FDIC: 1997 - Docket No. FDIC-93-91e


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[¶5244] In the Matter of Jeffrey Adams, Richard Crawford, William A. Folkins, Beverly J. Orloski, David H. Rome, Stephen G. Smith, Irwin I. Weitz, Phillip J. Wright, BayBank, Burlington, Massachusetts, FDIC Docket No. 93-91e (11-12-97)

FDIC adopted the conclusion of the administrative law judge that an attorney's actions during the dual representation of both the bank and the buyer in a real estate deal was a violation of § 8(e) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(e). The Board of Governors issued an order of prohibition, finding that respondent acted with willful disregard for the safety and soundness of the Bank, and with personal dishonesty.

[.1] Conflict of Interest—Attorneys, Affirmative Duty to Disclose

Attorney failed to notify the bank of relevant details and changes to a real estate transaction.

[.2] Fiduciary Responsibilities—Attorneys
Attorney failed to properly exercise his fiduciary obligations to the bank.

[.3] Prohibition—Personal Dishonesty
There was substantial evidence that respondent's conduct in relation to the loan in question involved personal dishonesty.

In the Matter of
Jeffrey Adams,Richard Crawford,
William A. Folkins,Beverly J.
Orloski,David H. Rome,
Stephen G. Smith,Irwin I. Weitz
Phillip J. Wright
Individually, and as Institution-
Affiliated Parties of
BAYBANK
BURLINGTON,MASSACHUSETTS
(Insured State Nonmember Bank)
DECISION AND ORDER
TO PROHIBIT FROM FURTHER
PARTICIPATION
FDIC-93-91e

INTRODUCTION

   On June 7, 1993, the Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Intention to Remove From Office and to Prohibit From Further Participation ("Notice") against Irwin I. Weitz ("Respondent" or "Weitz"), and seven others pursuant to section 8(e) of the Federal Deposit Insurance Act (the "FDI Act"), 12 U.S.C. § 1818(e).¹
   This matter is before the Board of Directors (the "Board") of the FDIC following the submission of the Recommended Decision of Administrative Law Judge Arthur L. Shipe ("ALJ"), which recommends that an order of prohibition be entered against Respondent.²
   A hearing was held before the ALJ during the period March 20–28, 1995, and January 9–11, 1996, concerning the charges against Weitz. On May 23, 1997, after all briefs had been filed and immediately before the scheduled issuance of the ALJ's Recommended Decision, FDIC Enforcement Counsel moved to dismiss the proceeding against Respondent. Counsel for Respondent joined in the request on May 18, 1997. The ALJ determined that "the interests of justice are better served by deciding this matter on the merits." R.D. at 3. Therefore, he denied the FDIC's Motion to Dismiss and issued his Recommended Decision on June 9, 1997.
   Exceptions to the Recommended Decision were filed by both parties.

¹ Six of the persons named in the Notice entered into stipulations for the issuance of prohibition orders. The FDIC dismissed the charges against one respondent.

² Citations to the record shall be as follows:
Recommended Decision — "R.D. at ____"
Transcript — "Tr. at Vol. ____ P. ____."
ALJ's Findings of Fact — "FF No. ____."
Exhibits — "Ex. ____."
Weitz Exceptions — "Weitz Except. at ____"

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The Board concurs in and adopts the Recommended Decision and the ALJ's Findings of Fact and Conclusions of Law.

FACTUAL SUMMARY

   In November 1990, Weitz was representing H.B. Associates, a Massachusetts general partnership, composed of Hugo Bernal and John Harris, in its efforts to acquire a 28-unit apartment building located in Springfield, Massachusetts ("Belmont Avenue"), from the Boulrice family ("Seller"). Prior to the transaction at issue, Respondent had established a personal attorney-client relationship with Hugo Bernal, his wife Amy Bernal, and their real estate partnership, H.B. Associates. Weitz represented the Bernals at the purchase of their personal home, prepared their personal wills, and otherwise represented H.B. Associates in a number of real estate matters.
   On December 11, 1990, BayBank, Burlington, Massachusetts (the "Bank") issued a commitment to extend a $1 million loan to H.B. Associates (the "Borrower" or "Buyer"), for the purpose of acquiring Belmont Avenue.³ The Bank's loan was to be secured by a first mortgage lien on the property. The purchase price of the property was $1.25 million. After application of the Bank's loan, the balance of the purchase price was to be paid by a note to the Seller in the amount of $250,000 (the "H.B. Note"). In mid-December 1990, at the request of the Borrower, Weitz was hired to represent the Bank at the closing, which occurred on February 1, 1990.
   Between the date on which Weitz was hired to represent the Bank and the closing, the Buyer and Seller entered into a series of written and oral agreements, known to Weitz but not known to the Bank, which substantially modified the original purchase and sale agreement and substantially reduced the purchase price of the property. On January 16, 1990, the Buyer and Seller, with their respective counsel, jointly executed a Like Kind Exchange Agreement ("LKE Agreement") which substantially changed the format of the transaction, though it did not purport to affect or change in any way the purchase price of Belmont Avenue, or the purpose for which the Bank's loan funds were to be used in acquiring the property. Weitz forwarded a copy of the LKE Agreement to the Bank on that date.
   On the very same day, though not forwarded to the Bank, the parties also executed an Amendment to Like Kind Exchange Agreement ("Amended LKE Agreement") as well as an additional written agreement in the form of a letter ("the Letter Agreement"). The Letter Agreement altered and reversed certain provisions of the LKE Agreement pertaining to deposits required of H.B. Associates. The Amended LKE Agreement altered the parties' payment obligations, and altered the obligation to repay an existing mortgage on the property (the "Mellis Mortgage") with loan proceeds as was initially agreed, by removing the Mellis Mortgage from the Belmont Avenue property and placing it on another property owned by the Seller. Most significantly, the Amended LKE Agreement reduced the total amount of principal H.B. Associates was to pay on the H.B. Note from $250,000 to $62,500, a seventy-five percent (75%) reduction.
   Respondent, as Bank's counsel, closed the Belmont Avenue transaction on February 1, 1990. On the date of closing, however, the parties struck another series of agreements which were verbal and never reduced to writing. During the negotiations, responsibility for making necessary repairs to the property before closing shifted between the parties. Initially, the Seller was responsible for repairs. With the Amended LKE Agreement, the parties shifted the responsibility from the Seller to the Buyer and provided for the allocation of a "repair credit" to the Buyer in the amount of $50,000. The first verbal agreement made at closing allocated an additional $150,000 "repair credit" to the Buyer. There was no obligation on the part of the Seller to make this concession, nor was there any apparent relation to a specific problem with the property. In fact, the parties agreed that this credit was for repair not only of the Belmont Avenue property, but also the Indian Orchard property, which was not a part of the Bank financed transaction.
   The next verbal agreement concerned the Seller-provided financing—the H.B. Note. By the Amended LKE Agreement the parties agreed to reduce the principal on this

³ The transaction actually included the simultaneous purchase of another property (the "Indian Orchard property") financed through another lender, also represented by Respondent. For simplicity, the discussion here is limited to those parts of the transaction relevant to the Belmont Avenue property which is the focus of the FDIC's allegations against Respondent.
{{1-31-98 p.A-2859}}note to $62,500. At closing, however, H.B. Associates refused to execute even the amended note because of its concern over the true worth of the property, and the multiple encumbrances to the title on the property which were not removed by closing. Nevertheless, the parties closed the transaction.
   The final verbal agreement made at closing was that Respondent personally would receive a payment in the amount of $2,787 from the Bank's loan proceeds. This payment was unrelated to the Belmont Avenue transaction, but rather, was to satisfy a past due obligation of H.B. Associates to Weitz for previous legal services.
   After the closing, Weitz issued a title certificate and title insurance policy reflecting that no encumbrances existed on the title to the property except the Bank's first mortgage although he knew that other encumbrances existed on the title which were superior to the Bank's mortgage.
   Also following the closing, Weitz prepared the Memo of Sale, a document intended to show the entire financial transaction at closing. The Memo of Sale described a transaction in substantial conformity with the Bank's commitment letter and the LKE Agreement which had been provided to the Bank. Weitz omitted from the Memo of Sale, however, the many changes caused by the Letter Agreement, the Amended LKE Agreement, and the several verbal agreements. Weitz did not provide a copy to the Memo of Sale at closing or at any other related time. He contends the Bank did not require it.
   On February 2, 1990, Respondent disbursed all of the Bank's loan funds, not in conformity with the Bank's commitment letter, the LKE Agreement, or the Memo of Sale, but rather, in conformity with the subsequent agreements reached by the parties and not disclosed to the Bank. All distributions were derived from the loan proceeds.
   Shortly after closing the transaction, H.B. Associates defaulted on the Bank's note and declared bankruptcy. The Bank foreclosed on Belmont Avenue in May of 1991, and after a lengthy foreclosure process resold the property for a total loss of $798,000.

THE STATUTE

   To issue an order of prohibition the Board must find each of the following: 1) there must be a specified type of misconduct— violation of law, unsafe or unsound practice, or breach of fiduciary duty; 2) the misconduct must have a prescribed effect—financial gain to the respondent or financial harm or other damage to the institution; and 3) the misconduct must involve culpability of a certain degree—personal dishonesty or willful or continuing disregard for the institutional safety or soundness. 12 U.S.C. § 1818(e); See Van Dyke v. Board of Governors, 876 F.2d 1377 (8th Cir. 1989). The evidence of record clearly establishes that all three prongs of the test have been satisfied.
   In addition, in the case of independent contractors, which term includes attorneys such as Respondent, the status of "institution-affiliated party" must be established by findings that:
   (4) any independent contractor (including any attorney, appraiser, or accountant)... knowingly or recklessly participates in—

This record establishes Respondent's knowing and reckless commission of the multiple breaches of fiduciary duty and unsafe and unsound practices alleged in the Notice which led to more than minimal financial loss to the Bank. Thus, he is an institution-affiliated party within the meaning of the FDI Act.

EXCEPTIONS⁴
Respondent raises several "General Exceptions" which will be discussed here. He additionally excepts to all findings of fact which do not favor him. The significant factual Exceptions will be addressed in the Board's Discussion. Those not discussed are essentially Respondent's rearguing of his position and are denied.

⁴ The FDIC filed a single Exception seeking to correct a typographical error in the ALJ's Finding of Fact No. 82. That Exception is adopted. The relevant sentence of the Finding of Fact should read: "The cover letter accompanying the Like Kind Exchange Agreement from Weitz to the Bank is dated Tuesday, January 16, 1990."
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   First, Weitz takes exception to the issuance of the Recommended Decision after the filing of the FDIC's Motion to Dismiss, to which he assented, on the grounds that the ALJ no longer had the jurisdiction or authority to issue a Recommended Decision. This Exception is rejected because it is erroneous as a matter of law. Only the Board is empowered to issue a final decision—on a dispository motion or otherwise—in a proceeding brought under section 8(e) of the FDI Act. The ALJ has limited authority delegated by the Board to issue a Recommended Decision. Even if the ALJ had granted the FDIC's Motion to Dismiss, such grant would have been in the nature of a recommendation to the Board, which the ALJ is required to forward to the Board for final decision. Similarly, the parties, by their agreement, cannot deprive the Board of its sole jurisdiction to issue a final agency decision. The Board has reviewed the record and determined to accept the ALJ's recommendation to deny the Motion to Dismiss and issue this final Decision and Order.
   Second, Weitz excepts to all of the ALJ's Findings of Fact in that, "with three exceptions, [the ALJ] essentially adopts verbatim the findings of fact proposed by the FDIC," and thus, according to Weitz, the ALJ's Findings of Fact do not demonstrate that they are a product of his own independent judgment. This Exception is also rejected. The FDIC proposed 193 findings of fact; the ALJ issued 168 Findings of Fact.⁵ As admitted by Weitz, though downplayed, the ALJ rejected three areas of the FDIC's proposed findings of facts and several proposed conclusions of law.⁶ The fact that the ALJ carefully sifted through the evidence and the proposed findings to reach his own conclusions regarding these factual and legal matter plainly contradicts Respondent's assertion and convinces the Board that the ALJ did not simply "rubber stamp" the FDIC's proposals, but rather, appropriately exercised his judgment. The Board is aware of no prohibition against repeating appropriate findings as proposed by a party. Finally, as noted above, the Board has reviewed Respondent's proposed findings of fact and the FDIC's proposed findings of fact and on the basis of the testimonial and documentary evidence in this record concurs with the ALJ.
   Respondent also excepts to the ALJs conclusion that his actions "caused" loss to the Bank, because, he claims, loan officer Wright, appraiser Smith and the unanticipated poor condition of the property "caused" the loss. He discusses at length the difference between "proximate" cause and "but for" cause and asserts that proof of proximate causation is required for a finding of loss under section 8(e); anything less, i.e., "but for" causation, is insufficient. Weitz Except at 70. This is simply wrong as a matter of law. The statute contains no such requirement, and in the years of its implementation, it has been uniformly recognized that multiple factors, and individuals, may contribute to a bank's losses. See FDIC v. Bierman, 2 F.3d 1424, 1434 (7th Cir. 1993) (Proximate cause is "`that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the result complained of and without which the result would not have occurred.' ...Nor must an action be the sole cause to be the proximate cause; it need only be a substantial factor in producing the injury if the injury were reasonably foreseeable at the time of the wrongful act."); In the Matter of ***, 1 P-H FDIC Enf. Dec. (Bound), ¶5049 (1985). That others might have contributed to the Bank's loss does not absolve Weitz of liability in a case brought pursuant to section 8(e) of the FDI Act.⁷
   The cases cited by Respondent are easily distinguishable. At issue in those cases is whether a statute creates a private cause of action. Section 8(e) is a remedial statute amended in the wake of the recent banking

⁵ Many of the facts of this case are not in dispute and the record contains a large number of "undisputed" findings of fact submitted by both parties.

⁶ —Contrary to the assertions of FDIC Enforcement Counsel, the ALJ did not find that Respondent violated Massachusetts General Law 167E; R.D. at 17.
—The ALJ did not rely upon the testimony of FDIC Examiner Ristow other than for her factual conclusions, R.D. at 25.
—The ALJ discredited the testimony of FDIC witness, Mrs. Amy Bernal, and in so doing rejected finding that Respondent acted with personal dishonesty in failing to disclose to the Bank the asserted knowledge of the true financial condition of the borrowers, R.D. at 30.
—The ALJ did not find that Respondent's conduct established "continuing" disregard for the Bank's safety and soundness within the meaning of section 8(e) of the FDI Act, R.D. at 31.

