wanted these banks in business so they could loan him more money." FDIC Br. at 77. Nonetheless, there is substantial evidence of record that the relentless demands of B&H for cash drove Hutensky's actions in the three instances at issue. The record as a whole presents a good example of the dangers of insider influence—both subtle and direct—which are the very targets at which the section 22(h) and Regulation O protections are aimed.

A. The Harding Loan

   Preston F. Harding was a long-time friend, former law partner, and business associate of Hutensky. Harding was a general partner with Hutensky and Bronson in Allan Hutensky Associates Limited Partnership ("AHALP"), which owned 99 percent of CityPlace Venture ("CityPlace"), a real estate partnership which owned property in downtown Hartford, Connecticut.¹⁰ By August 1989, the property owned by CityPlace was experiencing severe operating losses. In addition, Harding had not been making his cash contributions to cover the costs of operating the CityPlace properties. B&H had advanced some $600,000 to cover these operating losses, for which CityPlace was in debt to B&H. In July 1989, John Reveruzzi, a Hutensky employee and vice-president of Monitor Management, the principal operating entity for all B&H partnerships, attempted, on behalf of B&H, to obtain a loan of $6,000,000 from Suffield Bank, Suffield, Connecticut,

I do know that I sent Mr. Harding a detailed letter as to why we needed money, and what we intended to do with the money if we borrowed it, and that's what we did with the money.

Hutensky: That we had no ability—first we tried to go to Suffield and get them to refinance and they could not. And we didn't think that we had an ability to go out and raise that kind of money, and didn't think it was equitable for us to be doing it because we were the ones that were financing the project up to that point.

C. Case Law.

   The ALJ notes that the determination of whether a transaction should be considered a "nominee loan" has evolved in the context of criminal prosecutions for willful misapplication of bank funds under 18 U.S.C. § 656. R.D. at 28.
   Respondent relies on United States v. Gens, 493 F.2d 216 (1st Cir. 1974), for the proposition that two legitimate transactions occurred. That case held that a loan is not to be considered a "sham" or "dummy" loan so long as the named borrower is financially capable of servicing the debt, and the named borrower recognized his obligation to repay the loan regardless of whether the third party, directly or indirectly discontinues making the loan payments, absent other circumstances. (Emphasis added.) Gens has not been followed in three more recent decisions, which the Board finds persuasive.

   [.5] In United States v. Parekh, 926 F.2d 402 (5th Cir. 1991), the court recognized that the debtor's ability to repay the loan does not automatically make the transaction genuine, but the likelihood or expectation that the debtor actually intends to service and repay the loan must be considered. In United States v. Brennan, 994 F.2d 918, 923-24 (1st Cir. 1993), the following "other circumstances" were considered: that no effort had been made to determine the creditworthiness of the named borrowers; that false purposes had been stated as the purpose of the loans; that the defendant, a senior vice president and senior loan officer, had exceeded his loan authority in making the loans; and, that the loans were structured in order to evade prior approval by the board of directors.
   Further, in United States v. Krepps, 605 F.2d 101 (3rd Cir. 1979), the court held that when a bank officer procures the assistance of another person in obtaining the desired funds for his own use, the loan may constitute a "sham" transaction regardless of the creditworthiness of the named borrower. (Emphasis added.) Id. at 108. The facts are similar to those in the instant proceeding, in that the bank officer, by channeling the funds through another party, sought to conceal his own interest in the transaction and sought to circumvent the loan limit and board approval restrictions. Id. at 106. Significantly, the Krepps court noted:

One may plausibly question whether the same result would have [been] obtained in Gens had the events underlying that case occurred today. On November 10, 1978, in Pub.L. 95–630, Title I, § 104, 92 Stat. 3644, Congress enacted a new section 12 U.S.C. § 375, which limits the circumstances in which a bank may make loans to its directors or to persons exercising control over the bank.

D. The $9.50 Million Loan

   1) Origination of the Loan. By April 1990, B&H was the largest borrower at Central with approximately $14.5 million in loans outstanding of which $5 million was unsecured. B&H's immediate financial need was for $6 million in cash. Resp. F of F No. 155. Hutensky believed that the only way to borrow any additional monies from Central was by collateralizing the existing B&H unsecured loan. Tr. at 1297-1301. He proposed a restructuring of B&H's debt as follows²⁰; B&H would undertake a new loan of $9.50 million. The stated purpose of the loan was to secure $3.5 million of the outstanding unsecured line of credit and provide $6 million in new funds. FDIC Ex. No. 189 and 192. Of the $9.5 million, an initial disbursement of $3.5 million was to be used to pay down unsecured debt. The collateral for the loan was an assignment of B&H's 12.5 percent partnership interest in property known as the Mall at Buckland Hills ("Mall Partnership").²¹ The collateral was valued by Central's management at $12 million, without an independent appraisal, but based upon information furnished by B&H. Tr. at 909-14, 932-40, 947-8.
   Following the recommendation of the Loan Committee, on April 23, 1990, DiBella and DeLisa²² presented the loan proposal to Central's board which approved the loan,²³ but added three conditions: 1) only $2.2 million could be advanced until other B&H debt was paid off; 2) B&H was to submit audited financial statements; and 3) the main B&H deposit account was to be moved to Central. Only the third condition was fulfilled. Tr. at 919-20.
   Despite the conditions imposed, the loan was entered into because Hutensky needed the $2.2 million and he believed he would be able to quickly liquidate his positions in another real estate project, pay off its related debt and free up the remaining funds under this loan. Tr. at 1374-6. In July 1990, Hutensky asked to be bought out of the Mall Partnership for $8 million — a $3 million reduction in the value B&H had estimated for the property at loan origination in April 1990. Simultaneously, Central's president, DiBella, was seeking other sources of cash for B&H. But the only property "available" for collateral was the interest in the Mall Partnership, which served as collateral for the $9.5 million loan. Mechanics agreed to participate in the $9.5 million loan and offered

   [^.6] Respondent's active participation in the discussion of the loan restructuring is not contested, and Respondent's significant influence over the board could not be contested on this record. Respondent claims that because there was no extension of credit at the August 27, 1990, meeting, the discussion was not subject to Regulation O and he engaged in no violation. The Board concurs in the ALJ's findings that the discussion of the modification of the $9.5 million loan is subject to Regulation O.R.D. at 49. Section 215.4(b)(3) of Regulation O provides:

Participation in the discussion, or any attempt to influence the voting, by the board of directors regarding an extension of credit constitutes indirect participation in the voting by the board of directors on an extension of credit.

   The following findings of fact or conclusions of law are made necessary by the Board's decision.
   1. The First Central loan to Harding was a nominee loan for the tangible economic benefit of Hutensky or his related interest.
   2. Hutensky participated in obtaining the Harding loan as a means of circumventing the prior board approval requirements of Regulation O, 12 C.F.R. § 215.4(a) and (b).
   3. Hutensky failed to inform First Central's board of directors that the Harding loan would be made and that the proceeds thereof would be used for the tangible economic benefit of Hutensky or his related interest in violation of Regulation O, 12 C.F.R. § 215.4(a) and (b).
   4. Hutensky's failure to inform First Central's board of directors of the nature of the Harding loan was a material omission that rises to the level of willful disregard for the safety or soundness of First Central.
   5. The Central loan to Reveruzzi was a nominee loan for the tangible economic benefit of Hutensky or his related interests.
   6. Hutensky participated in obtaining the Reveruzzi loan as a means of circumventing the prior board approval requirements in Regulation O, 12 C.F.R. § 215.4(a) and (b).
   7. Hutensky failed to inform Central's board of directors that the Reveruzzi loan would be made and the proceeds thereof would be used for the tangible economic benefit of Hutensky or his related interests in violation of Regulation O, 12 C.F.R. § 215.4(a) and (b).
   8. Hutensky's failure to inform Central's board of directors of the nature of the Reveruzzi loan was a material omission that rises to the level of willful disregard for the safety or soundness of Central.
   9. On August 27, 1990, Hutensky had no contract for the sale of the Mall Partnership. At that time he could not have known whether a sale would take place or the amount of proceeds to be derived from such a sale in the event it did occur.
   10. On August 27, 1990, when he represented to Central that it would receive $2.2 million from the proceeds of the sale of the Mall Partnership, Hutensky intentionally misled the Bank for the purpose of inducing it to release its security interest in the Mall Partnership.
   11. Hutensky's intentional misrepresentation that Central would receive $2.2 million from the proceeds of sale of the Mall Partnership was a breach of his fiduciary duty of loyalty to Central and an act of personal dishonesty.

