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FDIC Enforcement Decisions and Orders
The FDIC declined to disturb by interlocutory review the Administrative Law Judge's (ALJ) ruling adverse to Steven B. Levine's (Respondent's) motion to strike or limit enforcement counsel for the enforcement counsel for the FDIC's (Enforcement Counsel) request for production of documents, except as the documents related to Respondent's wife.
[.1] Civil Money Penalties (CMP)Evidence of wealth
[.2] Interlocutory ReviewStandardsFailure to meet any criteria
[.3] DiscoveryInvasion of privacy
In the Matter of
Before the Executive Secretary of the Federal Deposit Insurance Corporation ("FDIC"), upon the advice and recommendation of the Deputy General Counsel for Litigation acting pursuant to authority delegated by the FDIC Board of Directors ("Board") under 12 C.F.R. §308.102(b)(2)(ii), is a Petition for Interlocutory Review ("petition") in the captioned matter, referred by the Administrative Law Judge ("ALJ") pursuant to 12 C.F.R. §308.28(c) by her order dated June 26, 2003. The request is supported by the petition filed by Respondent Steven B. Levine ("Respondent") and opposed by a response filed by enforcement counsel for the FDIC ("Enforcement Counsel").
The underlying matter involves an FDIC administrative enforcement proceeding pursuant to section 8 of the Federal Deposit Insurance Act ("FDI Act") against former officers and directors of Connecticut Bank of Commerce, Stamford, Connecticut ("Bank"), which was closed by the Banking Commissioner for the State of Connecticut on June 26, 2002, with the FDIC being appointed as receiver. Specifically with respect to Respondent, the FDIC alleged unsafe or unsound practices, breaches of fiduciary duties, or violations by him in connection with his responsibilities as a member of the Bank's board, and assessed a civil money penalty ("CMP") against him in the amount of $500,000 pursuant to section 8(i) of the FDI Act, 12 U.S.C. §1818(i).
The subject of Respondent's petition is Enforcement Counsel's document request to Respondent seeking a broad range of materials from Respondent and his wife relating to their financial condition. On May 29, 2003, the ALJ issued an Order denying Respondent's motion to strike the document request at issue. It was this Order that became the subject of Respondent's petition, which as noted was referred by the ALJ to the Board.
[.1] For the reasons set forth below, the Board declines to disturb by
interlocutory review the ALJ's ruling adverse to Respondent's motion
to strike or limit Enforcement Counsel's request for production of
except insofar as the request for production of documents seeks disclosure of information (including documents) pertaining to Respondent's wife alone. Pursuant to section 8(i)(2)(G) of the FDI Act, the FDIC must consider, in assessing CMPs, a respondent's ability to pay among other mitigating factors. 12 U.S.C. §1818(i)(2)(G). To that end, Enforcement Counsel, at this stage in discovery, has clear authority to seek information from Respondent regarding his financial condition (contrary to what Respondent has suggested). Thus, the ALJ's ruling and Enforcement Counsel's underlying request for production is left in place as it relates to Respondent himself and his financial condition or statements, tax returns, business records, transactions and other financial matters, but strikes the ruling and request for production to the extent that it seeks any financial or other information relating to Respondent's wife without reference to Respondent (e.g., bank accounts held by her individually and not in joint form, tax returns filed by her alone and not jointly filed).
Except as they relate to his wife, the assertions in Respondent's petition present a hodgepodge that does not meet any of the criteria for interlocutory review set out in 12 C.F.R. §308.28(b). Other than in conclusory fashion, Respondent does not attempt to demonstrate how his various complaints satisfy the regulatory standards, particularly in light of the general protective order covering these proceedings. Moreover, even considering those assertions on their merits, there is no reason to disturb the ALJ's ruling. For example, the Board finds unconvincing and disingenuous Respondent's argument that Request 23 is overbroad as to Respondent because "theoretically every single document in the possession of the Respondent Levine could `relate' to his current financial condition," and because such request appears to "pertain to Respondent Levine's medical practice, and hence would even invade the privacy rights of his patients." Resp. Pet. at 7.
Similarly, Respondent's argument that Request 27 is overly broad is unpersuasive. He exaggerates in suggesting that this request for transfers by him of property valued over $5,000 could reasonably be interpreted as encompassing random cumulative transactions and therefore that it would reach "hundreds of thousands of dollars by virtue of paying his bills in his medical practice, as well as paying personal obligations." Id. at 11.
