[¶5264] In the Matter of Richard M. Wright, Jr., individually and as an
Institution-Affiliated party of Midland Bank of Kansas (f/k/a The Tower
State Bank), Mission, Kansas (Insured State Nonmember Bank) (In
Receivership) FDIC Docket No. 00-100ej; FDIC Docket No. 95-79e (10-2-00).
The FDIC Board denied Respondent Wright's request to a general
modification of an Order of Prohibition to allow him to provide legal
services for securities matters, as legal counsel representing
financial institutions and organizations.
Respondent must demonstrate that he is fit to participate in the
conduct of the affairs of the institution, and that his participation
would not pose a risk to the safety and soundness of the institution or
erode public confidence.
Like the officers and directors of an insured institution, an attorney
representing the institution occupies a position of trust and has
In the Matter of
RICHARD M. WRIGHT, JR.,
individually and as an institution-affiliated party of
MIDLAND BANK OF KANSAS (f/k/a The Tower State Bank)
MISSION, KANSAS (Insured State Nonmember Bank)
DECISION AND ORDER DENYING MODIFICATION OF ORDER OF PROHIBITION FROM FURTHER PARTICIPATION
STATEMENT OF THE CASE
On July 26, 1999, Richard M. Wright, Jr. ("Respondent"),
through a letter ("July 26 Application") addressed to the
Regional Director of the Kansas City Regional Office of the Federal
Deposit Insurance Corporation, made application to the Federal Deposit
Insurance Corporation ("FDIC") for written consent to a request
for modification of the Order of Prohibition from Further Participation
("Order of Prohibition") issued against him in order for him to
be allowed to serve as legal counsel representing financial
institutions or organizations enumerated in section 8(e)(7)(A) of the
Federal Deposit Insurance Act ("Act"), 12 U.S.C.
§ 1818(e)(7)(A), in securities matters. This application arises under
section 8(e)(7)(B) of the Act, 12 U.S.C. § 1818 (e)(7)(B) and section
8(j) of the Act, 12 U.S.C. § 1818(j).
From April 1991 through May 1992. Respondent served as chairman of
the board of directors of Midland Bank of Kansas, Mission, Kansas, and
vice chairman of Country Hill Bank, Lenexa, Kansas, two out of a group
of five insured depository institutions under the control of Leopold H.
Greif ("Greif Banks"). Although Respondent had no prior banking
experience or formal training in banking, he was trained as an attorney
and had over ten years of experience in private practice with a law
Management of the Greif Banks, including Respondent, engaged in an
aggressive and unsafe and unsound lending strategy that resulted
ultimately in the demise of the Greif Banks. In particular, Respondent
originated and structured loans in an unsafe and unsound manner and in
violation of applicable laws and regulations with regard to three large
transactions that resulted in loss to the Greif Banks of a total of
$9.2 million. Respondent structured these transactions to avoid
recognition of these problem assets and loan losses by transferring the
assets to new borrowers with financing provided by the same institution
or one of the other affiliated Greif Banks, and by arranging for
the sale of real estate collateral pledged to problem loans to
"nominee" borrowers with the institution providing 100 percent,
non- or limited-recourse financing. Further, Respondent withheld and
misrepresented material information regarding these transactions
from the examiners.
On November 27, 1995, prior to issuance of a Notice of Intent to
Prohibit From Further Participation ("Notice"), Respondent
stipulated to the issuance of an Order of Prohibition; and on September
16, 1996, the FDIC issued the Order of Prohibition pursuant to section
8(e) of the Act, 12 U.S.C. § 1818(e). In the Matter of Richard
M. Wright Jr., FDIC ENFORCEMENT DECISIONS AND ORDERS, Paragraph
11339, C-4255. The Order of Prohibition prohibits Respondent from
participating in the conduct of the affairs of any financial
institution or organization enumerated in section 8(e)(7)(A) of the
Act, 12 U.S.C. § 1818(e)(7)(A), without the prior written consent of
the FDIC and the appropriate Federal financial institutions regulatory
agency, as that term is defined in section 8(e)(7)(D) of the Act, 12
U.S.C. § 1818(e)(7)(D).
C. The Application
In his July 26 application, Respondent requested that the FDIC modify
his Order of Prohibition. The purpose of the application is to obtain approval
from the FDIC that the
Respondent "may again serve FDIC insured banks as securities counsel for which
[he is] well qualified," without having to seek the prior written approval from
the FDIC. July 26 Application at p. 1. His performance of legal service would
be limited to acting solely in the capacity of independent contractor.
Respondent states that he "do[es] not request any change in the Order to allow
me to act as an officer, director or employee of an FDIC insured institution."
Id. at p. 2.