   The authority of the FDIC to remove officers and directors or institution-affiliated parties from an insured depository institution and to prohibit their future participation in the affairs of such an institution is contained in 12 U.S.C. § 1818(e), where the Respondent has:

(a) violated a law or regulation, or engaged or participated in an unsafe or unsound banking practice or breached his fiduciary duties as a director or officer with respect to that bank; and
(b) the bank has suffered or will suffer financial loss or other damage or the interests of the bank's depositors have been or could be prejudiced or the director or officer has received financial gain from the misconduct; and
(c) the misconduct evidences personal dishonesty on the part of the director or officer or demonstrates a willful or continuing disregard for the safety and soundness of the bank.

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   [^.7] Courts have recognized that the power of removal, and its counterpart, prohibition from further participation in the conduct of the affairs of an insured depository institution, is an extraordinary power that should be carefully exercised in strict accordance with the law. Seidman v. OTS, 37 F.3d 911 (3rd Cir. 1994). Both the Board and the ALJ have been mindful of this in evaluating the evidence in this case. The Board finds that the evidence viewed in its totality compels the conclusion that an order of prohibition is appropriate.
   Hutensky is an example of the kind of actor at which Regulation O was targeted. Though neither an employee, nor a participant in the day-to-day affairs of First Central or Central, he was clearly in a position to influence loan activities and policies. He wielded the kind of influence as chairman of the Loan and Investment Committee which enabled him to obtain "nominee" loans and convince the Central board to give up its security interest on a substantial loan. This is precisely what Regulation O is intended to prevent. While under other circumstances Hutensky may have been a model director, the circumstances here— where a plunging real estate market created B&H's relentless demand for cash—caused him to place the interests of his business before the interests of the banks. It is in just such instances where directors must take extra care to fulfill their fiduciary obligations, and the Board must be especially vigilant in its enforcement of these obligations for the protection of the insurance fund.
   The record contains substantial evidence to support findings that Respondent engaged in violations of Regulation O, breaches of fiduciary duty and unsafe and unsound practices which caused significant loss to First Central and Central, and ultimately, to the FDIC as receiver for these institutions. Respondent's actions manifest willful disregard for the safety and soundness of the institutions he served as well as personal dishonesty. Accordingly, each of the elements of section 8(e) of the FDI Act, 12 U.S.C. § 1818(e), has been met, and the Board will enter an Order of Prohibition from Further Participation against Respondent Allan Hutensky.

   For the reasons set forth above, the pursuant to section 8(e) of the FDI Act, 12 U.S.C. § 1818(e), it is hereby ORDERED that:
   1. Allan Hutensky shall not participate in any manner in the conduct of the affairs of any insured depository institution, agency or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), without the prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. § 1818(e)(7)(D);
   2. Allan Hutensky shall not solicit, procure, transfer, attempt to transfer, vote, or attempt to vote any proxy, consent or authorization with respect to any voting rights in any financial institution, agency, or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), without the prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. § 1818(e)(7)(D);
   3. Alan Hutensky shall not violate any voting agreement with respect to any insured depository institution, agency, or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), previously approved by the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDIC Act, 12 U.S.C. § 1818(e)(7)(D);
   4. Allan Hutensky shall not vote for a director, or serve or act as an institution-affiliated party, as that term is defined in section 3(u) of the FDI Act, 12 U.S.C. § 1813(u), of any insured depository institution, agency, or organization, enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), without the prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. § 1818(e)(7)(D).
   This ORDER will become effective thirty (30) days from the date of its issuance.
   The provisions of this ORDER will remain effective and enforcement 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 3rd day of May, 1995.

/s/ Robert E. Feldman
Acting Executive Secretary

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In the Matter of
Allan Hutensky,individually,
and as an institution-affiliated party of
First Central Bank,Hartford,
Connecticut
(Former Insured State Nonmember Bank)
Walter J. Alprin
Administrative Law Judge
Office of Financial Institution Adjudication
Washington, D.C.

   On December 22, 1992, Federal Deposit Insurance Corporation issued a Notice of Intention to Prohibit From Further Participation ("Notice") against five respondents.¹ All the respondents in this matter entered into settlement agreements with the agency prior to the commencement of the administrative hearing except Respondent Allan Hutensky ("Hutensky" or "Respondent"). Hutensky filed a timely Answer to the Notice on February 8, 1992, and Answers to the two amendments to the Notice.² The hearing relates to the single remaining Respondent.
   The hearing herein was held at Hartford, Connecticut, from January 11 through 14, 1994, and from February 7 through 10, 1994. Although there were originally approximately thirty transactions stated in the Notice and amendments, involving charges of wrongdoing against all five Respondents, the hearing only examined those three transactions in which Hutensky was involved. Briefs, and Reply Briefs were filed by the parties following the hearing, and have been considered together with the exhibits and the testimony³ presented during the course of hearing.
   The sanction of prohibition is possibly the most severe permitted by banking law, and is not lightly recommended. However, for the reasons and upon the evidence cited below, this recommended decision proposes entry of findings of misconduct, the adverse effect of the misconduct, and the culpability of Respondent, requiring an order prohibiting Hutensky from further participation in the affairs of federally insured financial institutions.

   This matter concerns a series of three transactions which occurred in 1989 and 1990, at Central Bank, Meriden, Connecticut ("Central") and First Central Bank, Hartford, Connecticut ("First Central"). Two of the transactions involve loans to borrowers who then transferred the loan proceeds to Director Hutensky's related interests and the third involves Respondent's participation in loan modification discussions. Respondent is charged in al three transactions with violating a Regulation of the Board of Governors of the Federal Reserve System, Regulation O, 12 C.F.R. Part 215⁴, promulgated pursuant to section 22(h) of the Federal Reserve Act, 12 U.S.C. § 375b, and made applicable to insured State nonmember banks by Section 18(j) (2) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1828(j) (2) and by section 337.3(a) of the FDIC Rules and Regulations, 12 C.F.R. § 337.3(a). The purpose of Regulation O is to guard against improprieties in loans and extensions of credit to executive officers, directors, or principal shareholders, or their related interests, granted by reason of such "insider" positions. The Respondent is also charged with breaching his fiduciary duty and engaging in unsafe or unsound banking practices.
   The Enforcement counsel of Petitioning agency, FDIC, allege that Hutensky received the proceeds, or the tangible economic benefit, of two nominee loans ⁵ in violation of Regulation O in that these loans did not receive prior board approval and in-