⁷ The FDIC acknowledges that the underwriting of Phillip J. Wright and the appraisal of Stephen G. Smith, two of the former respondents in this case who stipulated to orders of removal and prohibition, were deficient.
{{1-31-98 p.A-2861}}crisis to insure the health of the banking system. In recent cases involving breaches of fiduciary duty, the U.S. Court of Appeals for the Second Circuit has repeatedly held that "[it] does not require an express finding of proximate cause in fiduciary duty cases." Evvtex Co., Inc., v. Hartley Cooper Associates Ltd, et al, 102 F.3d 1327, 1334 (1996); Milbank, Tweed, Hadley & McCloy v. Chan Cher Boon, et al, 13 F.3d 537, 542 (2d Cir. 1994) (liability may attach for acts or omissions that are a "substantial factor" in the sequence of causation; Milbank cannot enjoy impunity by showing that appellee's losses might have resulted from other possible causes); Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 284 (2d Cir. 1992); ABKCO Music, Inc. v. Harrisongs Music, Ltd., 772 F2d 988, 995-96 (2d Cir. 1983) (having found ... a breach of fiduciary duty, the district judge was not required to find a "but for" relationship).⁸ There is no reason to believe that Congress intended the standard of "proximate" causation to apply without any evidence or legislative history even hinting in that direction. Nor is there any reason to believe that Congress intended liability to attach only where a respondent's actions were the sole cause of loss to a financial institution. The Board will not overlook that by failing to disclose to the Bank that the purchase price of Belmont Avenue had been reduced, that the financial and physical condition of the Belmont Avenue property was inconsistent with information submitted to the Bank in support of the Belmont Avenue loan, that there was to be a large diversion of loan funds to unapproved purposes, and that the Bank did not have a first mortgage on the Belmont Avenue property, Weitz caused the Bank to make the Belmont Avenue loan. In so doing, Weitz was not only directly responsible for the Bank's loss, he was its principal cause.

DISCUSSION

[.1] The Board agrees with the ALJ that all of the elements of section 8(e) have been proved. Weitz's description of the Belmont Avenue closing as a transaction that conformed to the norm and to the commitment letter issued by the Bank is shockingly disingenuous. Common sense and common experience require the conclusion that Respondent's "Actions throughout the transaction speak louder than his words," R.D. at 24, and that his dual representation of both the Buyer and the Bank is, under the circumstances presented here, "quite unacceptable." R.D. at 18. As the ALJ correctly stated: "The Respondent seems to miss the critical point here. Had Respondent Weitz properly performed his duty as closing counsel, the loan in this instance would never have been made." R.D. at 26. The Board adopts the ALJ's Findings of Fact and Conclusions of Law and will not repeat them here.⁹ It is sufficient to state that Respondent's breaches of fiduciary duty to his client, the Bank, his willful disregard for the safety and soundness of the Bank, his personal dishonesty, his cause of the Bank's loss and the benefit he received are proved primarily throug his own testimony.
Significantly, Respondent testified to the following:

⁸ ABKO Music Inc., was cited with approval for this proposition by the Court of Appeals for the District of Columbia Circuit in Kaplan v. OTS, 104 F.3d 417 (D.C. Cir. 1997).

⁹ The ALJ did not find that Respondent violated Massachusetts General Laws, chapter 167E (prohibiting loan-to-value ratio in excess of 80%), or that his conduct evidenced a continuing disregard for the safety and soundness of the Bank. Because the record adequately supports findings that Respondent engaged in unsafe and unsound practices and breached his fiduciary duty, the "misconduct" element of a violation under section 8(e) of the FDI Act has been satisfied, and a finding with regard to whether Respondent violated a statute is unnecessary for the Board to reach its conclusion. Similarly, because the record establishes that Respondent acted with knowing and willful disregard of the safety and soundness of the Bank, the "culpability" requirement of the Act is satisfied. Accordingly, the Board has not addressed these issues in its decision.
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¹⁰

[.2] Respondent's position, in essence, consists of repeated denials that any of these created a conflict of interest, were "material" changes to the transaction which had been presented to the Bank, or adverse to the Bank, or part of his reporting obligation.¹¹ But Respondent's fiduciary duty will not permit him to hide behind a wall of denial. Respondent's litany of deeming changes to be not material or not adverse cannot be taken seriously, and the ALJ appropriately finds his testimony incredible. His condescending description of the two segments of a real estate transaction—one between the buyer and seller and then one between the buyer and lender—and his ability to cleanly separate the two phases so as to be able to simultaneously represent both the buyer and lender, ignores the all too frequent situation where (as here) the interests of the buyer and lender become adverse. The Board does not find that representation of a borrower and a bank in closing a real estate transaction creates a per se conflict of interest. Nonetheless, in the circumstances of this case, a clear conflict of interest existed. Notwithstanding Weitz's assertion that he always re-

¹⁰ In later testimony, Weitz denied that he had represented H.B. Associates in the Belmont Avenue transaction and stated that the above references had been mistakes. Tr. at Vol. 39, p. 44. But, he also testified that he maintained good accounting procedures so that "the clients" would know where the loan money went and then denied that the Bank was the client for whose benefit the procedures were maintained. As Weitz had only one other client in the Belmont Avenue transaction—H.B. Associates—it is clear that H.B. Associates was the intended beneficiary of the good accounting procedures. Respondent's repeated denial that he represented H.B. Associates is repeatedly belied by his actions.

¹¹ See Tr. at Vol. 6, p. 41-2, 89, 91, 96, 98–101, 102, 104, 109–112; Vol. 38. p. 108, 124-25, 138-39, 180-81, 183; Weitz Except. at 11, 12, 15.
{{1-31-98 p.A-2863}}membered that he represented the Bank after he was hired by the Bank as its closing attorney, and always acted in the Bank's best interest, his actions prove otherwise.¹²
   A few examples of Respondent's claims will suffice to support the Board's conclusion that Respondent acted in his own and H.B. Associate's interest, in total disregard of the Bank's interest. The transaction was neatly orchestrated to divert approximately $175,000 of the Bank's loan funds to purposes not approved by the Bank. In addition to other unauthorized payments, it provided H.B. Associates with substantial cash (approximately $160,000) and Weitz with cash, albeit much less (approximately $3,000), from the Bank's funds, without the Bank ever knowing.
   1. The Amended LKE Agreement shifted the responsibility for making repairs from the Seller to the Buyer, gave the Buyer a "repair credit" of $50,000, removed the Mellis Mortgage from the property, and reduced the amount of the H.B. Note from $250,000 to $62,500. Weitz admits that he never disclosed the existence of this agreement to the Bank and did not provide the Bank with a copy of the document. He claims that this was appropriate because the changes made by the Amended LKE Agreement were not "material". This is plainly nonsense. These changes went to the very heart of the transaction as understood by the Bank. They reduced by 75 percent the total amount of principal H.B. Associates was obligated to pay on its note to the Sellers from $250,000 to $62,500. This constituted a reduction of $187,500 in the purchase price without any further consideration. It is simply the product of negotiations between the parties, presumably in recognition of the true value of the property. Nothing could be more material.
   Respondent repeatedly asserts that there was no reduction to the purchase price by this, or any other of the numerous changes to the deal, thus creating no obligation on his part to disclose these changes to the Bank. This is sophistry. Although the bottom line on the various documents and the Memo of Sale (prepared by Respondent and filled with misrepresentations, R.D. at 13) continued to list the purchase price as $1.25 million, the obligations of the Buyer were reduced by the Amended LKE Agreement, by the $150,000 "repair credit" provided in the preclosing oral agreement¹³ and perhaps by the Buyer's refusal at closing to execute any mortgage to the Sellers, effectively reducing the purchase price by an additional $62,500 at the closing itself.¹⁴ Whatever name you give it, a reduction in the financial obligations of the buyer is a reduction in the purchase price. The Board focuses on substance over form.
   2. The Memo of Sale is itself noteworthy. Weitz did not provide the Memo of Sale to the Bank because, he contends, he was not obligated to do so by the commitment letter. Tr. at Vol. 6, p. 91. He, of course, asserts that the Memo of Sale accurately reflected the transaction, but because the Bank didn't see the Memo, he claims that its contents, in any event, are irrelevant. The Board agrees with the position of FDIC Enforcement Counsel regarding the Memo of Sale, which is that the issue is not whether the Bank actually saw the Memo of Sale, but rather, whether Weitz intended to misrepresent and deceive the Bank when he prepared it. First, the commitment letter was addressed to the Borrowers, not the closing attorney. Because the borrowers would not be the party responsible for receiving and disbursing the Bank's loan funds, there is no reason for the Bank to have requested a Memo of Sale, or similar document in its commitment letter.

¹² Respondent claims that because he was recommended to the Bank by the Borrower, the Bank should have known that he had been representing the Borrower. Weitz Except at 13. Not necessarily. It is possible that a borrower would recommend a lawyer to a bank for a closing because the lawyer had a good reputation, or had done a good job for the borrower's friend in another legal matter. Respondent may be asserting that recommendation by the Borrower constituted a tacit waiver of conflict by the Borrower. But that does not address the Bank's position. The mere fact that Respondent was recommended by the Borrower (which is claimed to be the practice in Massachusetts at the time) does not constitute a waiver by the Bank of its conflict concerns. It had every right to assume that Respondent would be at all times acting in its best interest. At the very least the Bank had a right to know all of the facts related to this transaction known to its counsel which may be harmful to it, United States v. Cassiere, 4 F.3d 1006, 1022-23 (1st Cir. 1993). Respondent's claim that he was acting in the best interests of the Bank is disproved by the facts.

¹³ The Seller's lawyer and Buyer Harris both acknowledge that the repair credits reduced the purchase price of Belmont Avenue. Tr. at Vol. 37, pp. 60–61; Vol. 38, pp. 63–64, 68.

¹⁴ The effect of the buyer's refusal to sign any note to the Seller at closing cannot be determined on this record. It is clear, however, that since the Buyer left the closing with $160,000 in cash, it could have, but did not deem it an obligation to pay the Seller the $62,500 called for in the Amended LKE Agreement.
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   Weitz testified that the purpose of the Memo of Sale was to trace the course of loan funds so that anyone with a right to know, including the lender, could tell where the funds came from and where they went. Tr. at Vol. 6, p 40; Vol. 38, p. 172. Weitz further testified that a majority of banks required memoranda of sale for commercial real estate closings, and that the memoranda of sale gave the banks the opportunity to review where the loan funds went. Tr. at Vol. 6, p. 39-40. In light of his testimony, it is reasonable to assume that an experienced real estate lawyer, such as Respondent, would prepare the Memo of Sale with the expectation that it would be reviewed by the Bank, even if it were not mentioned in the commitment letter. If the Bank had seen the Memo of Sale prepared by Respondent, it would have seen a document (Ex. 267) notable for its misrepresentations and omissions. While the Bank's failure to ask for the Memo of Sale before releasing its loan funds was a happy coincidence for Weitz, it does not excuse his obvious intent to deceive the Bank by the manner in which the Memo of Sale was prepared. The Board concurs with the ALJ in finding that Weitz' personal dishonesty is established. R.D. at 29.
   3. The Bank had made its receipt of a first mortgage position a requirement of its commitment. At the closing, Weitz knew that the Bank was not getting a first mortgage because encumbrances which were senior to its mortgage had not been removed. Weitz never informed the Bank, and indeed issued a false title certification and title insurance.¹⁵ He asserts that he had no need to inform the Bank because each of the problems was "correctable". Tr. at Vol. 6, p. 98. Even if "correctable" encumbrances were an exemption from the requirement that the Bank obtain a first mortgage position (and there is absolutely no evidence of such exemption), in fact, it was two years before the title was cleared, during which time Weitz never disclosed these problems to the Bank. During all that time the Bank was at risk. The Board is hard pressed to describe a clearer breach of fiduciary duty to the Bank.
   4. The Bank intended that its $1 million loan would be used at closing by H.B. Associates to pay off the two existing mortgages on the property—$800,000 to Heritage Savings and $200,000 to repay the Mellis Mortgage. Weitz Except. at 22. The Amended LKE Agreement, which Respondent negotiated, removed the Mellis Mortgage from this transaction, making it unnecessary for loan proceeds to be used to repay it at closing. Weitz' records contain no indication that he notified the Bank of this change and Weitz admits that he did not forward this information to the Bank. Tr. at Vol. 38, p. 189; Weitz Except. at 56. Because the Bank was unaware of this change in the deal, it could not re-evaluate its loan and determine whether to reduce it. The availability of these funds, previously earmarked to pay-off the Mellis Mortgage, became crucial for the plan obviously being developed by Weitz and H.B. Associates. It is what enable H.B. Associates to leave the closing with a sizeable amount of cash—all of which was loan proceeds—unbeknownst to the Bank.¹⁶
   [.3] With respect to these failures to disclose and others enumerated in greater detail in the Findings of Fact, if Weitz had fulfilled his fiduciary obligation of disclosure to the Bank, it would have had numerous opportunities to reconsider this transaction, and the Board believes, withdraw its commitment. The temerity of Weitz to describe these actions as "not adverse" or "not material" is astounding. The point of the transaction as it developed was to permit H.B. Associates to divert to itself a substantial amount of money, including enough to partially pay off its debt to Weitz. Weitz' personal interest in this is obvious. This transaction became so obviously contrary to the Bank's interest, that is difficult to conceive of bank officials, if they had been informed of all the relevant facts, allowing it to proceed.¹⁷ Thus, it is Respondent's breaches of fiduciary duty, willful dis-

¹⁵Amazingly, he claims that the existence of the title insurance provided a protection for the Bank. Tr. at Vol. 38, p. 149-50. However, in so stating he avoids recognizing that insurance provided upon known false facts will not be honored and all he was doing was buying a lawsuit for the Bank.

¹⁶ Weitz goes so far as to state in his Exceptions that "the funds received [at closing] by H.B. Associates was not a payment from the Bank's loan funds, but a payment from the Seller." Weitz Except. at 34. This is a remarkable statement in light of Weitz further recognition that one hundred per cent of the money involved in this transaction came directly from the Bank's loan. Weitz Except. at 22.

¹⁷ The record contains only a suggestion that Bank employees and Weitz may have been cooperating. The Board does not address this issue other than to note that a transaction as blatantly disadvantageous to the Bank as this one almost requires assistance or incompetence of insiders to succeed.
{{6-30-98 p.A-2865}}regard for the safety and soundness of the Bank and personal dishonesty which caused the Bank to enter into this loan and caused the loss of some $798,000.
CONCLUSION

Based on the above and the Findings of Fact which the Board has carefully reviewed and adopted, the Board also adopts the ALJ's Conclusions of Law. The evidence in this record overwhelmingly supports the establishment of each of the three elements required to be proved before an order of prohibition under section 8(e) of the FDI Act may be entered. The courts and this Board have previously expressed concern over the potential for harm which may be caused by attorneys who represent financial institutions. "[A]n attorney representing the institution in a real estate conveyancing transaction ... is in a position to cause significant harm. Making these loans is a fundamental part of a bank's business, and there are numerous ways for an attorney whose primary loyalties lie elsewhere to undermine the lender." In the Matter of Robert S. Stoller, 2 P-H FDIC Enf. Dec. (Bound), ¶5184, at p. A-2085 (1992). An attorney representing a financial institution, "like the institution's directors and officers, occupies a position of trust and has important fiduciary obligations to the financial institution," and in addition, "a bank officer ... depends upon his [closing] attorney to exercise the utmost loyalty and fidelity to the bank's interests." Id. Such attorney "serves as `the eyes and ears of the lending institution.'" United States v. Cassiere, 4 F.3d 1006. Mr. Weitz has proven that the Board's concern is well placed. The issuance of an order of prohibition is appropriate to protect other institutions and to alert them to the level of scrutiny which may be necessary to insure that institution-affiliated parties are acting in the best interests of the financial institution.