Respondent's rationale for seeking a general modification is that,
since joining a law firm in May 1992 which acts primarily as tax-exempt
bond counsel for its clients, Respondent has developed expertise in
handling securities matters. With the enactment of recent banking
legislation, insured depository institutions are now authorized to
engage in significant securities activities. Respondent wants to expand
his business opportunities by being "in a position to represent
banks underwriting municipal securities," without the delay
associated with obtaining the written consent of the FDIC before every
proposed engagement of his professional services. Id.
FINDINGS OF FACT
In his application for modification of the Order of Prohibition,
Respondent sets forth several grounds for requesting such relief.
First, Respondent states his belief that with the passage of the
financial institutions reform legislation, banks will become directly
involved in municipal securities underwriting. Second, Respondent
states that the banks that have engaged in underwriting municipal bonds
under one of the Glass-Steagall exceptions typically do not hire
separate underwriter's counsel. Since Respondent asserts that he is
regarded as one of the few experts in Missouri and Kansas practicing in
this area of the law, Respondent believes that he can offer a
"fairly unique level of experience to banks in the underwriting of
municipal securities." Id. Finally, Respondent asserts
that he had demonstrated his competence and integrity as a securities
lawyer over the past seven years and that his representation of FDIC
insured institutions "will not create a risk of loss to those
institutions in the future. Id. at p. 3.
DECISION AND ORDER
Section 8(e)(7)(B) of the Act states in pertinent part:
(7) INDUSTRYWIDE PROHIBITION.
(B) EXCEPTION IF AGENCY PROVIDES WRITTEN CONSENT.If, on or
after the date an order is issued under this subsection which removes
or suspends from office any institution-affiliated party or prohibits
such party from participating in the conduct of the affairs of an
insured depository institution, such party receives the written consent
(i) the agency that issued such order; and
(ii) the appropriate Federal financial institutions regulatory agency
of the institution described in any clause of subparagraph (A) with
respect to which such party proposes to become an
subparagraph (A) shall, to the extent of such consent, cease to
apply to such party with respect to the institution described in each
12 U.S.C. § 1818(e)(7)(B).
[.1] In reviewing applications to modify orders of removal and prohibition
under section 8(e) of the Act, the FDIC is required to use its
predictive judgment to protect the public. Sletteland v.
FDIC, 924 F.2d 350, 353 (D.C. Cir. 1991). Orders of removal and
prohibition under section 8(e) of the Act are remedial and are issued
not to punish, but rather to protect the public, further underscoring
the importance of the FDIC's predictive judgment. See Hudson v.
United States, 522 U.S. 93, 103 (Congress intended the debarment
sanctions against bankers to be civil in nature)(1997); United
States v. Stoller, 78 F.3d 710 (1st Cir. 1996).
[.2] In applications to modify orders of prohibition, a respondent has
a strong burden of proof to justify the modification that he seeks. The
respondent must demonstrate: (1) his fitness to participate directly or
indirectly in the conduct of the affairs of an insured depository
institution; (2) that his participation would not pose a risk to the
institution's safety and soundness; and (3) that his participation
would not erode public confidence in the institution. See In the
Matter of Michael D. McCormick, FDIC ENFORCEMENT DECISIONS
AND ORDERS, Paragraph 5212, pp., A-2408, A-2411, In the Matter of Charles E.
Floyd, FDIC ENFORCEMENT DECISIONS AND ORDERS, Paragraph 5177, pp. A-1976
and A-1978; In the Matter of Frederick M. Pfeiffer, FDIC ENFORCEMENT
AND ORDERS, Paragraph 5163A, p. A-1656; and Docket No.
FDIC-83-153e, FDIC ENFORCEMENT DECISIONS AND ORDERS Paragraph 5117. p.
A-1303. By this July 26 Application, Respondent seeks to have the Order of
Prohibition modified to permit him to serve as legal counsel on securities
matters for any financial institution or organization enumerated in section
8(e)(7)(A) of the Act, 12 U.S.C. § 1818(e)(7)(A).
Upon review of the record as a whole, the FDIC finds that while
Respondent has expressed remorse for his conduct when serving as
chairman and vice chairman of two of the Greif Banks, he has not
presented sufficient evidence to obtain a limited modification of his
Order or Prohibition. See In the Matter of Stephen F.
Redman, FDIC ENFORCEMENT DECISIONS AND ORDERS, Paragraph 5257,
pp., A-3081, A-3085; In the Matter of Charles E. Floyd, FDIC
ENFORCEMENT DECISIONS AND ORDERS, Paragraph 5177, pp., A-1976 and
A-1978. Although Respondent was not trained as a banker and had no
experience in holding such a position, he was an attorney trained in
the law and he knew or should have known the legally questionable
nature of his activities. Respondent engaged in concealment of material
facts and misrepresentations to bank examiners in addition to
structuring loan transactions in violation of safe and sound banking
practices and various laws and regulations that caused the Greif Banks
to lose $9.2 million.