   10. Preston Harding ("Harding") borrowed money from First Central at the request of John Reveruzzi ("Reveruzzi"), who worked for Bronson & Hutensky/Monitor Management, for the purpose of providing the proceeds to CityPlace Venture. (Hard- {{7-31-95 p.A-2549}}ing, TR 67-68) On August 21, 1989, First Central granted Harding a loan in the amount of $1,050,000). (FDIC Exhibit 168) On the same day, Harding granted a loan in the same amount, $1,050,000 to CityPlace Venture. (FDIC Exhibit 169)
   11. The loan from First Central to Harding was secured by an assignment of the note to Harding from CityPlace Venture and an assignment of a third mortgage on property owned by CityPlace Venture, located at 266 Pearl Street, Hartford, Connecticut. (FDIC Exhibit 172)
   12. The following day, on August 22, 1989, $1,048,550 of the Harding loan proceeds were deposited by a Treasurer's check (#000178) into a account opened that day and with that deposit by CityPlace Venture at First Central, account #6990026467. (FDIC Exhibits 170a, 182, and 183)
   13. A check for $1,000,000, dated the following day, August 23, 1989, was drawn on the CityPlace Venture account (FDIC Exhibits 182 and 183), and deposited on the same day into account of Bronson and Hutensky, #1111353, at the Connecticut Bank and Trust Company ("CBT"). (FDIC Exhibits 182 and 185) Prior to this deposit, the account balance had been $41,108. (FDIC Exhibit 185)
   14. A check for $400,000, dated August 22, 1989, was drawn on the Bronson and Hutensky account at CBT, #1111353, to pay down the balance outstanding on the Bronson and Hutensky $5 million line of credit at Central. The source of the funds used for this principal repayment was the Harding loan. (FDIC Exhibits 170b, 170c, and 185)
   15. A check for $49,000, dated April 4, 1990, was drawn on the CityPlace Venture account at First Central (FDIC Exhibits 182 and 183), and was deposited the same day into account #1111353 in the name of Bronson and Hutensky at CBT. (FDIC Exhibit 186)
   16. The credit memo of the Harding loan stated that the purpose of the loan was to "repay a loan to Bronson and Hutensky in the amount of $600,000" and provide $450,000 for tenant improvements and debt service. (FDIC Exhibit 167) In fact, Harding did not repay a $600,000 debt to Bronson and Hutensky (Harding, TR 70–73) but instead lent the loan proceeds to CityPlace Venture. (FDIC Exhibit 169) The credit memo did not disclose Harding's relationship to CityPlace Venture, that Harding was a partner in CityPlace Venture with Bronson and Hutensky, that the note assigned was from CityPlace Venture, that the property being mortgaged was owned by CityPlace Venture, or that the loan proceeds were to be provided by an alleged separate loan to City-Place Venture, a related interest of Hutensky. (FDIC Exhibit 167)
   17. Harding did not use his own personal funds to make payments to First Central, but relied on CityPlace Venture as the source of his payments, and ceased making payments to First Central once CityPlace Venture stopped making payments to him. (FDIC Exhibit 262; Harding, TR 86–87) Harding did not acknowledge the $1,050,000 loan from First Central as his personal obligation on his personal financial statement as of September 29, 1989. (FDIC Exhibit 46; Harding, TR 133–135)
   18. Although Hutensky knew that Harding loaned the proceeds from the First Central loan to CityPlace Venture, at no time did Hutensky disclose to the Directors of First Central, or the Directors of Cenvest, that CityPlace Venture was one of his related business interests. (FDIC Exhibits 169, 171, 172, 173, 174a, and 174b) At no time did Hutensky disclose to the Directors of First Central, or to the Directors of Cenvest, that he received a direct benefit from the Harding loan and used $400,000 in loan proceeds to pay down the outstanding balance of the $5 million line of credit from Central to Bronson and Hutensky. (FDIC Exhibits 169, 171, 172, 173, 174a, and 174b)
   19. As of April 1, 1990, extensions of credit to related interests of Hutensky at Central totalled $14,524,404 and consisted of the following:

4,300,000 first mortgage loan to Royal Development;
1,720,000 second mortgage loan to Royal Park;
2,500,000 third mortgage loan to Royal Park;
781,000 first mortgage loan to Corporate Place;
175,000 letter of credit extended on behalf of Corporate Place,
6,866 outstanding balance on an automobile loan to Monitor Management;
41,538 outstanding balance on another automobile loan to Monitor Management; and
{{7-31-95 p.A-2550}}
5,000,000 unsecured revolving line of credit to Bronson and Hutensky.

a) No more than $2,200,000 shall be advanced until loans outstanding to Royal Development Associates and Royal Park Associates have been paid off;
b) The borrower's main business deposit account must be placed at Central Bank within 120 days from the date of this resolution; and
c) Audited financial statements of the borrower must be included in the loan file.

4,300,000 first mortgage loan to Royal Development;
1,720,000 second mortgage loan to Royal Park;
2,500,000 third mortgage loan to Royal Park;
781,000 first mortgage loan to Corporate Place;
175,000 letter of credit extended on behalf of Corporate Place;
5,526 outstanding balance on an automobile loan to Monitor Management;
37,785 outstanding balance on another automobile loan to Monitor Management;
1,500,000 unsecured line of credit to Bronson; and;
5,586,996.25 outstanding on the $9.50 million line of credit to Bronson and Hutensky, including $2,200,000 advanced under the new line of credit between May 8, 1990, and August 3, 1990 (FDIC Exhibits 195, 196, and 197.

   25. Reveruzzi, an attorney and real estate broker, was an Executive Vice President employed by Bronson and Hutensky/The Monitor Companies since 1985 and was in charge of Acquisitions and Financing. (FDIC Exhibits 220 and 221)
   26. On July 30, 1990, Central granted Reveruzzi a 90 day loan in the amount of $500,000, due to mature on November 1, 1990. (FDIC Exhibit 212) The credit memo states that the purpose of the loan was to "combine all debts related to makers investments in five shopping centers." (FDIC Exhibit 211) Reveruzzi's personal financial statement did not reflect any such indebtedness as of July 17, 1990. (FDIC Exhibit 216)
   27. On July 27, 1990, Reveruzzi granted an alleged loan in the amount of $500,000 to Bronson and Hutensky, also due to mature {{7-31-95 p.A-2551}}on November 1, 1990 and contained substantially all the same terms as the Central loan to Reveruzzi. (FDIC Exhibit 219)
   28. The loan to Reveruzzi from Central was secured by an assignment, dated July 30, 1990, of the note to Reveruzzi from Bronson and Hutensky on his supposed loan to Bronson and Hutensky, supported by five assignments, dated July 27, 1990, of five partnership interests. (FDIC Exhibits 213 and 214) The consents to assign the five partnership interests were executed by the sole general partners of the partnership, Bronson and Hutensky, and dated July 27, 1990. (FDIC Exhibit 217)
   29. The credit memo on the loan to Reveruzzi from Central failed to disclose Reveruzzi's relationship with Hutensky as an employee of Bronson and Hutensky/Monitor Management and failed to disclose that the partnership interests assigned to Central Bank as collateral were Bronson and Hutensky partnerships. (FDIC Exhibit 211) The credit memo also failed to fully disclose the nature of the collateral provided for the loan, i.e. the assignment of the note to Reveruzzi from Bronson and Hutensky. (FDIC Exhibits 211 and 213; Pettit, TR 318–319)
   30. Reveruzzi did not use his own personal funds to make payments to Central, but relied on Bronson and Hutensky as the source of his payments. (Reveruzzi, TR 859–861)
   31. On May 14, 1990, the State of Connecticut Department of Banking ("Banking Department") commenced an examination of Central. In the Report of Examination, the Examiner-in-Charge, Joyce O'Sullivan ("O'Sullivan"), cited the bank for an apparent violation of the State legal lending limit with respect to the Bronson and Hutensky credit relationship, in particular the advanced and unadvanced portions of the $9.5 million line of credit; the $1.5 million loan to Bronson; the $1,702,000 second mortgage loan to Royal Park (should have been $1,720,000); the $2.5 million third mortgage loan to Royal Park; and the $175,000 letter of credit issued on behalf of Corporate Place. (FDIC Exhibit 100)
   32. On June 20, 1990, O'Sullivan and Howard Pitkin ("Pitkin"), the Director of the Bank Examination Division of the Banking Department, met with the Joint Loan & Investment Committee of the Cenvest companies and presented the preliminary findings of the May 11, 1990 examination. (FDIC Exhibit 204)
   33. In a letter dated August 3, 1990, and addressed to Pitkin, Anthony M. Pepper ("Pepper") of the law firm of Schatz & Schatz, Ribicoff and Kotkin ("Schatz and Schatz") addressed "the apparent violations and, if these involve actual violations, to discuss ways that these may be corrected." (FDIC Exhibit 206) On August 13, 1990, a Special Joint meeting of the Boards of Directors of Cenvest, Inc. and Central Bank was held to review with Stanford N. Goldman, Jr. ("Goldman"), of Schatz & Schatz, a proposed Memorandum of Understanding ("MOU") with the State Banking Department and the FDIC, and to consider management's responses. (FDIC Exhibit 205) On August 21, 1990, Pitkin made the following notation on the August 3, 1990, letter from Pepper: "Spoke to Ford Goldman re: apparent violation of lending limit. The point would appear moot if the Bank has the first three mortgage positions. While there may be a violation it would not appear to be material. From documentation submitted, it would appear the bank acted in good faith." (FDIC Exhibit 206)