ORDER TO PROHIBIT

For the reasons set forth above, and pursuant to section 8(e) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(e), it is hereby ORDERED that:

   This ORDER will become effective thirty (30) days from the date of its issuance.
   The provisions of this ORDER will remain effective and in force 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 12th day of November, 1997.
{{6-30-98 p.A-2866}}

______________________________________________

RECOMMENDED DECISION

In the Matter of
Jeffrey Adams,
Richard Crawford,
William A. Folkins,
Beverly J. Orloski,
David H. Rome,
Stephen G. Smith,
Irwin I. Weitz,
Phillip J. Wright,
individually, and as
institution-affiliated parties of
BAYBANK
BURLINGTON,MASSACHUSETTS
(Insured State Nonmember Bank)
RECOMMENDED DECISION
FDIC 93-91e
(Weitz)
   Appearances:
   For the Federal Deposit Insurance
Corporation:
Ms. Barbara F. Gibbs, Esq.
Ms. Linda M. Hamel, Esq.
Mr. Paul D. Snyder, Esq.
   For Respondent Irwin I. Weitz:
Ms. Carol A. Griffin, Esq.
Mr. Robert M. Mack, Esq.
ARTHUR L. SHIPE, Administrative Law
Judge

I. Introduction

   This matter arises from a Notice of Intention to Remove from Office and Prohibit from Further Participation ("the Notice"), issued by the Federal Deposit Insurance Corporation ("FDIC") on June 7, 1993.¹ The Notice was brought pursuant to Section 8(e) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(e), and sought the permanent prohibition of the eight named respondents.
   Six Respondents settled, entering into stipulations for the issuance of prohibition orders. The matter proceeded to hearing only with respect to Respondents Orloski and Weitz.
   Because of both substantive and procedural considerations, the matter was tried in two distinct increments concerning the separate allegations against each. With respect to Respondent Weitz the matter was tried before me during the period March 20–28, 1995, and January 9–11, 1996, in the cities of Northampton and Springfield, Massachusetts.
   At the conclusion of all hearings the parties formally moved to bifurcate the proceeding with respect to the two Respondents, and conclude each through the issuance of separate decisions. That portion of the proceeding involving Respondent Orloski was placed on an expedited briefing schedule, and was concluded by Recommended Decision dated December 6, 1996, and Final Order by the FDIC Board of Directors dated April 22, 1997. At the request of the parties the matter involving Respondent Weitz was placed on an extended post-hearing schedule.
   On May 23, 1997, after all briefs had been filed and immediately before the scheduled issuance of my Recommended Decision in the Weitz matter, FDIC Regional Counsel moved to dismiss the proceeding against Respondent Weitz. The motion was made under FDIC Rule 308.5(b)(7), and requested that I transmit the evidentiary record to the Board of Directors for consideration of the dismissal motion. Counsel for Respondent Weitz joined in the request on May 28, 1997.
   In my opinion the interests of justice are better served by deciding this matter on the merits. For these reasons, insofar that it is within my authority to do so, I deny the Motion to Dismiss, and issue this, my Recommended Decision. Of course it remains within the Board's prerogative to dismiss the proceeding should it be inclined to do so.
   On the record as a whole, including my personal observation of the witnesses, briefs, and arguments presented, I recommend that the FDIC Board of Directors permanently prohibit Respondent Irwin I. Weitz from further participation in the conduct of the affairs of any insured depository institution, for the reasons set forth below.

II. Discussion of Fact

The facts of the proceeding establish the following. Respondent Weitz, an attorney of some thirty years, had developed a substantial practice in residential and commercial real estate, in and around Western Massachusetts. At the time he regularly rendered professional legal services in connection with

¹ An Amended Notice was issued on January 24, 1994. For purposes relevant to this proceeding the Amended Notice alleged a more recent amount of loss arising from the transaction at issue here.
{{6-30-98 p.A-2867}}real property transactions, including purchase and sale representation, title insurance and examination, and representation of various lending institutions at closing.
   The banks and financial institutions which retained Respondent in real estate lending matters did so largely in connection with commercial closings. He was recognized on a list of "approved attorneys" by no fewer than seven different financial institutions, and was regularly engaged for these purposes.
   Prior to the transaction at issue here, Respondent Weitz had established a personal attorney-client relationship with one Hugo Bernal, his wife Amy Bernal, and a real estate partnership through which the Bernals did business, H.B. Associates. Respondent Weitz represented the Bernals at the purchase of their personal home, prepared their personal wills, and otherwise represented H.B. Associates in a number of real estate matters.
   In November of 1989 H.B. Associates began efforts to acquire a 28-unit apartment building located in Springfield, Massachusetts. The property was located at 413–415 Belmont Avenue ("the Belmont Avenue property"), and was owned at the time by Norman J. Boulrice, Emery J. Boulrice, and Beverlee J. Boulrice ("the Boulrices").
   On November 7, 1989, H.B. Associates and the Boulrices entered into a standard Purchase and Sale Agreement ("the P&S Agreement") for the purchase of Belmont Avenue at the price of $1.25 million. The P&S Agreement was contingent on the buyer's ability to obtain a commercial mortgage loan in the amount of $1 million, and scheduled a tentative closing date of December 15, 1989.
   In early-December of 1989 H.B. Associates secured the commitment of BayBank Valley Trust Company ("BayBank") to provide commercial mortgage financing on the proposed acquisition. The loan commitment, in the amount of $1 million, was subject to the terms and conditions set out in BayBank's commitment letter of December 11, 1989. Because the total amount of this commercial loan exceeded $500,000 it required approval by the Bank's Loan Review Committee, which approved the proposal on December 9, 1989. The BayBank loan officer responsible for underwriting, presenting, and overseeing the proposal was Phillip J. Wright.²
   The $1 million financing approved in this instance was based on a total purchase price of $1.25 million. The balance of this purchase was to be made up through seller financing in the form of an additional mortgage, which the buyers were to grant back to the sellers, in the amount of $250,000. Though there was no requirement that the buyers make a cash down payment, the transaction, as proposed, did require H.B. Associates to make payment on substantial closing costs.
   As structured, the Bank was to take a first mortgage on the land and building, an assignment of the leases and rents, as well as a lien on the furnishings, fixtures, and equipment thereon. As additional security, the Bank was to take a second mortgage on additional properties which H.B. Associates intended to simultaneously purchase from the Boulrices in a separate transaction, referred to as the "Indian Orchard Properties." The purchase of these properties was to be financed by another lending institution, the Ludlow Savings Bank, which conversely sought to take a first mortgage position on the Indian Orchard Properties, and second mortgage position on the Belmont Avenue Property. The seller's financing was to be secured in the form of a third mortgage on both sets of property.
   At some point in mid-December 1989, H.B. Associates requested that BayBank retain the services of Respondent Weitz to assist in closing the Belmont Avenue transaction. Respondent admits that he had represented H.B. Associates in connection with this matter, up to, and including the point, at which BayBank elected to grant the request and retain Respondent Weitz. There is nothing to suggest that Respondent made any disclosure of a potential conflict of interest to BayBank. Rather, Respondent Weitz appears to have readily accepted the appointment to act as Bank counsel at closing.³

² Wright, a former Respondent in these proceedings, and defendant in a previous criminal trial at which he was acquitted, was charged with a series of material and reckless misrepresentations in connection with the underwriting of this and other loans. Respondent Wright stipulated to the entry of a prohibition order on December 6, 1993.

³ Respondent Weitz also acted as counsel for Ludlow Savings Bank in connection with the simultaneous (Continued)

{{6-30-98 p.A-2868}}
   After his retention by the Bank, Respondent Weitz nonetheless continued to represent H.B. Associates in both transactions, the Belmont Avenue, as well as the Indian Orchard matter. Though he now disputes that he continued representing H.B. Associates, I find ample evidence on this record to adequately support that conclusion, as discussed in Part III, below.
   On January 16, 1990, a number of critical events transpired that are relevant here. First, the certified appraiser retained by H.B. Associates to appraise Belmont Avenue issued his report estimating the fair market value of the property at $127 million.⁴ Notwithstanding this report, however, the principals of H.B. Associates grew increasingly unwilling to close the transaction on the terms provided in the original Purchase and Sale Agreement. For these reasons the parties met with their respective counsel and jointly executed a Like Kind Exchange Agreement ("LKE Agreement") which substantially changed the format of the transaction (apparently for tax purposes), though it did not purport to affect or change in any way the purchase price of Belmont Avenue, or the purpose for which the Bank's loan funds were to be used in acquiring the property. Respondent Weitz forwarded a copy of the LKE Agreement to BayBank on that date.
   On the very same day, though not forwarded to the bank, the parties also executed an Amendment to Like Kind Exchange Agreement ("Amended LKE Agreement") as well as an additional written agreement in the form of a letter ("the letter agreement"). Both of these documents substantially changed the terms of the Belmont Avenue transaction and the Bank's interests therein. The Letter Agreement altered and reversed certain provisions of the LKE Agreement pertaining to deposits required of H.B. Associates, whereas the Amended LKE Agreement contained provisions which substantially altered the parties' payment obligations. Another provision acted to remove a pre-existing mortgage on the property and placed it on another piece of property owned by the seller, rather than repay the preexisting mortgage with the loan proceeds as was initially agreed.
   Perhaps the most significant provision of the Amended LKE Agreement was a provision which reduced the total amount of principal H.B. Associates was to pay on its note to the seller from $250,000 to $62,500, a 75 percent reduction. This reduction in the total obligation to be paid the sellers constituted a $187,500 reduction in the total purchase price of the property, and appears to be supported by no consideration whatsoever, other than the negotiations between the parties concerning the downward adjustment of the purchase price.
   Respondent Weitz, while fully aware— and while actually participating in the negotiation and execution of these documents on behalf of his client H.B. Associates—failed to disclose any of these important matters to his client the Bank, prior to closing and disbursing the Belmont Avenue loan.
   As the Bank's counsel, Respondent Weitz closed the Belmont Avenue transaction on February 1, 1990. Immediately prior to closing, however, the parties struck yet another series of agreements. These agreements were verbal in nature, and never reduced to writing. They again worked substantial change to the substance of the transaction.
   First, the parties had initially agreed that the sellers were to make necessary repairs to the property before closing. Upon executing the Amended LKE Agreement the parties shifted the responsibility for these repairs from the seller to the buyer, and provided for the allocation of a "repair credit" to the buyers in the amount of $50,000. The substance of the first verbal agreement made at closing was to further allocate an additional $150,000 "repair credit" to the buyers. There was no obligation on the part of the seller to make this concession, nor was there any apparent relation to a specific problem with the property. In fact, the parties agreed that this credit was for repair not only of the

^{3 Continued:}transaction involving the acquisition of the Indian Orchard properties. The Indian Orchard transaction, as initially proposed, involved the purchase and sale of 13 parcels of property in the Springfield development referred to as Indian Orchard. Through further negotiations the exact number of parcels was reduced to seven, and then eventually increased to eight, all of which were located on Worcester Street. For this reason the properties are referred to in certain portions of the record as "the Worcester Street properties."

⁴ The appraiser, Stephen G. Smith, was likewise a former Respondent in these proceedings. Respondent Smith was charged with grossly inflating a number of appraisals used in support of a series of loans extended by BayBank. He stipulated to the issuance of a prohibition order issued by the FDIC on September 16, 1993. As later became obvious, the appraisal issued in connection with the Belmont Avenue transaction was in fact greatly overvalued.
{{6-30-98 p.A-2869}}Belmont Avenue property but also the Indian Orchard properties, which properties were not even a part of the BayBank financed transaction.
   This "repair credit" amounted to a gratuitous reduction in the sales price, unrelated to any obligation of the seller. The excess funds for these various credits were available from the loan proceeds because of the agreement to remove the pre-existing mortgage rather than repay it as was initially agreed, and because of the agreed reduction in purchase price. The Bank was never notified of any of these particular details.
   The next verbal agreement made at closing concerned the seller's financing arrangement. As initially proposed the seller's financing of $250,000 was to be provided in the form of a note back to the Boulrices, on which they would then take a third mortgage position on all of the properties subject of both transactions. In the Amended LKE Agreement the parties agreed that the principal on this note would be reduced from $250,000 to $62,500.
   At closing, however, H.B. Associates refused to execute even the amended note for several reasons, including the buyer's concern over the true worth of the property, and concern over multiple encumbrances to both Belmont Avenue and Indian Orchard, which encumbrances acted to cloud clear title to the properties. Respondent Weitz knew of these various encumbrances which were to have been removed by the seller's counsel before closing. For whatever reasons the seller had been unable to remove them, and came to the Belmont Avenue closing proposing the sale of clouded title. Respondent Weitz also knew of the buyer's concern about the property's value, and knew that H.B. Associates desired to negotiate this issue.
   For these reasons the buyers refused to execute the seller's note and obligate themselves on the second financing arrangement. They were, nonetheless, willing and eager to close the transaction under the right terms, though without release or discharge of these various encumbrances the Bank's secured position would be subordinate to these other interests.
   Nevertheless the parties verbally agreed to close the transaction in any event, and agreed that the seller's attorney would continue his efforts to clear the title defects after closing. The Bank, of course, had no notice of this arrangement, despite that its counsel was present throughout the negotiations on these issues. As time would tell, it would take years before these title defects could be cleared, and the Bank's priority lien position would be perfected.
   The final agreement made at closing was that Respondent Weitz would personally receive from the loan proceeds a payment in the amount of $2,787. This payment was not in any way related to the transaction, but rather, was to satisfy a past-due obligation which H.B. Associates owed Respondent Weitz for previous legal services. Of course the Bank knew nothing of this intended diversion of loan proceeds, and the very existence of this agreement adds to the transaction the element of financial self-interest on the part of Respondent Weitz.
   As the Bank's representative, Respondent Weitz closed the transaction and completed a Memo of Sale, the one document intended to show the entire financial transaction at closing. Respondent Weitz portrayed in the Memo of Sale that the transaction closed in substantial conformity with the Bank's Commitment Letter and the LKE Agreement, when in fact the transaction had not.
   Respondent omitted from the Memo of Sale the many changes to the transaction caused by the Letter Agreement, the Amended LKE Agreement, the verbal agreement for the $150,000 repair credit, the verbal agreement to make the past-due legal payment, and the refusal to execute the seller's mortgage note. Respondent Weitz did not supply the Bank a copy of the Memo of Sale at closing, as he contends that the Bank did not require this practice. The record suggests that the Bank may not have been very diligent in insisting upon this document. In fact, the Bank did not actually request a copy of the Memo of Sale until much later, when investigation into the transaction began.
   The Bank's Commitment Letter did specifically require that the Bank have a first mortgage lien on Belmont Avenue, and that the Bank be furnished a title certification and title insurance policy reflecting this priority position. Despite his knowledge of the superior encumbrances to the property, however, Respondent Weitz issued both a title certification and a title insurance policy, as agent for Title USA Insurance Corporation, reflecting that the Bank's mortgage was in a first priority position. The policy was issued {{6-30-98 p.A-2870}}on February 1, 1990, and failed to disclose the other encumbrances to the title. Of course the assurances made by Respondent were false, and he was fully aware of the prior liens, attachments, and other encumbrances which had not been released or discharged at closing.
   On February 2, 1990, Respondent Weitz disbursed all of the Bank's loan funds, not in conformity with the Bank's Commitment Letter, the LKE Agreement, or the Memo of Sale, but rather, in conformity with the subsequent agreements reached by the parties and not disclosed to BayBank. Because the only funds available for disbursement in the Belmont Avenue transaction were the Bank's loan funds, all distributions were derived from the loan proceeds.
   At no time prior to closing the transaction and disbursing the funds did Respondent Weitz ever notify the Bank that $161,654 of its loan funds would be diverted directly to the buyers in the form of a repair credit, which the buyers would essentially receive at closing in cash; that the buyer refused to execute a mortgage to the seller, effectively reducing the sales price by over $250,000; that $2,787 of the Bank's loan funds would be diverted to Respondent Weitz as payment for a past-due billing owed to him by H.B. Associates; or that $10,700 would be diverted to pay the closing costs of H.B. Associates, which the buyer was obligated to pay. It was not until much later that the Bank learned of these diversions.
   Shortly after closing the transaction H.B. Associates defaulted on the bank note and declared bankruptcy. The Bank foreclosed on Belmont Avenue in May of 1991, and after a rather lengthy foreclosure process, resold the property for a total loss of $798,000.