Respondent now seeks to serve as legal counsel to any insured
depository institution in order to provide advice on how to draft
disclosure documents for underwriting municipal securities that are
"full, complete and accurate." July 26 Application at p. 3. Such
services include ultimate responsibility for the production of the
disclosure documents"which includes not only gathering, verifying
and presenting information to be disclosed, but also making multiple
decisions on what information is legally material and therefore
necessary for actual disclosure." Manning Gilbert Warren, "The
Primary Liability of Securities Lawyers," 50 SMU L. Rev. 383 (1996)
at 383. Specifically, this includes determining preliminary conflicts
of interest; directing and overseeing a competent working group for the
disclosure process; establishing a due diligence environment;
conducting meetings with officers of issuer and other persons;
preparing a due diligence check list; obtaining personal information
about directors, officers, and other relevant persons; conducting and
controlling an extensive due diligence investigation for the purpose of
obtaining and verifying all material information necessary for the
inclusion in the disclosure documents; comparing all written or oral
information from all sources to identify, disclose and reconcile
material inconsistencies; and writing, editing and revising disclosure
drafts of the disclosure document. Id. at 388-389.
Respondent acknowledges the irony in seeking a position to prepare
disclosure documents "the hallmark of which is full and complete
disclosure of all known investment risks," given the fact that he
was banned from banking for his active concealment of the true nature
of transactions that he approved from examiners. July 26 Application at
p. 3. As the FDIC's Board of Directors ("Board") noted in
In the Matter of William Marvin Clark, Sr., FDIC ENFORCEMENT
DECISIONS AND ORDERS, Paragraph 5162, pp. A-1609, A-1618, the
likelihood of repeat conduct occurs when an individual is placed in a
position with responsibilities similar to that held when the offending
[.3] In this case, Respondent has failed to provide evidence to demonstrate
that he has been sufficiently rehabilitated to provide such services so
that there is no likelihood of repeated conduct. Respondent as a start
could have provided a list of clients who have sought out his expertise
and who could have provided references on the quality of his services,
that he understood the nature of the types of disclosure necessary in
providing this type of expertise, and that he demonstrated responsible
and professional conduct in providing those services. However,
Respondent did not provide this information or any other evidence
demonstrating that he has been rehabilitated in his July 26
[.4] Further, Respondent must prove that a sufficient amount of time has
elapsed since the prohibition order issued against him during which he
has engaged in activities demonstrating his rehabilitation. Respondent
has not provided this information as well.
[.5] The FDIC has long recognized that an attorney representing a financial
institution, like the institution's officers and directors,
occupies a position of trust and has important fiduciary obligations to the
institution.1 As the Board
stated in In the Matter of Robert E. Stoller, FDIC ENFORCEMENT
DECISIONS AND ORDERS, Paragraph 5184, p. A-2082:
Because of this position, attorneys have a significant opportunity
to harm the institution if they are so inclined. Even an attorney
representing the institution in real estate conveyancing transactions,
. . . is in a position to cause significant harm.
. . . For example, an attorney drafting loan documents
can slant the provisions in favor of either the borrower or the lender,
if he sees fit. A bank officer, however, depends upon his attorney to
exercise the utmost loyalty and fidelity to the bank's interest. He
does not have the expertise to police the attorney's conduct and
should be able to assume that the attorney is zealously representing
the bank's interests.
Id. at A-2085. Clearly, an attorney providing
underwriting services to an insured depository institution for
municipal securities where the dollar amounts are much greater than
those involved in real estate conveyancing can cause great harm to an
institution. See United States v. Benjamin, 328 F.2d, 854,
863 (2nd Cir. 1963), cert. denied, 377 U.S. 953 (1964).
Accordingly, the FDIC finds that Respondent's request to obtain
approval to provide legal services for securities matters should be
denied. However, the FDIC notes that Respondent retains his license to
continue in the practice of law and that he may even represent parties
involved in transactions with financial institutions so long as he does
not represent the institutions themselves.
Pursuant to delegated authority.
Dated at Washington, D.C. this 2nd day of Oct., 2000.
Michael J. Zamorski
Division of Supervision
1 Because of this position, the Board has
conclusively determined that an attorney providing services to an
insured institution is participating in the conduct of the affairs of
such an institution. Id. at 2085. See also FSLIC v.
Hykel, 333 F. Supp. 1308, 1310-12 (E.D.Pa 1971), vacated as
moot 468 F .2d 1386 (3d Cir. 1972); In the Matter of Frank
Jameson, FDIC-89-83e, FDIC ENFORCEMENT DECISIONS AND ORDERS
Paragraph 5154A at A-1542.3 (relying on Hykel), aff'd
on other grounds, 931 F.2d 290 (5th Cir. 1991); FDIC-85-25e,
-85-112k, -85-113k, FDIC ENFORCMENT DECISIONS AND ORDERS Paragraph 5082
at A-999-1002 (interpreting the phrase "participating in the conduct
of the affairs" of a bank).