   34. In a letter dated July 12, 1990, addressed to DeLisa at the bank by Reveruzzi on behalf of Bronson and Hutensky, approval was requested to substitute Bronson and Hutensky's interest in Buckland Plaza for their interest in the Pavilions at Buckland Hills as collateral for the $9.50 million line of credit. (FDIC Exhibit 223)
   35. Melvin Simon & Associates, Inc. ("MSA") was a general partner in Manchester Simon Developers Limited Partnership ("Manchester Simon"). Manchester Simon was a joint venture partner, with a 50% interest, with Homart Manchester Investment Co., in the Mall at Buckland Hills Partnership. Bronson and Hutensky were limited partners in Manchester Simon with a 25% interest. Accordingly, their interest in the mall was 12.5%. (FDIC Exhibits 227, 239, and 309) In a letter dated July 20, 1990, addressed to Melvin Simon of MSA, Hutensky proposed to sell Bronson and Hutensky's interest in Manchester Simon for $8 million, "based on the current economic climate and our desire to have sufficient working capital {{7-31-95 p.A-2552}}to meet our ongoing development needs." (FDIC Exhibit 224)
   36. On August 27, 1990, a Joint meeting of the Boards of Directors of Cenvest, Inc. and Central Bank was held. The minutes note the following: "Regarding the Bronson and Hutensky loans cited in the MOU, Mr. DiBella reported that Schatz & Schatz, Ribicoff & Kotkin has resolved this matter favorably to the Bank." (FDIC Exhibits 207 and 208)
   37. At the August 27 meeting, Hutensky proposed a modification of the $9.5 million extension of credit and participated in the discussion of this proposed modification that formed the basis for the Board's release of the only collateral securing the Bronson and Hutensky line of credit. (FDIC Exhibits 207 and 208) Hutensky reported on Bronson and Hutensky's "arrangements" with another financial institution, submitted a "written summarization of the proposed adjustment" drafted together with DeLisa, indicated that Central's collateral may be demanded, and stated that Bronson and Hutensky's total indebtedness would be reduced by $2.2 million. (FDIC Exhibits 207 and 208)
   38. In the written summarization of the proposed adjustment, the reason given for the arrangement and the proposed adjustment is stated as follows: "In recognition of the State Banking Department's questioning the legality of the transaction, Bronson and Hutensky took steps to reverse this loan." (FDIC Exhibits 207 and 208)
   39. At the August 27 meeting, Central's Board of Directors approved and authorized the modification to the existing Bronson and Hutensky $9,500,000 loan. This modification authorized management to release Central's secured position in the mall known as the Pavilions at Buckland Hills in exchange for a $2.2 million principal payment. (FDIC Exhibits 207 and 208)
   40. A copy of an unsigned Purchase and Sale Agreement dated August 27, 1990, stated that MSA agreed to buy Bronson and Hutensky's "partnership interests" for $6,250,000. The purchase price was to be allocated between Monitor Management (40%) and Bronson and Hutensky (60%). Based on this allocation, the sales proceeds would have been $3,330,000 for Bronson and Hutensky and $2,222,000 for Monitor Management. (FDIC Exhibit 239)
   41. On September 24, 1990, the MOU between the Board of Directors of Central, the Banking Commissioner, and the Regional Director of the FDIC was executed. (FDIC Exhibit 210)
   42. On October 3, 1990, a Purchase and Sale Agreement was signed by MSA and Bronson and Hutensky. The purchase price for the "partnership interests" was $5,800,000, and the purchase price for Bronson and Hutensky's interest in Manchester Simon was $5,150,000. (FDIC Exhibit 227) The purchase price for the interest in Manchester Simon was $50,000 less than what was necessary to cover the "arrangement" with the other financial institution and make the "proposed adjustment" to the $9.5 million line of credit at Central required by Board. (FDIC Exhibit 227; Pettit, TR 573–574, 599, 612–615)
   43. On October 6, 1990, Central entered into a Senior Participation Agreement with Mechanics Savings Bank ("Mechanics"). According to the agreement, $3 million was to be advanced on the $9.5 million line of credit at Central as a participation by Mechanics. (FDIC Exhibits 227, 273, 274, 275, and 276) The Senior Participation Agreement clearly established Mechanic's "priority of repayment." (FDIC Exhibit 227)
   44. Given the purchase price of $5,150,000 established by the October 3, 1990 Purchase and Sale Agreement, and the $3,000,000 participation to Mechanics, the maximum amount of sales proceeds available to Bronson and Hutensky to pay Central would be $2,150,000. This amount is $50,000 less than required by the Board on August 27, 1990. (FDIC Exhibit 227; Pettit, TR 573–574, 599, 612–615)
   45. The Senior Participation Agreement also established Mechanics' option to substitute collateral, i.e. to participate in the $4.3 million Royal Development loan with a first mortgage position in the real estate in place of its participation in the $9.5 million line of credit with a security interest in Manchester Simon, if the sale of the partnership interest did not take place. (FDIC Exhibit 227) Central would thereby be giving up its first mortgage position on the real estate securing the Royal Development loan. (FDIC Exhibit 227)
   46. The Senior Participation Agreement also clearly established a provision for recourse to Central, i.e. for Central to repurchase Mechanics' participation, that would require further extension of credit to Bronson and Hutensky. (FDIC Exhibit 227)
   47. In accordance with the Advance Request Letter from Bronson and Hutensky, dated October 9, 1990, and signed by Bron- {{7-31-95 p.A-2661}}son, the proceeds for the $3 million participation were distributed as follows:

   $19,548.25 to pay legal fees;
   $4,125.33 to prepay a portion of the interest on Mechanics' participation;
   $455,893.75 to pay principal and interest on the $450,000 loan to Bronson and Hutensky extended on August 30, 1990 by Mechanics; and,
   $2,520,432.67 to Bronson and Hutensky.

   Banking regulatory agencies are authorized by 12 U.S.C. § 1818(e)(1) in pertinent part to remove officers and directors from an insured bank and to prohibit their future participation in the affairs of a federally insured financial institution, where an officer or director has:

   (A) violated a law or regulation, or engaged or participated in an unsafe or {{7-31-95 p.A-2554}}unsound banking practice or breached his fiduciary duties as a director or officer with respect to that bank;
   and
   (B) as a result of the violation, practice, or breach, the bank has suffered or will suffer financial loss or other damage or the interests of the bank's depositors have been or could be prejudiced or the director or officer has received financial gain from the misconduct;
   and
   (C) the misconduct evidences personal dishonesty on the part of the director or officer or demonstrates a willful or continuing disregard for the safety and soundness of the bank.

   Respondent is charged with violating⁷ sections 215.4(a) and (b) of Regulation O, 12 C.F.R. §215.4⁸ by failing to obtain Board approval before two loans were made in which it is alleged Respondent's related interest received the proceeds or the tangible economic benefits, and separately by his participation in a discussion before the Board of Directors involving modifying the terms of a loan made to Respondent's related interest. The intent of Regulation O is to avoid insider abuse and the sections relating to the charges against Respondent are reviewed below.

   Section 215.4(a) of 12 C.F.R. prohibits a bank from extending credit to its executive officers, directors or principal shareholders, or to any related interest of such persons, unless the extension of credit:

   (1) is made on substantially the same terms as those prevailing at the time for comparable transactions with persons who are not covered by Regulation O, and
   (2) does not involve more than the normal risk of repayment or present other unfavorable features.

   Section 215.4(b) of 12 C.F.R. requires prior board of director approval of the abovedescribed extensions of credit, as follows:
   (1) No member bank may extend credit (which term includes granting a line of credit) to any of its executive officers, directors, or principal shareholders or to any related interest¹⁰ of that person in an amount that, when aggregated with the amount of all other extensions of credit to that person and to all related interests of that person, exceeds the higher of $25,000 or 5 percent of the member bank's capital and unimpaired surplus, unless:

   (i) The extension of credit has been approved in advance by a majority of the entire board of directors of that bank, and
   (ii) the interested party has abstained from participating directly or indirectly in the voting.

   Section 215.2(f) of Regulation O, 12 C.F.R. § 215.2(f), establishes a lending limit of:

   ... 15 percent of the bank's unimpaired capital and unimpaired surplus in the case of loans that are not fully secured, and an additional 10 percent of the bank's unimpaired capital and unimpaired surplus in the case of loans that are fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the loan.

   Except as other wise provided, the total direct or indirect liabilities of any one obligor that are not fully secured, however, incurred, to any savings bank, exclusive of such bank's investment in the investment securities of such obligor, shall not exceed fifteen per cent of the capital, surplus, undivided profits and loss reserves of such bank for a capital stock savings bank, or in the case of a mutual savings bank, fifteen per cent of the aggregate surplus accounts.... For purposes of this section, a liability shall be considered to be fully secured if it is secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the liability....