III. Discussion of Law

The Notice seeks to determine whether the FDIC Board should permanently prohibit Respondent Weitz from further industry participation under Section 8(e) of the Act, 12 U.s.C. § 1818(e). To issue this sanction, the Board must find each of the following elements: 1.) there must be a specified type of misconduct—violation of law, unsafe or unsound practice, or breach of fiduciary duty; 2.) the misconduct must have a prescribed effect—financial gain to the Respondent or financial harm or other damage to the institution; and 3.) the misconduct must involve culpability of a certain degree— personal dishonesty or willful or continuing disregard for institutional safety or soundness. The United States Court of Appeals for the Third circuit recently summarized the prohibition elements as follows:

In the Matter of Seidman, 37 F.3d 911, 929 (3rd Cir. 1994).
Additionally, in the case of independent contractors, the status of "institution-affiliated party" must be established by the further findings that:
(4) any independent contractor (including any attorney, appraiser, or accountant) who knowingly or recklessly participates in—

which caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect on, the insured depository institution.
12 U.S.c. § 1813(u).
These higher standards of culpability must be established in the case of independent contractors, in order to satisfy the jurisdictional determination that the party is "institution-affiliated."

A. The Misconduct Test
   The misconduct test requires proof that Respondent's actions amount to a violation of law or regulation, unsafe or unsound practice, or breach of fiduciary duty. The FDIC Enforcement Counsel argue that each of these three standards are established here, thus satisfying the misconduct test.
   With respect to the violation of law or regulation, the FDIC alleges that Respondent Weitz violated Massachusetts General Law 167E, in that he permitted the loan-to-value ratio for the Belmont Avenue transaction to exceed the 80 percent standard permitted. Enforcement Counsel argue that in calculating the loan-to-value ratio, the "value" to be utilized in determining the ratio is the purchase price ultimately paid {{6-30-98 p.A-2871}}for the property. Enforcement Counsel argue that because the purchase price in this instance was ultimately reduced by the parties to $887,500, the Bank's loan of $1,000,000 actually exceeded the property value, such that the loan-to-value ratio equaled 113 percent. They contend this legal violation adequately satisfies this particular prong of the misconduct test.
   Respondent Weitz disputes that the purchase price of the property is the appropriate measure of "value" under the statute, and contends that the appraised value of the property is the more sensible standard upon which to determine value. He notes that "appraisal" is the only valuation method specifically mentioned in the statute, and cites specific instances in which the appraised value was utilized in computing other loan-to-value ratios.
   Alternatively Respondent denies that the purchase price was ever "reduced" in this instance by the grant of the repair credits at issue. In my opinion, however, the true and correct price which the purchasers ultimately paid for the property was in fact reduced by the respective amounts the sellers agreed to forego. It is quite obvious on this record that the sellers had to begin making these various "credits" to the total price in order to induce the buyers to go through with the deal. By the time of closing the buyers had serious reservations about completing the transaction at the price initially agreed. These reservations are what prompted the many last-minute agreements to essentially reduce the price of the property.
   Nevertheless, I agree that Respondent has not violated, nor did he cause to be violated, the statutory loan-to-value ratio alleged here. I find that his reliance on the certified appraisal was appropriate for determining the property's value in connection with the Bank's loan-to-value ratio on this transaction. Accordingly, I do not find that Respondent violated the statutory restriction.
   The next element is that of unsafe and unsound practice. While the FDI Act does not define the term "unsafe or unsound practice," the courts and agencies, including the FDIC Board, have commonly adopted the definition contained in a memorandum submitted to Congress by John Horne, then Chairman of the Federal Home Loan Bank Board, during hearings on amendments to the FDI Act:

Financial Institutions Supervisory Act of 1966: Hearings on S. 3158 Before the House Committee on Banking and Currency, 89th Cong., 2d Sess. 49–50 (1966) (statement of Chairman Horne), cited in First National Bank of Eden v. Department of Treasury, 568 F.2d 610, 611 (8th Cir. 1978) (per curiam). See Also Groos National Bank v. Comptroller of the Currency, 573 F.2d 889, 897 (5th Cir. 1978); In the Matter of James E. Baker, FDIC Enf. Dec. & Orders ¶ 5199 at A-2283 (1993).
   The Enforcement Counsel argue that an unsafe and unsound practice, as applied to a real estate attorney representing a financial institution at closing, would be any action or lack of action which is contrary to the generally accepted standards applicable to attorneys. The Enforcement Counsel contend that the canons of ethics and disciplinary rules applicable to counsel determine the generally accepted standards of prudent operation which banks and the regulators may expect of these professionals. I agree.
   In my opinion, the fact that Respondent Weitz engaged in the dual representation of both the buyers and the bank is, under the circumstances present here, quite unacceptable. While this may have been a common or even the prevailing practice in the area, it is not and cannot be an acceptable banking practice, particularly when, as here, the needs and desires of the one client so clearly conflict with the best interest and safety and soundness of the other. It is very obvious that respondent Weitz had direct knowledge of a number of facts and circumstances concerning the transaction which worked a substantial benefit to his client H.B. Associates, while working a significant detriment to the Bank. While H.B. Associates knew of these facts and circumstances, the Bank did not.
   In my opinion the conflicting representation of a party to a real estate transaction by the same counsel representing the bank at closing is a very unwise practice, and under {{6-30-98 p.A-2872}}the circumstances present here, arises to the level of an unsafe and unsound practice.
   Furthermore, the many other multiple acts on the part of bank counsel to this transaction, without any notice to the bank whatsoever, rather clearly constitute unsafe and unsound practices. I cannot envision it to be an acceptable practice on the part of a closing attorney to knowingly permit agreements, executed without the Bank's knowledge, to substantially alter the entire transaction to the complete detriment of the bank. These various alterations substantially reduced the sales price of the property; diverted the use of loan funds to matters not provided for by the bank's commitment; left the bank's security position subordinate to other encumbrances; approved the use of bank funds for repair of other properties not financed by the bank; and ultimately caused the bank to suffer abnormal losses in the amount of $798,000. These basic safety and soundness considerations are inherent in the role and function of the closing attorney, who is retained to protect and represent the bank against just such last-minute actions at closing. I find that Respondent Weitz failed to perform this important obligation, which failure amounts to an unsafe and unsound practice within the meaning of the Act.
   The final element of the misconduct test is breach of fiduciary duty. Respondent Weitz concedes that as counsel to the Bank he owed his loyalty and trust to the institution. He admits that the fiduciary duty owed to his client is that prescribed by the rules of ethics which govern his practice of law. As the FDIC Board has previously held, a bank closing attorney "like the institution's directors and officers, occupies a position of trust and has important fiduciary obligations to the financial institution." In the Matter of Robert S. Stoller, 2 FDIC Enf. Dec. and Orders, ¶5184, A-2085 (Sep. 22, 1992), citing In the Matter of Patrick G. Huycke, 2 FDIC Enf. Dec. and Orders, ¶5168A, A-1808 (Aug. 26, 1991). In Stoller the Board further noted that:

Id. at 2085.
   In the instant case I find the primary loyalties of Respondent Weitz did obviously lie elsewhere. The Enforcement Counsel argue, and I agree, that Respondent's breaches fall roughly into three categories: 1.) his failure to disclose to the Bank his conflicting relationship with H.B. Associates; 2.) his failure to disclose critical information concerning the transaction, to include his expectation of personal benefit; and 3.) his falsification of documents to disguise changes to the transaction and the existence of encumbrances on title. I agree that each of these categories represents a separate and distinct breach of Respondent Weitz' fiduciary duty of loyalty and care to the institution. I further find that each of these breaches is adequately established as a matter of record herein.
   Counsel for Respondent argue that because the borrowers in this instance had recommended Weitz as the closing counsel, that it may be "fairly inferred" by BayBank that Weitz "probably had a prior relationship with H.B. Associates" and that the "existence of the prior relationship caused no harm" to the Bank. I do not draw these same inferences or arrive at these same conclusions. Rather, I find the Bank reasonably and rightfully expected, and the Respondent clearly understood, that counsel retained by the Bank to close the transaction would act in the best interest of the Bank. That the parties to the transaction could request a particular counsel who had been previously approved by the Bank only suggests, in my opinion, that they might ask for an attorney with whom they are familiar, or one with whom they have previously closed transactions in the past. It does not suggest, nor can it be reasonably inferred, that this somehow gave notice to the Bank that the requested counsel had a conflict of interest, which he would then resolve in favor of his pre-existing client. The responsibility to give this notice rests expressly with the attorney. In this instance, I find that Respondent Weitz failed in this duty.
   Furthermore, counsel argue that the $2,800 payment which Respondent Weitz personally received at closing was not paid from the loan proceeds, was "de minimus" in amount, and had no influence on the Respondent's conduct in connection with closing the transaction. I reject each of these arguments however.
   Respondent Weitz personally disbursed this payment directly to himself from the loan proceeds deposited into his trust account.
{{6-30-98 p.A-2873}}
That the parties may have agreed at the closing, without any notice to the Bank, that some of these loan funds were to be diverted to the buyers, does not, in my opinion, change the status of these loan proceeds, nor does it in any way legitimize the Respondent's receipt of these funds. I find that the anticipation of this payment induced Respondent's willingness to close the transaction, on terms unacceptable to his Bank client. This personal gain, which I admit was minimal when compared with the value of the entire transaction, nonetheless constituted a significant factor which motivated the Respondent's actions. His obligation was to protect and disburse the loan funds in accordance with the Bank's best interest; nor accept and receive them for his personal gain.
   Counsel for Respondent on brief now insist that Respondent did not concurrently represent both BayBank and H.B. Associates in this transaction, and that at all times throughout the matter he represented only the best interests of the bank. The record, however, clearly belies this position. Respondent himself testified as follows:

Tr. Vol 6, p. 46:11-p. 47:7.
Additionally, throughout his description of the negotiations that took place at the loan closing, Respondent Weitz made repeated references to H.B. Associates as his "clients."

Tr. Vol 6, p. 844:4–10

Tr. Vol. 6, p. 96:19–21

Tr. Vol 6, p. 97:9-98:5.
   Wholly aside from what Respondent Weitz may have said about his representation of the parties, however, his actions throughout the transaction speak louder than his words. Through his actions he very clearly negotiated, secured, and closed a deal in favor of {{6-30-98 p.A-2874}}H.B. Associates, while as a matter of record, he in fact represented the Bank.
   Finally, on the issue of fiduciary duty, counsel for Respondent Weitz argue that the mere testimony of an FDIC examiner cannot establish the standards expected of a closing counsel. They argue that only a legal expert is competent to offer an opinion regarding the standard of care reasonably expected of the Bank's attorney, and because the FDIC did not offer such evidence here, they have failed to establish the required duty Respondent is alleged to have breached.
   The Enforcement Counsel concede that the examiner's conclusions are factual in nature, and do not establish the legal standards required of counsel. They argue, however, that sufficient evidence exists on this record to arrive at such legal conclusions, as provided in Cavallari v. Office of Comptroller of the Currency, 57 F.3d 137 (2d Cir. 1995), in which the court noted, "[g]iven their own expertise in banking matters, the ALJ, the Comptroller, and the Board required no expert attorney testimony to determine whether, in the circumstances, Calvallari had recklessly participated in an unsafe and unsound practice." Cavallari, 57 F.3d at 142.
   Based on the factual conclusions established by the examiner, I find as a matter of law that Respondent Weitz breached his fiduciary duty to BayBank, satisfying this, the misconduct test.

B. The Effects Test

   The effects test requires a showing that the misconduct in question caused the depository institution to suffer financial loss or that the institution-affiliated party received financial gain. I find both of these standards established here.
   Respondent Weitz does not dispute that BayBank suffered a substantial financial loss on the transaction. He does take issue, however, with the suggestion that his actions caused this loss, and argues that deficient underwriting, deficient appraisal practices, and poor condition of the property were the true causes of the loss.⁵ The Respondent seems to miss the critical point here. Had Respondent Weitz properly performed his duty as closing counsel, the loan in this instance would never have been made.
   Respondent Weitz, as the Bank's counsel, had responsibility to stop the closing of this transaction because of the substantial, material, and questionable changes to the original agreement. Additionally, Respondent should have stopped the closing because of the multiple property encumbrances which had not been removed by the seller's counsel prior to closing. While the loan may not have been properly underwritten, while the collateral may not have been properly appraised, and while Respondent may not have known of these facts, despite that he had some reason to know, I find for completely different reasons that he should have stopped this particular loan from closing.
   Because he failed in this responsibility, these additional factors did indeed contribute to the overall loss on the loan. I find the Respondent's failure in this instance caused loss in the amount of $798,000, within the meaning of the Effects Test.
   The second element of the effects test requires a showing of financial gain to the Respondent. It is not disputed that Respondent Weitz personally received $2,787 from the transaction to his personal gain. Respondent argues, however, that the Enforcement Counsel have abandoned this contention on brief, and therefore waived the issue. While perhaps not argued in the initial brief, the Enforcement Counsel do make the claim that Respondent Weitz received financial gain from the transaction in proposed Findings of Fact Nos. 167, 170, 171, 173, and 188 of their initial brief, as well as the concluding paragraph to the proposed Conclusions of Law (FDIC Brief at 87). On Reply Brief the Enforcement Counsel argue this contention more pointedly.
   In my opinion the argument has not been waived. I conclude the evidence adequately establishes that Respondent Weitz received financial gain within the meaning of Section § 1818(e)(1)(B)(iii), satisfying this, the Effects Test.

C. The Culpability Test

The final prong of the prohibition statute concerns the mental state of the party, and requires a showing that the established violation, practice, or breach involved either 1.) personal dishonesty; or 2.) willful or continuing disregard for safety and soundness

⁵ The Enforcement Counsel concede, and in fact stipulated that the inadequate underwriting performed by Wright, and the inadequate appraisals performed by Smith, were among the multiple causes of the loss suffered by the Bank.
{{6-30-98 p.A-2875}}of the institution. One of these two final elements is necessary to satisfy the culpability test. Enforcement Counsel contend that Respondent's conduct adequately satisfies both.
   Personal dishonesty encompasses a broad range of conduct including "disposition to lie, cheat, or defraud; untrustworthiness; lack of integrity;...misrepresentation of facts and deliberate deception by pretense and stealth...[or] want of fairness and [straightforwardness]. Van Dyke v. Board of Governors of the Federal Reserve System, 876 F.2d 1377, 1379 (8th Cir. 1989). The disregard standard, on the other hand, can be either "willful," involving "deliberate conduct which exposed the bank to `abnormal risk of loss or harm contrary to prudent banking practices,'" or "continuous," which refers to conduct which has been "voluntarily engaged in over a period of time with heedless indifference to the prospective consequences." Grubb v. FDIC, 34 F.3d 956, 962 (10th Cir. 1994), quoting Van Dyke, Supra, at 1380, and In the Matter of Anonymous, 1 FDIC Enf. Dec. and Orders (Bound Volume), ¶5069 (1986).
   The Enforcement Counsel argue that certain actions of Respondent Weitz establish his personal dishonesty within the meaning of the culpability test. While I agree with most of these characterizations, there is one which I decline to adopt.
   I agree that Respondent Weitz, in issuing a title certification and title insurance policy containing misrepresentations as to the status of the Bank's mortgage lien, demonstrated personal dishonesty. The Bank required these documents from the closing, and obviously relied upon the representations contained therein when funding the loan in question.
   On brief Respondent argues that he "did not issue a title certificate and title insurance policy containing misrepresentations, because he believed that any encumbrances were minor and correctable and ultimately were, in fact, corrected." The Respondent's "beliefs" notwithstanding, his obligation was to honestly and accurately represent the true status of the property title. This he did not do.
   Furthermore, I agree that Respondent's actions, in notifying the Bank of the LKE Agreement executed January 16, 1990, but failing to notify the Bank of the two supplemental agreements executed the same date, were deliberate misrepresentations, intended to deceive the Bank of the true nature of the transaction. I agree that respondent's preparation of the Memo of Sale was further evidence of personal dishonesty. Granted the Memo of Sale was not transmitted to the Bank until after the investigation commenced in this matter. Nevertheless, the Memo was not accurate, and in fact, it falsely reflected the manner in which the Bank's funds were utilized in the transaction, and actually obscured the various diversions of funds which took place at closing. I agree that each of these actions adequately establish the personal dishonesty of Respondent Weitz.
   The Enforcement Counsel additionally argue that the Respondent's failure to disclose the nature and scope of the existing attorney-client relationship with H.B. Associates was personally dishonest. While Respondent Weitz may not have affirmatively misrepresented his relationship in any way, he did fail to make a very important disclosure, which essentially misled the Bank as to his motives. This want of fairness and straightforwardness adequately establishes in my mind the Respondent's personal dishonesty.
   I do not find personal dishonesty, however, in the allegation that Respondent failed to disclose to the Bank the claimed knowledge of the true financial condition of the borrowers, and of the true value and condition of the Belmont Avenue property. The purported evidence of this knowledge comes primarily from the testimony of Ms. Amy Bernal.
   Upon weighing the credibility of the witnesses, I am inclined to believe that Ms. Bernal is mistaken about the sequence of events in which she claims to have notified Respondent Weitz of her concerns of their financial condition, and the ability of the property to adequately service the debt. On these particular points I am inclined to accept the testimony of Respondent Weitz. I do believe that the circumstances surrounding the transaction gave Respondent some reason to know of the true facts. I cannot find, however, that he in fact knew, and for these reasons, arrive at this conclusion.
   With respect to the final prong of the culpability test, Enforcement Counsel argue that the Respondent's conduct demonstrates both willful and continuing disregard for safety {{6-30-98 p.A-2876}}and soundness of the Bank. I fully agree that Respondent knowingly and deliberately disregarded the best interests of the Bank, exposing it to significant losses. The cumulative actions of the Respondent clearly arise to the level of willful disregard.
   Whether the actions were continuing or not is another question. They were limited to this one particular transaction, and there is no evidence that these actions were knowingly repeated over time. The record does reflect other instances of misconduct on the part of Respondent Weitz, but not in connection with his representation of BayBank. Accordingly, they cannot be said to jeopardize the Bank's "safety and soundness," and for these reasons I do not find that respondent's conduct was necessarily "continuing" within the meaning of the culpability test.
   In conclusion, the closing ceremony at issue in this proceeding was reduced to a thickening plot to divide as spoils the loan proceeds in a manner virtually unrelated to the transaction presented to the Bank. An obviously remorseful buyer was induced to proceed with his purchase, first, by a 75 percent reduction of his obligation on the promised mortgage to the seller, and ultimately, the waiver sub silentio of the entire obligation, along with a cut of the loan proceeds of some $200,000.⁶ Such concessions could have been made only by a desperate seller, aware of the bargain at hand.
   This process was presided over by Respondent Weitz, engaged by the Bank to represent its interest. He too received a cut from the loan proceeds of some $2,800.
   Considering the totality of the circumstances, I conclude as a matter of law, that Respondent Weitz has engaged and participated in unsafe and unsound practices, and has committed acts and omissions which constitute a breach of his fiduciary duty to the institution.
   By reason of these practices and breaches, BayBank has suffered substantial financial loss, and Respondent Weitz has received financial gain or other benefit.
   The violations and breaches established on this record involve personal dishonesty on the part of Respondent Weitz, and demonstrate his willful disregard for safety and soundness of BayBank.
   Additionally, as an independent contractor, which includes the role of attorney, I find that Respondent Weitz knowingly and recklessly committed the above breaches and practices, which caused more than a minimal loss to the insured depository institution.
   For these reasons I enter the following Findings of Fact, Conclusions of Law, and Proposed Order, in which I recommend that Respondent Irwin I. Weitz be permanently prohibited from further participation in any manner, in the conduct of the affairs of any insured depository institution.

IV. Findings of Fact

A. Introduction

   1. At all times pertinent to this proceeding, BayBanks, Inc. ("BayBank"), a bank holding company, and its subsidiary, Bay Bank Valley Trust company (the "Bank") were corporations existing and doing business under the laws of the Commonwealth of Massachusetts. BayBank had its principal place of business in Boston, and the Bank had its principal place of business in Springfield, Massachusetts. The Bank was, at all times pertinent to this proceeding, an insured State nonmember bank, subject to the Federal Deposit Insurance Act ("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 Commonwealth of Massachusetts. Transcript of Hearing, Vol. 1, p. 68.
   2. At all times pertinent to this proceeding, Respondent Irwin I. Weitz ("Weitz") was an "institution-affiliated party" of the Bank, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and for purposes of sections 8(e)(7), 8(i) of the Act, 12 U.S.C. §§ 1818(e)(7), 1818(i) and 1818(j), in that Weitz, an attorney licensed to practice law in the Commonwealth of Massachusetts, was hired by the Bank as an independent contractor. Answer of Irwin I. Weitz to the Notice of Intention to Remove from office and to Prohibit from Further Participation, June 23, 1993.
   3. At all times pertinent to this proceeding, H.B. Associates was a Massachusetts

⁶ Respondent claims that despite the buyers' refusal to sign the seller's mortgage note, they were nevertheless liable thereon. Under this legal theory, the buyers may have increased their liability by refusing to sign the note. Manifestly, this was not their intention. This issue further depicts the cloud in which the transaction had become enshrouded, and the necessity for its cancellation.
{{6-30-98 p.A-2877}}general partnership in which Hugo Bernal ("Bernal") and John Harris ("Harris") were the general partners. Vol. 6, p. 46.
4. Norman J. Boulrice, Emery J. Boulrice, and Beverlee J. Boulrice (collectively "the Boulrices"), were the owners of property located at 413–415 Belmont Avenue, Springfield, Massachusetts ("Belmont Avenue") which was sold to H.B. Associates in the course of the transaction which is the subject of this proceeding. Vol 6, pp. 49–50; FDIC 248.
5. At all times pertinent to this proceeding, James Donovan ("Donovan") was an attorney licensed to practice law in the Commonwealth of Massachusetts. He served as escrow agent for the purchase and sale of Belmont Avenue. Vol. 38, pp. 88–90.

B. Respondent Weitz

   6. Prior to 1990, Weitz had practiced law in, and been a member of the bar of, the Commonwealth of Massachusetts in excess of 25 years. Vol. 6, p. 19; Vol. 38, p. 96.
   7. From 1988 through 1990, 30 to 40 percent of Weitz' legal practice involved real estate transactions. Of these, about 75 percent were commercial transactions in which he represented at least five other financial institutions. Vol. 6, p. 20–22.
   8. From 1988 through 1990, Weitz represented buyers/borrowers in negotiations with sellers, for the sale and purchase of real estate, and in the same transactions, represented the lenders at closing. Vol. 6, pp. 2324, 26.
   9. In 1990, Weitz was privately reprimanded by the Massachusetts Board of Bar Overseers for a violation of Disciplinary Rule 5-105(A), in that he represented clients with conflicting interests without making full disclosure and obtaining the consent of the clients. In the same proceeding, Weitz was reprimanded for violation of Disciplinary Rule 6–101(A)(2), in that he handled a legal matter without adequate preparation under the circumstances. Vol. 6, pp. 117–124.
   10. Prior to the Belmont Avenue transaction, Weitz had represented H.B. Associates in a number of real estate transactions. Vol. 6, p. 47.
   11. Prior to the Belmont Avenue transaction, Weitz had represented the Bernals personally and as partners in H.B. Associates. Weitz had closed the transaction in which Bernal and his wife, Amy Bernal ("A. Bernal") acquired their home; he drafted wills for Bernal and his wife; and he represented H.B. Associates in a number of real estate transactions. Vol. 6, p. 47; Vol. 7, p. 74.
   12. Weitz had falsified mortgage documents for Bernal by notarizing the purported signature of A. Bernal when she was not present, and had not signed the documents. Vol. 7, p. 123.
   13. Weitz became involved as the Bank's attorney in the Belmont Avenue transaction in mid-December 1989, when, at the request of H.B. Associates, he was hired to represent the Bank in closing the loan. Vol. 38, p. 98.
   14. Weitz also represented H.B. Associates in connection with the purchase of Belmont Avenue. Vol. 6, p. 46.
   15. After he was appointed to represent the Bank, Weitz continued to represent H.B. Associates in connection with its purchase of Belmont Avenue, including negotiating various details and terms of the Belmont Avenue transaction. Vol. 6, pp. 26, 46, 77; Vol. 38, p. 112. At meetings he attended with H.B. Associates, Weitz often represented not the best interests of the bank but that of H.B. Associates. Vol. 6, p. 26.
   16. Throughout the hearing Weitz made repeated references to H.B. Associates as "my client" in reference to the Belmont Avenue transaction. Vol. 6, pp. 84, 96, 97, 98, 100, 103.
   17. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the bank of the nature and extent of his past services to H.B. Associates, his continued representation of H.B. Associates in the Belmont Avenue transaction, and the resulting conflicts between Weitz' interest in satisfying the desires of H.B. Associates and Bernal, and the Bank's interest in making a safe, sound, and prudent loan. Vol. 6, p. 115.
   18. Prior to the Belmont Avenue transaction, H.B. Associates owed $13,000 to Weitz which was past due. Vol. 7, p. 38. This debt was not related to Weitz' services to H.B. Associates in connection with the Belmont Avenue transaction. Vol. 6, p. 47. Prior to closing the Belmont Avenue transaction and disbursement of the Bank's loan funds, H.B. Associates agreed to pay Weitz part of its prior debt. Vol. 6, p. 48; vol. 38, p. 127.
   19. Prior to accepting the appointment to {{6-30-98 p.A-2878}}act as closing attorney, Weitz failed to notify the Bank that H.B. Associates owed Weitz a past due debt which was unrelated to Belmont Avenue. Vol. 6, p. 115.
   20. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds Weitz failed to notify the Bank that he expected to receive a personal benefit from the Belmont Avenue closing, i.e., payment of a past due billing owed to him by H.B. Associates, and unrelated to Belmont Avenue. Vol. 6, p. 109–110.
   21. Weitz knew that if a conflict of interest existed between H.B. Associates and the Bank, Weitz was obligated to act in the best interest of the Bank. Vol. 6, p. 27.
   22. Weitz was also familiar with Massachusetts professional canons of ethics ("Canons") and disciplinary rules ("DR") which require that an attorney not represent clients with differing interests, without disclosing to each client the "possible effect of such representation on the exercise of his professional judgment on behalf of each," and obtaining the consent of each client. Massachusetts Canon 5, DR5-105(B) and (C). Vol. 38, pp. 158–159.
   23. Weitz failed or refused to acknowledge the potential conflict of interest inherent within his dual representation of H.B. Associates and the Bank, in connection with the Belmont Avenue transaction. Vol. 6, p. 115.
   24. Weitz failed to disclose these conflicts of interest to his clients. Vol. 6, p. 115.