   On August 21, 1989, while Respondent Hutensky was a Director of First Central Bank as well as Chairman of the Loan & Investment Committee, a credit of $1,050,000 was extended by the Bank to Harding, a long time business associate and partner of Respondent. Part 215 of Regulation O requires an extension of credit to a director, or a related interest be approved in advance by a majority of the entire board of directors of that bank. This loan never received approval by the board of directors. The issue is whether this loan was an extension to Harding as a viable borrower, or to Hutensky, as to Hutensky's related interest. Respondent is considered to have received an extension of credit under this statute if the proceeds of the extension of credit are used for his tangible economic benefit, or are transferred to him. 12 C.F.R. §215.3(f). The test is thus whether Harding was a true borrower, for his own interest or tangible benefit, or really no more than a nominee, who allowed the proceeds of the loan to pass through to Hutensky as the intended beneficiary.
   On the same day that Harding received the proceeds of the loan from First Central he delivered the same amount, purportedly by loan, to CityPlace Venture. Hutensky, Bronson, and Harding were owners of CityPlace Venture at the time, as CityPlace Venture was a general partnership composed of Allan Hutensky Association, Limited Partnership and B & H Development Corporation.¹¹ (R Exhibit 72 at 4).
   Petitioner witness FDIC Examiner Robert J. Pettit painstakingly charted the flow of the loan proceeds, which is not in dispute and which shows that it was used for the benefit of the Bronson and Hutensky partnership. Harding requested that the proceeds be transferred into account No. 6990026467 in the name of CityPlace Venture. (FDIC

   Though the path of the Harding loan proceeds is not contested, the significance attributed to the transactions is in dispute. Respondent asserts that the bank made a separate, distinct, and disparate loan to Harding who in turn made a separate, distinct, and disparate loan to CityPlace as to which no prior Board approval was necessary, respondent relies on United States v. Gens, 493 F.2d 216 (1st Cir. 1974) as support for the argument that two legitimate transactions occurred.
   Gens is a criminal case involving willful misapplication of bank funds under 18 U.S.C. § 656. Although the burden of proof is obviously higher in a criminal case and the law involved is also different, the central issue is the same, to wit: whether the borrower permitted the use of his name, rather than his credit, to be used to enable a de facto delivery of loan proceeds to a third party to whom the bank was unwilling or unable to grant a direct loan.
   In Gens, the defendant, a director, was involved in helping two officers and directors gain control of a Massachusetts bank. After defendant had reached his loan limit at the bank he solicited eight other persons to obtain loans and pass the proceeds on to him.¹² The decision in Gens was that the loan to the director could not "absent other circumstances properly be characterized as sham or dummy, even if bank officials know he will turn over the proceeds to a third party." (Id. at 222) The court viewed the transactions as each constituting two legitimate loans—one from the bank to the named borrower, and another from the named borrower to the director. The court held that the loan is not to be considered bogus so long as the named borrower is financially capable of servicing the debt, and the named borrower recognized that he is obligated to repay the loan regardless of whether the third party, in this case the director, directly or indirectly discontinues making the loan payments, absent other circumstances.

   [.2] In terms of ability to service the debt, however, in United States v. Parekh, 926 F.2d 402 (5th Cir. 1991), a more current decision, the court recognized that the debtor's ability to repay the loan does not automatically make the transaction genuine, and that consideration must be given to the likelihood or expectation that the debtor actually intends to service and repay the loan. As for the "other circumstances" test, see United States v. Brennan, 994 F.2d 918, 923-24 (First Cir. 1993), where consideration was given to the following "other circumstances": that no effort had been made to determine the creditworthiness of the named borrowers; that false purposes had been stated as the purpose of the loans; that the defendant, a senior vice president and senior loan officer, had exceeded his loan authority in making the loans; and, that the loans were structured in order to evade prior approval by the board of directors.
   In still another criminal preceding charging willful misapplication of bank funds with facts similar to those herein, United States v. Krepps, 605 F.2d 101 (3rd Cir. 1979), the court also reached conclusions contrary to Gens. Defendant Krepps was both a director and officer of a bank. Like Hutensky, Krepps was limited by both federal law and the bank's rule in the amount of funds he could borrow for himself. As an officer, he was required to obtain the board's approval before authorizing any loans in excess of

   [.3] The Krepps Court, ruling after the Gens decision, held that when a bank officer procures the assistance of another person in obtaining the desired funds for his own use, the loan may constitute an illegitimate transaction or sham regardless of the creditworthiness of the named borrower. The facts are similar to those in the instant proceeding, in that the bank officer, by channeling the funds through another party, sought to conceal his own interest in the transaction and sought to circumvent the loan limit and board approval restrictions. Id. at 106. The Court noted that:

   One may plausibly question whether the same result would have [been] obtained in Gens had the events underlying that case occurred today. On November 10, 1978, in Pub.L. 95–630, Title I, § 104, 92 Stat. 3644, Congress enacted a new section 12 U.S.C. § 375, which limits the circumstances in which a bank may make loans to its directors or to persons exercising control over the bank." Krepps at 107, FN 21.

   In the instant administrative proceeding, Enforcement Counsel assert that Harding's creditworthiness was not determined at the time of the $1,050,000 loan due to poor underwriting. (Pettit, TR 206–207; 914, 917–918, 923–932, and 946–947) The credit memo was not prepared until after the funds had been advanced. (Eisenberg, TR 915, 975) The financial statement dated May 25, 1988, referenced in the credit memo and relied upon to support the loan was stale and predates the loan by approximately 15 months. (FDIC Exhibit 167; Pettit, TR 188–189) Generally, a financial statement is still considered current if dated within one year of the loan being made.¹³ (Pettit, TR 189) FDIC Examiner Pettit testified that:

   ... in a situation like this where you're making a loan secured solely by a third mortgage ¹⁴ on a property that is not generating sufficient income to cover existing debt on it, that you would obviously want to have a more current financial statement. I think in any case, when you're making a milliondollar loan, you would want to have a current financial statement.

   [.4] Several problems exist regarding the statement of purpose provided in the making of this loan,¹⁷ which indicated that Harding would use the funds to repay a loan to Bronson and Hutensky in the amount of $600,000, and that $450,000 of the proceeds would be used for future improvements and debt service on properties at 266 and 300 Pearl Street. (Harding, TR 70, 107, 116, Petit, TR 276; 1293, TR 1448) Examiner Pettit testified that Harding's financial statement dated May 25, 1988, did not indicate that he had any indebtedness to Bronson and Hutensky, though it was possible that the debt could have been incurred sometime after May 1988, the date of the financial statement, and before August 1989, the date of the loan. Hutensky testified that Harding owed Bronson and Hutensky money for his one-third share of the payments on the operating shortfalls on properties located at 266 and 300 Pearl Street, but this self-serving statement is unsupported by any documentation or specificity. (R's Ex 74; Hutensky, TR 1432-34) It is difficult if not impossible under the circumstances to determine whether and to what extent Harding was actually indebted to Bronson and Hutensky, and whether the amount listed in the credit memo is either accurate or factual. While the agency bears the burden of proving its case by a preponderance of the evidence, the burden of proof, or of going forward, is reversed as to affirmative defenses, and in this instance is not carried by Respondent.
   The entire loan transaction is questionable. The evidence supports the following findings. First, at the time the loan was extended, the loan officer did not sufficiently determine whether Harding was credit worthy of a million dollar debt supported only by a third mortgage on real estate. Second, a financial statement prepared by Harding shortly after the loan was extended did not indicate that he personally owed $1,050,000 to First Central. Third, the credit memo supporting the loan, prepared after the funds were advanced, failed to sufficiently disclose that Harding was loaning CityPlace, a related interest of Respondent's, the same amount of money he was receiving from Bank¹⁸. Fourth, the Bank failed to perform an independent evaluation of the value of the collateral. (Pettit, TR 215–217) Fifth, when Bronson and Hutensky discontinued advancing funds to Harding, Harding stopped repaying the loan to First Central. And, sixth, the directors at First Central were not specifically made aware of the relationship of the parties and no approval was given for extending the credit.
   Despite the cumulative effect of these facts, it must still be determined whether Hutensky was actively involved in obtaining the Harding loan and repaying the debt before it can be determined that, for the purposes of Regulation O, the loan was no more than specious.

   Hutensky served as the primary financial manager of the Bronson and Hutensky partnership, being authorized to borrow money on behalf of the partnership, sign notes, and repay loans the partnership incurred. (Harding, TR 62 through 64) Hutensky exercised his authority when he signed the Certificate of Resolution of Bronson and Hutensky Development Corporation and the Partnership Resolution of

   Reveruzzi, an attorney and real estate broker, had been an Executive Vice President with Bronson and Hutensky/The Monitor Companies, since 1985, and was in charge of Acquisitions/Financing. On July 30, 1990, Central granted Reveruzzi a loan in the amount of $500,000 with a maturity date of November 1, 1990. (FDIC Exhibit 212) Immediately prior thereto, on July 27, 1990, Reveruzzi had granted a loan in the amount of $500,000 to Bronson and Hutensky, with the same maturity date of November 1, 1990, and containing substantially all the same terms as the Central loan to Reveruzzi. (FDIC Exhibit 214) All of the loan proceeds were deposited into Bronson and Hutensky's account #1111353 at CBT on July 30, 1990. (FDIC Exhibit 219)
   Part 215 of Regulation O requires that extensions of credit specifically to a director, or a related interest, be approved in advance by a majority of the entire board of

   Section 215.2(c) of the Federal Reserve Act defines who is a director for the purposes herein, and provides in pertinent part the following:
   (c) Director of a member bank includes: ...