C. The Belmont Avenue Transaction

   i. The Purchase and Sale Agreement
   25. On November 7, 1989, H.B. Associates as buyer, and Boulrice as seller, entered into a Purchase and Sale Agreement for a 28-unit apartment building located on Belmont Avenue, Springfield, Massachusetts ("Belmont P&S"). Vol. 1, p. 94; FDIC 253.
   26. The Belmont P&S recited a purchase price of $1.25 million and reflected that H.B. Associates had made a $10,000 deposit toward the purchase price. The Belmont P&S indicated that H.B. Associates would seek a commercial mortgage loan in the amount of $1 million; no other financing was mentioned. FDIC 248.
   27. By the terms of the Belmont P&S, the closing of the sale was to take place on December 15, 1989. FDIC 248.
   28. The Belmont P&S contained standard inspection clauses giving the Buyer the right of access for inspection, and the right to terminate the contract without recourse, by either party, if the inspection was unsatisfactory. The inspection period terminated December 15, 1989. FDIC 248.
   29. On December 8, 1989, the Bank's loan officer, Phillip Wright ("Wright") prepared a credit memorandum ("Credit Memorandum") for presentation to the Bank's Loan Review Committee ("LRC"). Vol. 1, pp. 92–93; FDIC 253.
   30. The LRC was a committee within the Bank that was responsible for reviewing and approving all loans in excess of $500,000. Vol. 6, pp. 131.
   31. The Credit Memorandum proposed that the LRC approve a loan in the amount of $1 million to H.B. Associates for the purchase of Belmont Avenue. The purchase price was stated as $1.25 million. The Bank's loan was to be secured by a first mortgage in the amount of $1 million on Belmont Avenue and by a second mortgage in the amount of $350,000 on the Indian Orchard Property. Boulrice would take back a third mortgage on the Belmont and Indian Orchard properties of $1 million. FDIC 253.
   32. The $1 million third mortgage note to be held by Boulrice comprised the difference between the Bank's $1 million loan to H.B. Associates and the $1.25 million purchase price of Belmont Avenue and the difference between the $2 million Ludlow loan and the $2.75 million sales price of the Indian Orchard Property. Vol. 1, p. 101; FDIC 253.
   33. According to the Credit Memorandum, based on a purchase price of $1.25 million for Belmont Avenue and a $1 million first mortgage loan from the Bank, the Bank was lending 80 percent of the value of the property. Vol. 1, p. 102; FDIC 253.
   34. In making a real estate loan, the Bank did not normally loan more than 80 percent of the purchase price of the property which was collateral for the loan. Vol. 6, pp. 136–137.
   35. The Bank did not customarily lend more than 80 percent of the purchase price in a real property transaction because the additional 20 percent of value of the property provided the bank with an equity "cushion" which would allow the Bank to discount the sales price of the property in the event of a foreclosure sale, still recovering {{6-30-98 p.A-2879}}all of the money loaned by the Bank. Vol. 1, p. 81; Vol. 6, p 137.
   36. The Bank could not lawfully lend more than 80 percent of the value in a real estate transaction in which the loan would be secured by a first mortgage on real estate improved with a dwelling designed to be occupied by more than four families. Mass. Gen. L. Ch. 167E, § 2, subsec. B, paragraphs 1–5.
   37. Banks look to the purchase price of real property as one indication of value, since value is generally defined to be what a willing buyer is willing to pay, and what a willing seller is willing to accept for the sale of property. Vol. 1, p. 69; Vol. 5, p. 47; Vol. 6, p. 136–137. The appraised value of the property determined by an objective appraiser is but another indicator to which banks look for property valuation.
   38. On December 8, 1989, the LRC approved the $1 million loan to H.B. Associates based on the following representations contained in the Credit Memorandum: (1) that the purchase price of Belmont Avenue was $1.25 million; (2) that the loan funds would be used solely to purchase Belmont Avenue; and (3) that the Bank would receive a first mortgage lien on Belmont Avenue. Vol. 1, pp. 98–99; FDIC 253.
   39. On December 11, 1989, the Bank issued a letter addressed to Bernal and Harris committing the Bank to make a loan to Bernal and Harris, or their nominee, in the amount of $1 million for "the purpose of purchasing" Belmont Avenue at the price of $1.25 million ("Commitment"). FDIC 260.
   40. By the terms of the Commitment, H.B. Associates would receive adjustments for apportionment of items such as taxes, fuel, rents, security deposits, and utilities ("Prepaid Items"), and H.B. Associates would pay all costs incidental to the purchase and sale, i.e., closing costs. FDIC 260.
   41. In approving the H.B. Associates loan, which required no cash down payment by the borrower, the Bank took into consideration the fact that H.B. Associates would be required to pay a substantial sum in cash for closing costs. Vol. 6, p. 146.
   42. The Commitment required that the Bank obtain a first mortgage lien on the Belmont Avenue property and that the Bank be furnished with a title certification and title insurance policy containing no exceptions to the Belmont Avenue title, without prior approval from the Bank. FDIC 260.
   43. The Commitment contained no provisions for use of loan proceeds for repairs to Belmont Avenue, or to any other property. FDIC 260.
   44. Weitz was hired to represent the Bank in the Belmont Avenue transaction in midDecember 1989. He received the Bank's Commitment, which had been sent to H.B. Associates. Vol. 6, p. 53; Vol. 38, pp. 238, 159.
   45. The Commitment authorized release of loan proceeds for the sole purpose of purchasing Belmont Avenue. FDIC 260.
   46. After he was hired to represent the Bank, Weitz knew that he had an obligation to notify the Bank if use of the Bank's loan funds changed from the purpose stated in the Commitment. Vol. 38, p. 167.
   47. Weitz knew that he had a duty to notify the Bank if the purchase price of Belmont Avenue was reduced from $1.25 million. Vol. 6, pp. 53–54.
   48. Weitz knew that he owed a fiduciary duty to act in the best interest of the Bank at all times. Vol. 38, p. 158.
   49. Weitz knew that his conduct with respect to the Bank was prescribed by the Bank's Commitment, Massachusetts Canons, and common law. Vol. 38, pp. 158–159.
   ii. The Like Kind Exchange Agreement
   50. On January 16, 1990, H.B. Associates and Boulrice executed a Like Kind Exchange Agreement ("LKE Agreement"). FDIC 251.
   51. Weitz knew and understood that the LKE Agreement replaced the Belmont P&S and the Indian Orchard P&S. Vol. 6, pp. 67–68; Vol. 38, p. 193.
   52. The LKE Agreement created a legal fiction whereby H.B. Associates and Boulrice would "exchange" property and preexisting debt of roughly equal value through the medium of Escrow Agent James Donovan ("Donovan"). According to the Agreement, on or before January 19, 1990, Donovan would acquire title to Belmont Avenue and a reduced number of parcels of Indian Orchard Property. In the LKE Agreement, Belmont Avenue and the Worcester Street Parcels were collectively referred to as the "Relinquished Property." On January 19, 1990, Donovan would transfer the Relin- {{6-30-98 p.A-2880}}quished Property to H.B. Associates. Within 45 days thereafter, Boulrice would designate property of roughly equal value, referred to as the "Designated Property," which H.B. Associates would transfer to Boulrice within 180 days in "exchange" for Belmont Avenue and the Worcester Street Parcels. (All time deadlines ran from the date of execution of the LKE Agreement.) The LKE Agreement was fiction because Boulrice's ability to designate property or to consummate the desired property "exchange" did not affect the obligations of H.B. Associates, which was required to purchase Belmont Avenue and the Worcester Street Parcels for the price and financing terms set out in Paragraph 5(b)(ii) of the LKE Agreement, which provided that Donovan would:

Vol. 38, p. 42; FDIC 251. By these terms, fair market value for the property was defined as "assumption" of existing indebtedness on the Relinquished Property and delivery of a note to Boulrice for the balance of the purchase price. "Proceeds" from this sale were to be held by Donovan for up to 180 days, during which Boulrice would "designate" property (owned by third parties) which he wished to acquire. The Escrow Agent would acquire the Designated Property, using proceeds from the sale of Belmont Avenue and the Worcester Street Parcels and, if necessary, obtain financing acceptable to Boulrice.
   A further fictional aspect of the LKE Agreement was that the Agreement recited that existing debt, totaling $1,000,000 on Belmont Avenue, would be "assumed" by H.B. Associates. Despite the "assumption" language, the parties never intended that H.B. Associates would assume any loans: rather, from the outset, H.B. Associates intended to borrow a portion of the purchase price from an institutional lender, and all mortgages on the Relinquished Property would be repaid as a part of the closing. Vol. 38, pp. 39-40, 66, 178; FDIC 251.
   53. Of the $600,000 principal of the note to be taken back by Boulrice, $250,000 was attributable to Belmont Avenue as the difference between the $1.25 million value of Belmont Avenue and the $1 million loan to be obtained from the Bank. Vol. 1, p. 118; Vol. 6, p. 72. For purposes of this proceeding, the term "H.B. Note" hereafter connotes $250,000 of the principal of the note to Boulrice attributable to the Belmont Avenue property.
   54. The LKE Agreement required that H.B. Associates deposit $50,000 with Donovan upon execution of the LKE Agreement. Donovan was to hold the deposit in an interest-bearing account and provide an accounting of the funds at closing. FDIC 251, paragraph 9.
   55. The LKE Agreement did not affect or change the purchase price of Belmont Avenue or the purpose for which the Bank's loan funds were to be used, i.e., to purchase Belmont Avenue. Vol. 1, p. 117; FDIC 251, 260.
   56. The LKE Agreement was forwarded to Wright by Weitz on Tuesday, January 16, 1990. Weitz' letter accompanying the Agreement stated that the closing would take place on the following Monday, January 22, 1990. FDIC 251.
   57. On January 16, 1990, the same day on which the LKE Agreement was signed, H.B. Associates and Boulrice executed two additional agreements: an agreement in the form of a letter from Boulrice to H.B. Associates regarding the manner in which H.B. Associates' deposit would be handled ("Letter Agreement"), and an Amended Like Kind Exchange ("Amended LKE Agreement"). FDIC 269B, 252.
{{6-30-98 p.A-2881}}

iii. Letter Agreement

58. The Letter Agreement altered and reversed the provisions of paragraph 9 of the LKE Agreement pertaining to the deposit required of H.B. Associates. The relevant portions of the Letter Agreement are as follows:

will not be negotiated

At the time of the closing the check will be returned to you and duly accounted for in accordance with the terms of the Agreement

   FDIC 269B (emphasis added).
   59. Weitz knew prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds that H.B. Associates had made no deposit toward the purchase price of the property prior to closing. Vol. 38, pp. 177, 195–196.
   60. There is no evidence to suggest that, prior to closing the transaction and disbursing the loan funds, Weitz provided the Bank notice of the Letter Agreement, or that he disclosed to the Bank that no deposit would be required of H.B. Associates for the Belmont Avenue transaction. The Letter Agreement was not transmitted to the Bank with the LKE Agreement, although it was signed on the same day. FDIC 251, 269B.
   iv. Amended Like Kind Exchange Agreement
   61. The Amended LKE Agreement contained two provisions which substantially reduced the purchase price of Belmont Avenue and a third provision which removed one of the two preexisting mortgages from the Belmont Avenue transaction. Specific terms of the Amended LKE Agreement include:

62. Weitz did not provide the Amended LKE Agreement to the Bank. The Amended LKE Agreement was not transmitted to the Bank with the LKE Agreement although it was signed on the same day. Vol. 1, pp. 119–120; Vol. 38, p. 181. FDIC 251, 252. The Amended LKE Agreement was not in the Bank's records. Vol. 1, p. 119.