   (2) Any director of a bank holding company of which the member bank is a subsidiary.

   Next, we will review the circumstances surrounding the loan to Reveruzzi and his transfer of the loan proceeds to Bronson and Hutensky.²⁰ In April, 1990, Central's Board had approved a line of credit in the amount of $9,500,000 to Bronson and Hutensky of which $6,000,000 were new funds. Of this amount, Central had agreed to advance only $2,200,000 until three conditions were met.²¹ When the funds were advanced in May, it caused Central to be in apparent violation of the State of Connecticut's lending limit on loans to any one borrower, C.G.S.A. S 36–98(b), as described in the State of Connecticut, Department of Banking's Report of Examination ("May Examination") dated May 14, 1990. (FDIC Exhibits 100 and 188)
   In the summer of 1990, the Board members of Cenvest and Central were aware of, and extremely concerned about, the apparent violation of the state's lending limit.²² (Campioni, TR 636–639, Monti, 678–681, King, 1122–1127) It was unlikely that Bronson and Hutensky could borrow additional money from Central which would exacerbate the apparent lending limit violation of State law. Such an application would probably have been rejected by the full Board of Central. Further, as Reveruzzi noted, he had attempted but not succeeded in obtaining financing for Bronson and Hutensky anywhere else that summer. (Reveruzzi, TR 799) When Mechanics was asked by DiBella to extend a loan to Bronson and Hutensky it would do so only through a senior participation agreement to be paid off in four months and under which it would be assigned first priority in the collateral for the $9,500,000 loan. (FDIC Exhibit 227) It appears that Bronson and Hutensky has been experiencing financial problems as early as April of 1990, and needed case. (FDIC Exhibit 224–225, Reveruzzi, TR 798, 801, 824–826, 828, 835, Barnes, 1329, Hutensky, 1359–1362, 1369–1372, 1389–1392)

   The Notice herein charges that Reveruzzi was a nominee borrower and that Hutensky participated in the ruse. The evidence supports a finding that Hutensky knew the proceeds of the Reveruzzi loan were to be transferred to Bronson and Hutensky, which would be the source of Reveruzzi's repayments to Central. (Hutensky, TR 1346–1347, 1422–1425) Further, as with the Harding loan, poor underwriting and lax practices made it impossible to determine whether Reveruzzi was creditworthy at the time of the loan.²³ Review of Reveruzzi's July 17, 1990, selfprepared financial statement shows that he did not have the income or net worth to qualify for an extension of credit of $500,000. (Pettit, TR 351–359, 363–366) This note, just as in the case of the Harding note, was not underwritten in accordance with safe and sound banking practices. For example, Reveruzzi's self-prepared financial statement improperly inflated his net worth, and the Bank did not obtain independent appraisals to verify the values of his partnership interests. (Pettit, TR 346) The Bank made no attempt to underwrite the note before the funds were advanced. (Pettit, TR 361, 363–364, Matteo, 972–973, 975–977) The terms of the note between Reveruzzi and Central were the same as those in the note between Bronson and Hutensky and Reveruzzi, except for the identity of the parties. The credit memo was prepared after the funds were advanced. (Matteo, TR 975–977) (FDIC Exhibits 212 and 214) For the foregoing reasons, Central could not have known at the time it made the loan to Reveruzzi whether he was a creditworthy borrower. As with the Harding loan, the fact that Bronson and Hutensky was the source of repayment of the Reveruzzi loan (Reveruzzi, TR 861) and the failure of the Bank to determine the borrower's creditworthiness supports the finding that the loan was really intended for the benefit of Bronson and Hutensky.
   The applicable case law, as already discussed in detail above regarding the Harding loan, provides guidance on determining the existence of a nominee borrower and a spurious loan. The financial ability of the borrower to repay the debt at the time the loan is made along with the likelihood or expectation that the borrower will personally repay the debt is indicative of the use. Here, as with Harding loan, the evidence illustrates that Reveruzzi was not intended to repay the loan and that it was not even determined at the time the loan was made whether he could service the debt. The undersigned finds that Reveruzzi was a nominee borrower, who could not support the loan but for the intervention of payments by Bronson and Hutensky.
   The proceeds of the Central loan to Reveruzzi were deposited directly into the Bronson and Hutensky account at CBT. (FDIC Exhibits 212, 213, 214, 217, 215) The credit files did not reflect the fact that the proceeds of this loan would be transferred directly to Bronson and Hutensky, nor did the credit memo disclose the true purpose of the loan or that the actual source of the funds for repayment would be Bronson and Hutensky. (FDIC Exhibit 211) Hutensky, though aware of the Reveruzzi loan and its true purpose, never informed the Loan Committee or the joint Boards of Cenvest and Central that the Reveruzzi loan would be made and that funds loaned would be used for his or a related interest's tangible economic benefit. Respondent testified that he did not feel compelled to formally inform the board of directors at Central of his relationship with Reveruzzi because it was clear that the attorneys representing the Bank and the loan officers were fully aware of Hutensky's relationship with the borrower and his company. (Hutensky, TR 1348) Respondent did not mention whether all the members of the board of directors actually knew of his relationship with Reveruzzi and Bronson and Hutensky. Precisely because Hutensky would receive a tangible economic benefit, this loan required advance approval by the Board of Directors of Central pursuant to Regulation O. Since the entire proceeds of the Reveruzzi loan were transferred to Bronson and Hutensky and the partnership used these funds for various Bronson and Hutensky business expenses, the tangible economic benefit of the Reveruzzi loan was received by Hutensky.

   As stated above regarding the Harding loan, Hutensky served as the primary financial manager of Bronson and Hutensky partnership. Hutensky was authorized to borrow

   Hutensky is also charged with violating Regulation O by his participation in a joint board of directors meeting with Cenvest and Central on August 27, 1990, regarding a modification of a $9,500,000 loan to Bronson and Hutensky from Central. The regulation requires that a director not participate in a vote with respect to loans to himself or related entities, and must remove himself from discussion of the loans. 12 C.F.R. 215.4(b)(4)) It is also alleged that Hutensky made knowing misrepresentations to the directors regarding the modification of the loan.

   In April, 1990, Bronson and Hutensky were required to borrow money to deal with the cash flow problems faced by the business. (FDIC Exhibit 225; Reveruzzi, TR 798, 801, 824–826, 828, 835, Barnes, 1329, Hutensky, 1359–1362, 1369–1372, and 1389–1392) By April 1, 1990, Bronson and Hutensky was the largest borrower at Central with $14,524,404 outstanding. (FDIC Exhibit 100; Barnes, TR 1147–1148) Hutensky believed that the only way to borrow any additional monies from Central was by collateralizing the existing Bronson and Hutensky unsecured loans. (Hutensky, TR 1297–1301, 1359–1362) He proposed to do this by pledging the Bronson and Hutensky limited partnership interest in the Manchester Simon Developers Limited Partnership ("Manchester Simon"), a joint venture partner with Homart Manchester Investment Co. in the Mall at Buckland Hills Partnership. (FDIC Exhibit 192) Bronson and Hutensky held a 25% interest in Manchester Simon and, as a result, a 12.5% interest in the Mall at Buckland Hills.
   Respondent proposed to borrow $6,000,000 in new funds for Bronson and Hutensky and to rewrite an existing $3,500,000 loan to Bronson and Hutensky from Central. Accordingly, such a proposal was made to the Loan Committee on April 18, 1990, calling for Central to extend credit to Bronson and Hutensky in a total sum of $9,500,000, using Bronson and Hutensky's interest in Manchester Simon as collateral as valued by Bank management, without an independent appraisal but based upon information furnished by Bronson and Hutensky, at $12,000,000. (Eisenberg, TR 909–912, 913–914, 932–940, 947–948) The Loan Committee recommended to the full Board that the $9,500,000 loan proposal be approved. The Loan Committee's recommendation was based principally upon the pledge of the Bronson and Hutensky interest in Manchester Simon as collateral. (FDIC Exhibit 187)
   On April 23, 1990, the Board approved the proposal as submitted by the Loan Committee,²⁴ but added three conditions. (FDIC Exhibit 192; Campioni, TR 636–637) The first condition was that only $2,200,000 could be advanced until other Bronson and Hutensky debt was paid off. The second condition was that Bronson and Hutensky submit audited financial statements. The third condition was that the main Bronson and Hutensky deposit account was to be moved to Central. Although Bronson and Hutensky accounts were apparently transferred to Central, the other two conditions were never fulfilled. (Eisenberg, TR 919–920)
   Despite conditions imposed by the Board, Hutensky decided to proceed with the loan. Bronson and Hutensky needed the $2,200,000 and he believed that Bronson and Hutensky would be able to quickly liquidate its position in the Royal Park project, and thus be able to obtain the balance of the loan proceeds. Hutensky, TR 1374–1376) Hutensky asked Melvin Simon to buy out Bronson and Hutensky's interest in Manchester Simon for $8,000,000. (FDIC Exhibit 224) The asking price represented a reduction in estimated value from $12,000,000 as reported by Bronson and Hutensky to Central three months earlier in April. DiBella, meanwhile, was trying to find additional lenders for Bronson and Hutensky, but

(2) Hutensky's Participation in Joint Board Meeting
   Hutensky participated in the August 27, 1990, Cenvest/Central joint Board meeting in an effort to acquire additional money for Bronson and Hutensky by persuading Central to relinquish its first security position in Manchester Simon so that the interest could be pledged to Mechanics as security for the $3,000,000 loan. The proposal, offered and prepared by Hutensky, was to repay the $2,200,000 extended by Central in May with the proceeds of the sale of the partnership interest in Manchester Simon, then, in August worth only $5,550,000 based on the draft Purchase and Sale Agreement. (FDIC Exhibit 239) Hutensky explained the proposal to the Board of directors at Central and upon request left the meeting to prepare a written summary of the proposal, later attached to the Board minutes as Exhibit A. After preparing Exhibit A, Hutensky returned to the Board meeting, where he explained the proposal described in Exhibit A to the Board. (FDIC Exhibit 207,208; Monti, TR 681–683, 687–692, 695–699, 700–701, King, 1032–1041, 1046–1048, 1168–1171) The Board of Directors approved Hutensky's proposed modification and the vote permitted Bronson and Hutensky to borrow $3,000,000 from Mechanics, while Central released its superior security interest in a partnership purportedly worth $5,550,000. On October 6, 1990, Central entered a senior participation agreement with Mechanics whereby $3,000,000 was advanced to Bronson and Hutensky under the existing $9,500,000 loan.

   [.5] The board's discussion on the modification of this loan is subject to the requirements of 12 C.F.R. § 215.4(b)(3) of Regulation O, "Participation in the discussion, or any attempt to influence the voting, by the board of directors regarding an extension of credit constitutes indirect participation in the voting by the board of directors on an extension of credit." § 215.4(b)(3) An extension of credit "is a making or renewal of any loan, a granting of a line of credit, or an extending of credit in any manner whatsoever." The definition is broad and includes the modification of the $9,500,000 revolving loan from Central. Hutensky's presence at the meeting violated the intent of Regulation O, and certainly his participation in the loan discussion constitutes a violation.
   (3) Misrepresentations to Board
   FDIC Examiner Pettit testified that not only did Respondent improperly participate in the loan modification discussion on August 27, 1990, but at a later joint meeting made knowing misrepresentations to the board of directors. (Pettit, TR 599, 612) During the October 22, 1990, joint Cenvest/Central board meeting, Hutensky represented that Central's subordinated lien position in Bronson and Hutensky's interest in the Manchester Simon shopping mall was academic because Bronson and Hutensky's proceeds from the sale of the partnership interest were to be six million dollars and would therefore exceed the total outstanding debt to Mechanics and Central. (FDIC Exhibit 232 at 62) However, on October 3, 1990, Hutensky had already signed a purchase and sale agreement indicating that he would receive only $5,150,000 for the sale of his partnership interest in the mall. (Pettit, TR 599) The purchase and sales agreement also reveals that Respondent was selling his Down East partnership interest for $650,000. (Pettit, TR 606) However, according to the documentation and as known to Hutensky, Central was only entitled to the assignment of the partnership interest in the mall leaving a shortfall of $50,000 to meet the obligations to both Mechanics and Central. (Pettit, TR 615) In fact, the shortfall was even greater than $50,000. On October 12, 1990, also prior to the joint meeting of board of directors at which Hutensky made his statement regarding payments of loans in full, Hutensky learned in a discussion with Melvin Simon, the buyer of the interest in the mall, that Bronson and Hutensky would receive only $4,625,000, rather than $5,150,000, for its interest in Manchester Simon. (Hutensky, TR 1411–1413; FDIC Exhibit 284) The loan from Central to Bronson and Hutensky was not fully protected as Respondent represented to the board because Mechanics had to have its primary security possession satisfied first, for its $3,000,000, before Central received any payment on its inferior position of $2,200,000, and the sale price was far lower than expected. Accordingly, Respondent knew at the October 22, {{7-31-95 p.A-2564}}1990, meeting that there would be a significant shortfall.²⁵
   In sum, Respondent's misconduct includes his participation in obtaining both the Harding and Reveruzzi loans for the benefit of his related interest, Bronson and Hutensky. At the time of the million dollar and half a million dollar loans, the creditworthiness of the borrowers was unknown and therefore involved more than the normal risk of repayment. Both loans should have received prior approval by the Board of Directors because Bronson and Hutensky, a related interest of Director Hutensky, received a tangible economic benefit. Neither loan was approved by the board of directors of Central of First Central. In addition, Respondent participated in a discussion before the board requesting to modify a loan to Bronson and Hutensky, specifically to require Central to relinquish the security for the $9,500,000 loan. For the above reasons, Respondent Hutensky violated Regulation O with respect to all three transactions.

   2. BREACH OF FIDUCIARY DUTY

   A person acting in a fiduciary capacity has a duty to make a full and fair disclosure of material facts to a person placing confidence in him.²⁶ It has been ruled²⁷ that:

In general corporate matters, the Supreme Court has held, when directors and officers place their personal interests above those of the corporation or utilize corporate resources for personal gain, they have committed a serious breach of their common law fiduciary duty ... The standards are even higher in banking, where the officers and directors are charged with looking after other people's money. Indeed, given the paramount importance of a credible and safe and sound banking system, there can be no question that officers and directors of banks are held to the very highest standard of fiduciary duty.

[B]ank directors and officers have a fiduciary duty to the bank to act diligently, prudently, honestly, and carefully in carrying out their responsibilities and must ensure their bank's compliance with state and federal banking laws and regulations. Docket No. FDIC-87-61e, 2 P-H FDIC Enf. Dec. ¶5113 at A-1243 (1988); Docket No. FDIC-85-356e, 2 P-H FDIC Enf. Dec. ¶5112 at A-1235 (1988). This duty requires the proper supervision of subordinates, a knowledge of state and federal banking laws, and the constant concern for the safety and soundness of the bank, id. at A-1235. "The greater the authority of the director or officer, the broader the range of his duty, the more complex the transaction, the greater the duty to investigate, verify, clarify, and explain," id. at A-1235.

   [.7] Respondent's fiduciary duties include the duty of loyalty and the duty of care. The duty of care requires officers and directors to act as prudent and diligent business persons in conducting the affairs of insured institutions. In re Neil Bush, OTS Order No. AP 91–16 (April 18, 1991) The duty of loyalty requires officers and directors to administer the affairs of the institution with candor, personal honesty and integrity. Id.
   Hutensky breached both his duties of care and loyalty. In an era of ever broadening director and officer liability, Respondent had a duty to make his intentions and actions scrupulously clear. Hutensky testified that he did not feel compelled to inform the Board of Directors at Central Bank about his relationship to the borrower and to the company receiving the loan proceeds because the loan officers and attorneys for the bank were aware

   3. UNSAFE OR UNSOUND BANKING PRACTICES

   [.8] "Unsafe or unsound" is a broad concept that reaches the entire spectrum of banking operations. Although not explained or clarified in the applicable statute, the phrase has been commonly understood to mean the following:

... [T]he term "unsafe or unsound practices" has a central meaning which can and must be applied to constantly changing factual circumstances. Generally speaking, an "unsafe or unsound practice" embraces any action, or lack of action, which is contrary to generally accepted standards of prudent operation, the possible consequences of which, if continued, would be abnormal risk or loss or damage to an institution, its shareholders, or the agencies administering the insurance fund.