v. Repairs

   63. Prior to execution of the Amended LKE Agreement, Boulrice and H.B. Associates anticipated that Boulrice would make and pay for all necessary repairs to the Relinquished Property in advance of closing. Vol. 6, p. 78; Vol. 38, pp. 32, 86, 117.
   64. Weitz knew that the Bank did not intend that its loan funds would be used for repairs to Belmont Avenue because he knew that up to the time the Commitment was issued, all necessary repairs were to have been made and paid for by Boulrice. Vol. 6, p. 78; Vol. 38, pp. 84, 182.
   65. Execution of the Amended LKE Agreement shifted the responsibility for repairs from Boulrice to H.B. Associates. Vol. 6, p. 78; Vol. 38, pp. 34, 84, 118.
   66. Upon execution of the Amended LKE Agreement, H.B. Associates assumed responsibility for making a total of $50,000 of repairs to the Relinquished Property and the purchase price of the Relinquished Property was reduced by $50,000. Vol. 6, p. 149; Vol. 38, pp. 63–64, 182–183.
{{6-30-98 p.A-2882}}
   67. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the Bank that under the terms of the Amended LKE Agreement, the purchase price of the Relinquished Property had been reduced by $50,000 and that H.B. Associates had assumed responsibility for making $50,000 of repairs to the properties. Vol. 2, pp. 22, 89; Vol. 38, p. 183; FDIC 252.
   vi. Reduction in Repayment Obligation on H.B. Note
   68. The reduction of the total amount of principal to be paid on the H.B. Note ("advance discounting") from $250,000 to $62,500 constituted a 75 percent reduction in the principal which H.B. Associates would be required to repay under the terms of the LKE Agreement. FDIC 252.
   69. Because the Amended LKE Agreement changed no other terms of the H.B. Note and provided no incentives for early repayment or provisions for acceleration, Boulrice could not reasonably expect to receive more than $62,500 as payment in full at the end of the three-year terms of the H.B. Note. FDIC 252.
   70. The reduction in required principal repayment constituted a reduction in the purchase price of Belmont Avenue of $187,500. Vol. 6, p. 149.
   71. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the Bank that under the terms of the Amended LKE Agreement, H.B. Associates had been relieved of its obligation to pay 75 percent of the principal of the H.B. Note. Vol. 2, p. 21; Vol. 6, pp. 80, 112, 147; Vol. 38, pp. 180–181.
   72. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the Bank that under the terms of the Amended LKE Agreement, H.B. Associates would not be required to repay $187,500 of the H.B. Note attributable to Belmont Avenue. Vol. 2, Vol. 21; Vol. 6, pp. 80, 112, 147; Vol. 38, pp. 180–181.
   73. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the Bank that under the terms of the Amended LKE Agreement H.B. Associates would execute the H.B. Note in the original principal amount of $250,000, payable to Boulrice, but would be required to repay only $62,500 of principal. Vol. 2, p. 21; Vol. 6, pp. 80, 112, 147.
   74. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the Bank that under the terms of the Amended LKE Agreement, the purchase price of Belmont Avenue had been reduced by $187,500 due to the reduction of H.B. Associates' repayment obligation on the H.B. Note. Vol. 2, p. 26; Vol. 6, pp. 80, 112, 147; Vol. 38, pp. 180–181.
   vii. Removal of the Mellis Mortgage
   75. The LKE Agreement made clear that the Bank's loan funds would be used solely to repay existing mortgage indebtedness of approximately $1 million owed by Boulrice on Belmont Avenue. FDIC 251. The Amended LKE Agreement removed the $200,000 Mellis Mortgage from the Belmont Avenue transaction, reducing the amount of the existing indebtedness to be repaid with the Bank's loan funds from $1 million to approximately $800,000 that Boulrice owed to Heritage Savings Bank ("Heritage"). FDIC 252.
   76. Weitz failed to notify the Bank that the Mellis Mortgage had been removed from the Belmont Avenue transaction. Vol. 38, pp. 188–189.
   vii. Oral Agreement for $150,000 Repair Credit
   77. On or about February 1, 1990, but prior to the Belmont Avenue closing and disbursement of the Bank's loan funds, Boulrice agreed to give H.B. Associates a credit toward the purchase price of Belmont Avenue of $150,000, purportedly for repairs to the Belmont Avenue and the Worcester Street Parcels, Vol. 38, p. 122. The agreement was oral, and repairs were unspecified. Vol. 6, pp. 90, 95; Vol. 38, pp. 67–68.
   78. The $150,000 repair credit was in addition to the $50,000 credit allowed in the Amended LKE Agreement. Vol. 38, pp. 67–68.
   79. This agreement by the parties that H.B. Associates would receive a credit of an additional $150,000 toward the purchase price of Belmont Avenue, constituted a reduction of $150,000 in the purchase price of Belmont Avenue. Vol. 6, p. 149, Vol. 38, p. 68.
   80. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the Bank that the purchase price of Belmont Avenue had been reduced by an additional $150,000. Vol. 6, p. 147; Vol. 38, p. 68.
{{6-30-98 p.A-2883}}
   81. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the Bank that the $150,000 credit toward the purchase price of Belmont Avenue was to be used for repairs to Belmont Avenue and the Worcester Street Parcels. Vol. 6, p. 147; Vol. 38, p. 68.
   ix. Nondisclosure of Material Changes
   82. The cover letter accompanying the Like Kind Exchange Agreement from Weitz to the Bank is dated Tuesday, January 6, 1990. It states that the closing will take place on Monday, January 22, 1990. FDIC 260.
   83. Weitz knew that generally banks send commitments to the closing attorneys and that commitments were frequently accompanied by documents to be completed at closing, along with closing instructions. Vol. 6, pp. 27–28.
   84. At the time of the Belmont Avenue closing, BayBank had a standard letter of instruction which it mailed to all closing counsel, along with a variety of Bank forms for use in a particular transaction. Vol. 6, pp. 155–156.
   85. Aside from the Commitment Letter, Weitz alleges that he received no documents or instructions from the Bank at any time relevant to the Belmont Avenue transaction. Vol. 6, pp. 27–28; Vol. 38, pp. 137, 156.
   86. Except for letters admitted into evidence in this matter, FDIC 269, Weitz never communicated with loan officer Wright prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds. Vol. 6, p. 52; Vol. 38, p. 139. There is no evidence that Weitz communicated with anyone else at the Bank, orally or in writing, in the course of the Belmont Avenue transaction.
   87. The Belmont Avenue closing occurred on February 1, 1990. Vol. 6, p. 46. Since Weitz did not speak to Wright during the pendency of the Belmont Avenue transaction, he did not notify the Bank that the closing was delayed from January 22, 1990, to February 1, 1990, and he made no effort to obtain documents and closing information from the Bank during the period of delay. Vol. 6, p. 39, 52.
   88. At closing, H.B. Associates purchased Belmont Avenue. Vol. 6, p. 49.
   89. In the course of the closing, Bernal and Harris, as partners of H.B. Associates executed a commercial Real Estate Promissory Note, FDIC 257, payable to the Bank in the original principal amount of $1 million ("Note") and a Real Estate Mortgage on the Belmont Avenue property, FDIC 269C, in favor of the Bank to secure payment of the Note. As further security for the loan, H.B. Associates executed a Collateral Assignment of Rents and Leases ("Assignment"), FDIC 263, in favor of the Bank. In addition, H.B. Associates executed a second Real Estate Mortgage granting to BayBank a second mortgage on the Worcester Street Parcels, FDIC 269D. Each of these documents was signed by Weitz as witness or as notary public. FDIC 257, 263, 269C.
   90. Evidence strongly suggests that Weitz was not truthful when he claimed that the Bank had provided him with no closing instructions or documents for the Belmont Avenue loan. Careful examination of the Note, FDIC 257, the Real Estate Mortgage covering Belmont Avenue, FDIC 269C, the Assignment, FDIC 263, and the Real Estate Mortgage on the Worcester Street Parcels, FDIC 269D, executed by H.B. Associates at the closing of the Belmont Avenue transaction reveals that each of these documents is a Bank preprinted form. Moreover, Weitz' file contained another Bank form entitled "Security Agreement," FDIC 269E, in which the blanks were completed for the Belmont Avenue transaction. The Security Agreement Equipment form was not signed at closing. No evidence shows that Weitz obtained these documents from any source other than the Bank. FDIC 257, 263, 269C, 269D, 269E.
   91. The Bank provided loan funds in the amount of $1 million to be used for H.B. Associates' purchase of Belmont Avenue. Vol. 37, p. 67; FDIC 264 (Ck. 84243641).
   92. The only funds provided to Weitz to close the Belmont Avenue transaction were the Bank's loan funds. Vol. 38, p. 170.
   93. Upon receipt of the Bank's check in the amount of $1 million for loan proceeds, Weitz deposited the check in his real estate trust account ("Real Estate Account"). Vol. 39, pp. 70–71.
   94. In disbursing funds, Weitz issued checks drawn on the Real Estate Account. Vol. 39, pp. 80–81; FDIC 264.
   95. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz had received a copy of the Bank's commitment. Vol. 6, p. 53.
   96. The Commitment made no provision {{6-30-98 p.A-2884}}for payment of closing costs from the Bank's loan proceeds. H.B. Associates was required to pay closing costs from its own pocket. FDIC 260, paragraph 13. In approving the Belmont Avenue loan without requiring an equity investment from the borrowers, the Bank took into account that H.B. Associates would be required to furnish a large amount of cash to pay closing costs. Vol. 6, p. 89, 146.
   97. According to the Memo of Sale prepared by Weitz at closing, Vol. 6, p. 93, closing costs attributable to H.B. Associates totaled approximately $13,000. Vol. 39, pp. 22–23; FDIC 267.
   98. According to the Memo of Sale, adjustments (credits) which H.B. Associates received for Prepaid Items totaled approximately $7,300. Vol. 39, p. 23; FDIC 267.
   99. After application of the Prepaid Items credit to closing costs, H.B. Associates should have been required to furnish $5,700 out-of-pocket to pay the balance of its closing costs. FDIC 267.
   100. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz knew that the Bank would typically lend up to 80 percent of the purchase price on a piece of real property. Vol. 6, p. 35; Vol. 38, pp. 160–161.
   101. After receiving the Bank's Commitment, Weitz knew that the Bank had approved a loan of $1 million or 80 percent of the purchase price of Belmont Avenue, on the basis of a purchase price of $1.25 million. Vol. 6, p. 89. FDIC 260.
   102. Weitz knew that if the purchase price of Belmont Avenue was reduced from $1.25 million, he had an obligation to notify the Bank. Vol. 6, pp. 53–54; Vol. 38, p. 160.
   x. False title Certification and Insurance Policy
   103. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan proceeds, Weitz knew that various liens and attachments existed as encumbrances on the title. Vol. 6, pp. 97–98; 101; Vol. 38, p. 166.
   104. Boulrice and his attorney had agreed and promised to secure discharges and/or releases of the pre-existing encumbrances prior to closing. Vol. 6, pp. 97–98.
   105. By the terms of the LKE Agreement, $250,000 of the purchase price for Belmont Avenue was to be represented by delivery of the H.B. Note from H.B. Associates to Boulrice. FDIC 251. (The Amended LKE Agreement reduced the repayment obligation on the H.B. Note from $250,000 to $62,000.)
   106. At closing, H.B. Associates refused to sign the H.B. Note. Vol. 6, pp. 95–96.
   107. Among the reasons that H.B. Associates refused to sign the H.B. Note was that Boulrice and his attorney had failed to obtain discharges and/or releases of the preexisting encumbrances. Vol. 6, pp. 97–98.
   108. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz knew that Boulrice and his attorney had failed to secure discharges and/or releases of the pre-existing encumbrances. Vol. 6, pp. 97–98.
   109. Despite H.B. Associates' refusal to sign the H.B. Note, Weitz closed the Belmont Avenue transaction and disbursed the Bank's loan proceeds. Vol. 6, pp. 98–100.
   110. Despite the existence of prior encumbrances on the title to Belmont Avenue, Weitz closed the Belmont Avenue transaction and disbursed the Bank's loan proceeds. Vol. 6, pp. 98–100; Vol. 38, p. 166.
   111. Prior to completing the closing of the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the Bank that H.B. Associates had refused to sign the H.B. Note. Vol. 2, p. 21–22.
   112. Prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds, Weitz failed to notify the Bank that encumbrances senior to the Bank's mortgage existed on the Belmont Avenue title and that such encumbrances would exist after closing and disbursement of the Bank's loan funds. Vol. 6, pp. 98–100; Vol. 38, p. 166.
   113. As agent for Title USA Insurance Corporation of New York, Weitz issued a policy of title insurance falsely representing that the only encumbrance on the title to Belmont Avenue was the mortgage granted to the Bank by H.B. Associates, when he knew that other encumbrances existed and that such other encumbrances were senior to the Bank's mortgage. Vol. 38, pp 146–149; FDIC 269F.
   114. In addition, Weitz issued a title certification falsely certifying that the Bank was in a first mortgage position without other encumbrances on the Belmont Avenue title, when he knew that other encumbrances existed, and that such other encumbrances were superior to the Bank's mortgage. Vol. 38, pp. 146–149.
{{6-30-98 p.A-2885}}
   xi. The Memorandum of Sale: False Entries and Omissions
   115. Weitz prepared the Memo of Sale for the Belmont Avenue transaction. Vol. 6, pp. 92–93.
   116. Weitz knew that the purpose of a Memo of Sale was to give the lender information about how funds are disbursed and that a Memo of Sale was intended to show the entire financial transaction, including the lender's involvement. Vol. 6, pp. 39–41.
   117. With one exception, the Belmont Avenue transaction as portrayed by Weitz' Memo of Sale appears to be in accord with the Bank's Commitment and in the LKE Agreement, which Weitz furnished to the Bank. The exception is that the Mellis Mortgage, which was not removed from the transaction until the Amended LKE Agreement was signed, does not appear on the Memo of Sale. FDIC 267.
   118. In order to make the Belmont Avenue transaction appear to have closed in conformity with the LKE Agreement, Weitz omitted from the Memo of Sale entries which would have revealed the changes to the transaction caused by the Letter Agreement, the Amended LKE Agreement and the oral agreement for a $150,000 repair credit. FDIC 267.

xii. The Repair Credit

   119. The Memo of Sale shows that Weitz deducted $25,000 from price of Belmont Avenue. FDIC 267.
   120. The Amended LKE Agreement indicates that such a deduction should have been for half of the $50,000 repair credit. However, the deduction reflected on the Memo of Sale is not designated as a repair credit, and no repair credit is reflected on the Memo of Sale prepared at closing. FDIC 252, 267.
   121. On the Memo of Sale Weitz designated the $25,000 deduction as DEPOSIT, (second line of SALE box) thereby indicating that H.B. Associates had given a $25,000 deposit directly to Boulrice prior to closing FDIC 267.
   122. At no time during the course of the Belmont Avenue transaction did the parties contemplate that H.B. Associates would give a $25,000 deposit directly to Boulrice, nor was such a deposit required by any of the Belmont Avenue purchase and sale documents: the original Belmont P&S required that H.B. Associates make a deposit directly to Boulrice for the Belmont Avenue transaction, but for only $10,000. FDIC 248. The LKE Agreement, which was executed approximately two weeks before the closing and which superseded the Belmont Avenue P&S, required that H.B. Associates make a $50,000 deposit to cover all of the Relinquished Property, but the deposit was to be held by Donovan and accounted for at the closing. FDIC 251. Therefore, by the original P&S, only $10,000 would have been paid directly to Boulrice, and according to the superseding documents, no deposit would have been paid directly to Boulrice. FDIC 248, 251 and 269B.
   123. Moreover, Weitz knew that by the terms of the Letter Agreement, which vitiated the deposit requirement of paragraph nine of the LKE Agreement, a check given by H.B. Associates for the deposit would have been held by Donovan, uncashed, and returned to H.B. Associates at the closing. FDIC 251-269B.
   124. Donovan did not receive or hold any money from H.B. Associates as a deposit at any time prior to closing or disbursement of the Bank loan proceeds. Vol. 38, p. 90. Therefore, he provided no accounting for a deposit at closing, as required by the LKE Agreement, nor did Weitz receive deposit funds from him. Vol. 38, pp. 90–91, 170.
   125. Weitz received no funds in the Belmont Avenue transaction except the Bank's loan funds of $1 million. Vol. 38, p. 170.
   126. There is conflicting evidence on the existence or non-existence of a deposit on Belmont Avenue. The weight of credible testimony leads to the conclusion that prior to designating the $25,000 deduction from the purchase price of Belmont Avenue as a deposit, Weitz knew that H.B. Associates had made no deposit toward the purchase price of Belmont Avenue. Vol. 38, pp. 177, 195, 196; Vol. 39, pp. 12–14; FDIC 269B.
   127. Designation of the $25,000 entry as DEPOSIT created the impression that the $19,400 payment to H.B. Associates (indicated in parenthesis as the final entry on the Memo of Sale) was to be simply the return of funds previously deposited by H.B. Associates, after deduction of $5,700 of closing costs. Vol. 39, pp. 21–22. In reality, both the payment of $5,700 of H.B. Associates' closing costs and the payment of $19,300 directly to H.B. Associates were made possible by the $25,000 repair credit, which re {{6-30-98 p.A-2886}}duced the price of Belmont Avenue and left a $25,000 "surplus" of Bank loan funds in the transaction, and both payments were derived from the Bank's loan funds. FDIC 267.
   128. Use of the DEPOSIT designation for the $25,000 repair credit, likewise, allowed Weitz to hide or disguise half of the repair credit provided for by the Amended LKE Agreement, which was unknown to the Bank. FDIC 251, 252, and 267.
   129. Use of the DEPOSIT designation for the $25,000 repair credit was in the best interest of H.B. Associates since such a designation concealed both the absence of a deposit and the $25,000 price reduction wrought by the repair credit provision of the Amended LKE Agreement. FDIC 267.
   130. Receipt by H.B. Associates of a repair credit of $25,000, disguised as a DEPOSIT, reduced the purchase price of Belmont Avenue by $25,000. Vol. 6, p. 149; FDIC 267.
   131. At no time prior to disbursement of the Bank's loan proceeds did Weitz notify the Bank that H.B. Associates would receive a $25,000 repair credit designated as a DEPOSIT which had not been paid. Vol. 6, pp. 147, 146–148.
   132. At no time prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds did Weitz disclose to the Bank that $5,700 of H.B. Associates' closing costs would be paid from the Bank's loan funds or that H.B. Associates would be paid $19,300 from the Bank's loan funds. Vol. 6, p. 147; Vol. 38, pp. 139–140.
   133. Since no deposit was required from H.B. Associates and since none had been paid, the $25,000 deduction designated as a DEPOSIT on the Memo of Sale could only represent half of the $50,000 repair credit provided for by the Amended LKE Agreement, of which the Bank was not aware and which is otherwise omitted from the Memo of Sale. Vol. 38, p. 190; FDIC 252, 267.
   xiii. Omission of $150,000 Repair Credit
   134. Weitz also omitted from the Memo of Sale the $150,000 repair credit agreed to by the parties verbally at the closing. FDIC 267.
   135. The Memo of Sale reflects that Boulrice was to receive proceeds from the sale of Belmont Avenue of approximately $156,800, as he would have had the Belmont Avenue transaction occurred pursuant to the LKE Agreement, assuming removal of the Mellis Mortgage. FDIC 267.
   136. Instead of making an entry on the Memo of Sale to show a deduction of the $150,000 repair credit from the purchase price of Belmont Avenue, Weitz treated the repair credit as a rebate of $150,000 of the purchase price to H.B. Associates. After the Memo of Sale was prepared, Weitz deducted $150,000 from the sale proceeds owed to Boulrice, and wrote a check covering the credit to H.B. Associates. Vol. 6, p. 94–95, Vol. 38, p. 224; Vol. 39, pp. 78–80; FDIC 267 and 264 (Ck. 280)
   137. The source of the $150,000 rebate to H.B. Associates was the Bank's loan funds. Vol. 38, p. 170.
   138. Omission of the $150,000 repair credit from the Memo of Sale concealed the fact that $150,000 of the purchase price of Belmont Avenue had been rebated to H.B. Associates. FDIC 267.
   139. Omission of the $150,000 repair credit from the Memo of Sale concealed the fact that H.B. Associates would receive a payment of $150,000 from the Bank's loan funds. FDIC 267.
   140. At no time prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds did Weitz disclose to the Bank that H.B. Associates would receive a payment of a substantial amount of the Bank's loan funds at the closing. Vol. 39, pp. 63–64.