   The second issue of the tripartite test of the applicability of the serious sanction prohibiting further participation in the affairs of federally insured financial institutions is whether, as a result of Respondent's misconduct, the banks suffered or will likely suffer substantial financial loss or other harm to the interests of its deposit holders, or whether Respondent financially gained of benefited from the misconduct.
   At the administrative hearing, the parties signed and the undersigned accepted a mutual stipulation as to the losses sustained or to be sustained by the FDIC. FDIC and Respondent stipulate to the admissibility of the losses described below:
   With respect to the note dated August 21, 1989, in the original principal amount of $1,050,000, executed by Preston F. Harding and payable to First Central Bank, Hartford, Connecticut, now bearing loan no. 4413-500361481 and referred to in the course of this proceeding as "Harding

(Mutual Stipulation - J1)
   Although the parties agree to the losses sustained by the banks, Hutensky does not concede that those losses were caused by any wrongful conduct on his part. (Hutensky, TR 957) However, as described in full above, the loans could not have been made without Hutensky's knowledge and participation. The record supports that Hutensky solicited the aid of his employee Reveruzzi in both loan instances to obtain loans to benefit Bronson and Hutensky which badly needed funds and could not receive a loan in its own name. Through Respondent's participation in procuring the loans, the losses as stated in the mutual stipulation are attributable to him. In addition, it has also already been shown how the proceeds of the Harding and Reveruzzi loans were deposited into the Bronson and Hutensky account. Since Bronson and Hutensky is a related interest of Respondent, Hutensky benefitted from the loan disbursements. Hutensky's actions caused loss to the banks while benefitting both himself and Bronson and Hutensky.

   The final issue to be considered is whether Respondent's actions manifest either personal dishonesty, or either manifest willful or continuing disregard for the safety and soundness of the banks. Personal dishonest includes a disposition to lie, cheat, defraud, misrepresent, or deceive.²⁹ Personal dishonesty includes a lack of straightforwardness and a lack of integrity.
   In view of the two pass-through loans, the benefit to Respondent and his related interest, his position at the banks, and his methods used in dealing with an inability to obtaining additional financing without violating lending limits, the facts necessitate a finding that Respondent acted culpably. As already stated, the evidence reveals that Hutensky participated in the efforts to procure the Harding and Reveruzzi loans in order to alleviate Bronson and Hutensky's cash flow problem. Hutensky's participation in these efforts constituted unsafe or unsound banking practices, breach of fiduciary duty, and a violation of Regulation O. The defaults on the Harding and Reveruzzi loans ultimately caused First Central and Central to incur substantial losses. Accordingly, Hutensky acted with willful disregard and this final required criteria in recommending the imposition of a Prohibition Order has been met. However, for the sake of review, the alternative criteria for the culpability prong will be explored below.
   Respondent's failure to inform the board of directors of the nature of the Harding and Reveruzzi loans is a material omission that in this instances rises to the level of personal dishonesty. The loans could not have been made without Hutensky's position, knowledge and participation and his failure to advise the boards was by design.
   Respondent's misrepresentation before the joint Cenvest/Central board of directors on October 22, 1990, also evidences personal dishonesty. After realizing that the sale of the partnership interest in the mall was going to be far less than the expected asking price as stated in more detail above, Hutensky nevertheless represented to the directors at the joint meeting that the loan to Central would be repaid because he was expecting six million dollars from the sale. The facts show that at the time of the representation, Respondent knew he would not even receive

   V.CONCLUSIONS OF LAW

   1. CityPlace Venture and Bronson and Hutensky were Hutensky "related interests" as that term is defined in Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O"), 12 C.F.R. Part 215.
   2. The FDIC has jurisdiction over Central and First Central and the subject matter of this proceeding.
   3. At all times pertinent to the charges contained herein Central was an insured State nonmember bank subject to the Act, 12 U.S.C. §§ 1811–1831t, the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the laws of the State of Connecticut. Prior to October 18, 1991, Central was an insured depository institution, as that term is defined in section 3(c) of the Act, 12 U.S.C. § 1813(c), was a corporation existing and doing business under the laws of the State of Connecticut, and had its principal place of business in Meriden, Connecticut.
   4. Prior to December 31, 1990, and at all times pertinent to the charges contained herein, First Central was an insured depository institution, as that term is defined in section 3(c) of the Act, 12 U.S.C. § 1813(c), was a corporation existing and doing business under the laws of the State of Connecticut, and had its principal place of business in Hartford, Connecticut. Prior to December 31, 1990, and at all times pertinent to the charges contained herein, First Central was and had been an insured State nonmember bank subject to the Act, 12 U.S.C. §§ 1811–1831k, the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the laws of the State of Connecticut.
   5. At all times pertinent to the charges contained herein, Central and First Central were subject to section 22(h) of the Federal Reserve Act, as amended, 12 U.S.C. § 375(b), and Regulation O of the Board of Governors of the Federal Reserve System ("Reg. O")³⁰ 12 C.F.R. Part 215, 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 12 C.F.R. § 337.3.³¹
   6. At all times pertinent to the charges contained herein, First Central was subject to section 22(h) of the Federal Reserve Act, as amended, 12 U.S.C. § 375(b), and Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O"), 12 C.F.R. Part 215, 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).
   7. Cenvest is a Delaware corporation formed for the purpose of becoming a bank holding company on February 27, 1987. At all times pertinent to the charges herein, Cenvest operated as the bank holding company for Central and First Central. First Central was organized by Cenvest and commenced operations on April 3, 1989. First Central was merged into Central on December 31, 1990.
   8. On or about October 18, 1991, the State of Connecticut Department of Banking declared Central insolvent, closed the institution, and appointed the FDIC Receiver for Central ("Central Receiver").
   9. Hutensky was an "institution-affiliated party" of First Central, as that term is de-

   VI. RECOMMENDED ORDER

   In consideration of the foregoing, the undersigned recommends a decision prohibiting Allan Hutensky from participation in the affairs of federally insured financial institutions. A Proposed Order of Prohibition from Further Participation, in the form recommended and attached hereto, should issue against Respondent pursuant to the provisions of section 8(e) of the Act, 12 U.S.C. § 1818(e).
/s/ Walter J. Alprin

Administrative Law Judge

Office of Financial Institution

Adjudication

PROPOSED ORDER OF PROHIBITION FROM FURTHER PARTICIPATION

   The Board of Directors of the Federal Deposit Insurance Corporation ("FDIC") having considered the record, the recommended decision of the Administrative Law Judge, and applicable regulations and law and pursuant to Section 8(e) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(e), finds and concludes that Allan Hutensky should be prohibited from any further participation, in any manner, in the conduct of the affairs of an insured depository institution.
   For the reasons set forth in the Decision in this proceeding, and pursuant to Section 8(e) of the FDI Act, 12 U.S.C. § 1818(e), the Board of Directors of the FDIC hereby ORDERS that:
   1. Allan Hutensky shall not participate in any manner in the conduct of the affairs of any insured depository institution agency or organization enumerated in Section 8(e)(7)(A) of {{11-30-00 p.A-2569}}the FDI Act, 12 U.S.C. § 1818(e)(7)(A) (1989), without the prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in Section 8(e)(7)(D) of the FDI Act, 12 U.S.C. § 1818(e)(7)(D) (1989).
   2. Allan Hutensky shall not solicit, procure, transfer, attempt to transfer, vote, or attempt to vote any proxy, consent of authorization with respect to any voting rights in any financial institution, agency, or organization enumerated in § 8(e)(7)(A) of the Act, 12 U.S.C. § 1818(e)(7)(A) (1989), without prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. § 1818(e)(7)(D) (1989).
   3. Allan Hutensky shall not violate any voting agreement with respect to any insured depository institution, agency, or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), previously approved by the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. § 1818(e)(7)(D).
   4. Allan Hutensky shall not vote for a director, or serve or act as an institution affiliated party, as that term is defined it section 3(u) of the FDI Act, 12 U.S.C. § 1813(u), of the banks or any insured depository institution, agency, or organization, enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. § 1818(e)(7)(A), without the prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. § 1818(e)(7)(D).
   This ORDER shall become effective thirty (30) days after its issuance.
   The provisions of the ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision of the ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Dated at Washington, D.C., this ____ day of ____ 1995.
   By direction of the Board of Directors.
   Pursuant to delegated authority.
/s/ ____