xiv. The H.B. Note

   141. Weitz failed to indicate on the Memo of Sale that the H.B. Note had been reduced from $250,000 to $62,500, or the fact that the H.B. Note was never signed. Vol. 39, p. 64. FDIC 267.
   142. The Belmont Avenue Memo of Sale reflects that the full $250,000 principal of the H.B. Note was deducted from the money owed to Boulrice by H.B. Associates at the closing, just as if the repayment obligation on the H.B. Note had not been reduced, and just as if the note had been signed. The Memo of Sale entries reflecting the H.B. Note are found in the SALE box on the line marked "2d Mtg." and in the DUE FROM BUYER box on the PAID AS FOLLOWS line. FDIC 267.
   143. By preparing the Belmont Avenue Memo of Sale so that the principal of the Note appeared to be $250,000, Weitz concealed the change made by the amended LKE {{6-30-95 p.A-2887}}Agreement, which reduced H.B. Associates' repayment obligation on the H.B. Note from $250,000 to $62,500. FDIC 267.
   144. By preparing the Memo of Sale so that the principal of the H.B. Note appeared to have been signed, Weitz concealed the fact that it had not been signed and also precluded questions as to the reasons that it was not signed. FDIC 267.

   xv. Disbursement and Diversion of Funds
   145. While Weitz prepared the Memo of Sale to reflect that the Belmont Avenue closing occurred in conformity with the LKE Agreement and the Bank's Commitment, he disbursed the Bank's loan funds in quite a different manner. Four significant disbursements were made in conformity with the requirements of the Amended LKE Agreement, the oral agreement made by the parties at closing for a $150,000 repair credit, and the agreement between Weitz and H.B. Associates that Weitz would be paid a past due billing from the Belmont Avenue closing. Weitz omitted these disbursements from the Memo of Sale. FDIC 264.
   146. The Bank's loan funds were disbursed as follows. Those marked with an asterisks were not included on or accounted for in the Memo of Sale:
$808,147 Thomas Bovenzi ("Bovenzi") to repay the Boulrice mortgage held by Heritage Savings Bank. FDIC 264 (Ck. 263). Reflected on Memo of Sale. FDIC 267.
6,823 Bovenzi for Boulrice's attorney fees. Vol. 6, pp. 94–95; FDIC 264 (Ck. 279 totaling $13,093.33, including Bovenzi's fee for the Worcester Street Parcels), reflected on Memo of Sale. FDIC 267.
5,000 Bank in payment of one-point origination fee. FDIC 264 (Ck. 264). Reflected on Memo of Sale. FDIC 267.
6,200 Weitz for representation ($3750), documents ($450) and title ($2,000). FDIC 264 (Ck. 267). Reflected on Memo of Sale. FDIC 267.
1,524 Springfield Water Department for water and sewer. Reflected on Memo of Sale. FDIC 267. FDIC 264 (Ck. 271); FDIC 267.
1,140 Hamden County Registry of Deeds for transfer tax stamps. FDIC 264 (Ck. 268 and 269); FDIC 267. Reflected on Memo of Sale. (FDIC 267)
1,360 Weitz for title insurance ($816). Title U.S.A. ($544) FDIC 264 (Cks. 268 and 269); FDIC 267. Reflected on Memo of Sale. FDIC 267.
125 Smith Associates for survey. FDIC 264 (Ck. 266); FDIC 267. Reflected on Memo of Sale. FDIC 267.
25 Springfield Collector's Office for lien certificate. FDIC 264 (Ck. 270). Reflected on Memo of Sale. FDIC 267.
215 Various checks for recording fees. Reflected on Memo of Sale. FDIC 267.
160,000* H.B. Associates for "proceeds and distributions." FDIC 264 (Ck. 280). This check, which is not shown on the Memo of Sale, combines the $150,000 repair credit rebate and $10,000 of the $19,300 payment to be made to H.B. Associates reflected on the Memo of Sale.
1,654* H.B. Associates for proceeds from Worcester Street and Belmont Avenue. FDIC 264 (Ck. 288 totaling $2,262) (This is a derived figure representing the balance of $1 million after deduction of all other payments from Belmont Avenue funds.) Not shown on Memo of Sale. FDIC 267.
2,787* Irwin Weitz for payment of pastdue billing for H.B. Associates. FDIC 264 (Ck. 287). Not shown on Memo of Sale. FDIC 267.
5,000* Bank in payment of the balance of the one-point origination fee, unpaid when Commitment was issued. FDIC 264 (Ck. 278). Not shown on Memo of Sale. FDIC 267. This check, combined with the $5,700 of closing costs not offset by the credit for Prepaid Items resulted in Bank loan funds being used to pay $10,700 of H.B. Associates' closing costs.
$1,000,000 TOTAL DISBURSED

{{6-30-95 p.A-2888}}
   147. Because the only funds available for disbursement in the Belmont Avenue transaction were the Bank's loan funds, all distributions of money from the Belmont Avenue closing were derived from the Bank's loan. Vol. 38, p. 170.
   148. The four checks indicated by asterisks above, in addition to the $5,700 of H.B. Associates' closing costs paid from the Bank's loan funds, account of the $175,000 of repair credits given to H.B. Associates by Boulrice in the Belmont Avenue transaction. FDIC 264 (Cks. 280, 288, 287, 278).
   149. Of the $175,000 in credits given to H.B. Associates by Boulrice from the Belmont Avenue transaction, purportedly for repairs, $2,787 was paid to Weitz for a past due debt owed to him by H.B. Associates, $10,700 was used to pay part of H.B. Associates' closing costs, and the balance of $161,654 was paid directly to H.B. Associates with no constraints on its use. FDIC 264 (Cks. 280, 288, 287, and 278).
   150. At no time prior to closing the Belmont Avenue transaction and disbursing the Bank's loan funds did Weitz notify the Bank that $161,654 of its loan funds would be paid directly to H.B. Associates, that $2,787 of the Bank's loan funds would be paid to Weitz for a past-due billing owed to him by H.B. Associates, or that $10,700 would be used to pay part of H.B. Associates' closing costs. Vol. 6, pp. 89–90, 109–110; Vol. 38, pp. 138–139; Vol. 39, pp. 63–64.
   151. At no time subsequent to closing and disbursement of the Bank's loan proceeds did Weitz provide the Bank with documents reflecting disbursement. Vol. 6, pp. 9, 96, 109.
   152. At no time subsequent to closing and disbursement of the Bank's loan proceeds did Weitz reveal to the Bank that he had received more than $2,700 of the Bank's loan funds in payment of a debt owed to him by H.B. Associates unrelated to Belmont Avenue. Vol. 6, pp. 109–110.
   xvi. The Effect of this Conduct on the Bank
   153. Respondent's failure to notify the Bank of the existence of the conflict of interest in his relationship with H.B. Associates and, his expectation of personal benefit from the Belmont Avenue transaction, deprived the Bank of the opportunity to assess, and take steps to mitigate, the potential effects on the Belmont Avenue closing.
   154. The purchase price of Belmont Avenue was reduced by $175,000 as a result of the repair credits, Vol. 6, p. 149; Vol. 38, p. 68, and $187,500 (reduction in repayment obligation on the H.B. Note) Vol. 6, p. 149, resulted in an actual purchase price of $887,500 for Belmont Avenue.
   155. After the Belmont Avenue closing and disbursement, the Bank had loaned more than 100 percent of the actual purchase price of the property, in violation of the Bank's internal practices. Vol. 2, p. 26; FDIC 257, 264 (Ck. 84243641).
   156. If the Bank had known that it was lending more than 100 percent of the purchase price of Belmont Avenue, it would not have approved the loan. Vol. 6, p. 148.
   157. In the LKE Agreement, H.B. Associates and Boulrice established the fair market value of Belmont Avenue at $1.25 million. FDIC 251.
   158. There is no dispute that Weitz was aware of all the changes to the Belmont Avenue transaction caused by the Amended LKE Agreement, including the repair credit and the reduction in repayment obligation on the H.B. Note. Likewise, there is no dispute that he was also aware of the $150,000 repair credit given to H.B. Associates.
   159. From the Bank's Commitment, Weitz knew, or should have known, that the Bank's loan of $1 million was exactly 80 percent of the purchase price of Belmont Avenue. He also knew, or should have known, from the Commitment that if the purchase price or value of Belmont Avenue fell below $1.25 million, a loan of $1 million would exceed 80 percent of the purchase price. FDIC 260.
   160. By January 16, 1990, Weitz knew, or should have known, that the purchase price of Belmont Avenue had fallen substantially due to the repair credit and reduction of repayment obligation on the H.B. Note, as set forth in the Amended LKE Agreement. FDIC 252. By the date of the Belmont Avenue closing Respondent knew, or should have known, that the price of Belmont Avenue had fallen even further, due to the $150,000 repair credit, and that the property was purportedly in need of significant repairs. Vol. 6, p. 95. Weitz had reason to know that the Belmont Avenue property was not worth $1.25 million, the value necessary to support the Bank's 80 percent loan of $1 million to H.B. Associates.
   161. After the closing and disbursement, {{6-30-98 p.A-2889}}the Bank had loaned $1 million secured by property which was worth less than the amount of the loan.
   162. Due to agreements reached between the parties in the course of the Belmont Avenue transaction, which Weitz failed to disclose to the Bank, H.B. Associates received credits of $175,000, purportedly for repairs to both Belmont Avenue and the Worcester Street parcels. Vol. 38, pp. 68, 122. Because the Bank did not approve the use of its loan funds for repairs to any property, this use was a diversion of the funds not approved by the Bank. FDIC 260.
   163. At or shortly after the Belmont Avenue closing, Weitz disbursed the $175,000 as follows:

   Weitz did not enter these disbursements on the Belmont Avenue Memo of Sale or otherwise disclose them to the Bank. FDIC 267.
   164. If the Bank had known that part of its loan proceeds would be used to pay a past due billing owed to Weitz by H.B. Associates, it would not have approved the Belmont Avenue loan. Vol. 6, p. 152.
   165. If the Bank had known that H.B. Associates would receive over $150,000 as direct payment of loan proceeds from the closing, it would not have approved the Belmont Avenue loan. Vol. 6, p. 151.
   166. Because the Bank did not approve the use of its loan for payments directly to H.B. Associates or Weitz, or for payment of closing costs, such uses represent diversion of the funds not approved by the Bank. FDIC 260.
   167. After the Belmont Avenue closing, the Bank had extended a $1 million loan secured by property on which it did not have a first lien. Vol. 38, pp. 146–148.
   168. If the Bank had known that it would not receive a first mortgage lien on Belmont Avenue, it would not have approved the Belmont Avenue loan. Vol. 6, p. 154.

V. Conclusions of Law

   1. The FDIC has jurisdiction over the Bank, the Respondent, and the subject matter of this proceeding.
   2. At all times pertinent to the charges herein, Respondent Weitz served as legal counsel to the Bank in connection with a real estate transaction, and was therefore an independent contractor within the meaning of 12 U.S.C. § 1813(u)(4). Given the knowing and reckless actions, which caused significant loss to the institution as set forth in the Findings of Fact above, Respondent was an "institution-affiliated party" within the meaning of 12 U.S.C. § 1813(u).
   3. The FDIC has authority to issue a Notice of Intention to Prohibit from Further Participation, under the provisions of Section 8(e) of the FDI Act, 12 U.S.C. § 1818(e).
   4. Respondent Irwin I. Weitz engaged in unsafe and unsound practices within the meaning of Section 8(e), and breached his fiduciary duty to his client, the BayBank, by failing to disclose, and by withholding from the Bank, knowledge of the existence of a series of material, written, and verbal agreements, critical to the Bank's decisionmaking and lending process.
   5. By reason of the unsafe and unsound practices and breaches of fiduciary duty established above, BayBank suffered substantial financial loss, and Respondent Weitz received financial gain.
   6. The violations and breaches established on this record involve personal dishonesty on the part of Respondent Weitz, and demonstrate his willful disregard for safety and soundness of BayBank.
   7. As an independent contractor, which includes the role of attorney, Respondent Weitz knowingly and recklessly committed the above breaches and practices, which caused more than minimal loss to BayBank.
   8. Respondent Irwin I. Weitz may, and should, be permanently prohibited from further participation in any manner in the conduct of the affairs of any insured depository institution.

VI. Proposed Order

   The Board of Directors of the Federal Deposit Insurance Corporation having considered the entire record made at hearing, briefs, and arguments of counsel, and the Recommended Decision and Order of Administra- {{6-30-98 p.A-2890}}tive Law Judge Arthur L. Shipe, and exceptions thereto, finds that:
   Respondent Irwin I. Weitz has knowingly and recklessly committed acts or practices which constitute unsafe and unsound banking practices, and a breach of fiduciary duty, while serving as counsel and institution-affiliated party of the BayBank Valley Trust Company ("BayBank") of Burlington, Massachusetts;
   By reason of such practices and breaches of duty, the Respondent has received financial gain, and the institution has suffered more than a minimal financial loss;
   Such conduct demonstrates the Respondent's personal dishonesty and willful and continuing disregard for the safety or soundness of the Bank.
   Accordingly, IT IS HEREBY ORDERED:
   Irwin I. Weitz is hereby, without the prior written approval of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in Section 8(e)(7)(D) of the Act, 12 U.S.C. § 1818 (e)(7)(D), prohibited from:

IT IS FURTHER ORDERED that the provisions of the ORDER shall become effective upon the expiration of thirty (30) days after its service. The provisions of this Order shall otherwise remain effective and enforceable except to the extent that, and until such time as, any provision of this Order shall have been modified, terminated, suspended, or set aside by action of the Federal Deposit Insurance Corporation or a reviewing court.
So Ordered, this 9th day of June, 1997.

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