[.2] Contrary to Respondent's assertions, the various requests objected toexcept to the extent they relate to his wife in her individual capacity and not as bound up with her husband in any formal business or financial manner (e.g., through joint accounts or tax returns)are reasonable and relevant to the scope of the FDIC's lawful discovery authority in the context of this enforcement matter. As is evident from the examples cited above, Respondent attempts to read out of Enforcement Counsel's document request any sensible construction, conjuring up in each instance extreme, unreasonable interpretations. If Respondent has a need for clarification of a particular discovery request after review of this decision, that need would be best filled by the ALJ, assuming Respondent and Enforcement Counsel cannot come to a reasonable understanding on the question.
By contrast, the Board finds that all aspects of the request for production of documents relating to Respondent's wife in her individual capacity, and not as bound up with her husband in any formal business or financial manner, are improper in the context of this enforcement matter and are hereby disallowed. As a threshold matter, I note that the assertions presented by Respondent in relation to his wife satisfy one or more of the criteria for interlocutory review set forth in 12 C.F.R. §308.28(b). In particular, the suggestions of an unwarranted violation of reasonable privacy interests on the part of a non-party spouse involve either "a controlling question of law or policy as to which substantial grounds exist for a difference of opinion" (12 C.F.R. §308.28(b)(1)), or a situation not amenable to a later adequate "remedy" (12 C.F.R. §308.28(b)(3)), if the Board did not act now on an interlocutory basis.
[.3] Going to the merits, the case presented relating to Respondent's wife
is governed by McVane v. FDIC, 44 F.3d 1127 (2d Cir. 1995).
There would seem to be a significant adverse effect on the reasonable
privacy interests of Mrs. Levine, who is not a party to this matter and
is not, so far as appears, the subject of allegations that she somehow
participated in any alleged activities that might render her husband
subject to civil money penalties. Nor is there a basis for suspicion
advanced by Enforcement Counsel that she has served simply as a passive
conduit for the transfer of assets away from her husband. Rather, all
manner of financial information is sought with respect to
Mrs. Levine on the mere strength of the marital relationship, without more. As the McVane court stated, the family members resisting disclosure in that case were
named in the subpoena precisely because of their close relationships to the targets. But while close, the relationships at issue are wholly personal. A person does not involve him or herself in matters foreseeably the object of agency inquiry simply by being a member of another's family. Conjugal or familial association with a corporate participant does not, by itself, strip an individual of his or her expectation of privacy.
44 F.3d at 1138. Cf. FDIC v. Garner, 126 F. 3rd. 1138, 114445 (9th Cir. 1997) (Distinguishing McVane, court found FDIC subpoenas directed toward bank directors' family members were enforceable based on allegations of "familial dissipation" of assets).
Although McVane involved an administrative subpoena issued by the FDIC pursuant to 12 U.S.C. §1818(n) in connection with an investigation of former officers and directors of a failed bank, whereas the present case involves a discovery request issued during the pendency of an actual adjudicatory proceeding under 12 C.F.R. Part 308, that distinction lacks significance for these purposes. Indeed, if anything, a non-involved non-party family member's expectation of privacy vis-à-vis the targeted family member might be viewed as all the greater as the investigation gives way to formal adjudicatory process.
The Board also finds that Enforcement Counsel's reliance on a general protective order that would apply to any information discovered as to Respondent's wife as well as others is misplaced. Where there is no colorable basis for suggesting the non-party spouse was involved in alleged improper actions, or even just facilitated steps taken to conceal assets of the party spouse, a forced disclosure of financial and other information pertaining to the spouse before the eyes of third parties would itself constitute an invasion of privacy, even if subject to a protective order.
As noted above, this decision does not affect Respondent's obligation to divulge requested information that would encompass his wife's interests to the extent they are legally bound up with his own, as with joint bank accounts, joint tax returns and real property held in joint tenancy. When spouses decide to hold property in this fashion, they forgo individual privacy interests to the extent that either of them may become subject to legitimate enforcement scrutiny.
This decision also does not foreclose the possibility that Mrs. Levine might herself later become subject to more direct scrutiny, say, as a result of disclosures made by Respondent or evidence revealed through other sources that she was the recipient of transfers from him giving rise to a suspicion that she may have been at least a passive participant in concealing assets. For this reason, as in McVane, 44 F.3d at 1139, this disallowance of the request for production, insofar as it involves financial or other information pertaining to Mrs. Levine alone, is without prejudice to Enforcement Counsel's redrafting and appropriate narrowing of the provisions in question and/or submission of further evidence in support of enforcement on the original broad terms.
The ALJ'S Order, dated May 29, 2003, denying Respondent's motion to strike is reversed insofar as it relates to the production of information pertaining solely to Respondent's spouse.
Pursuant to delegated authority, upon the advice and recommendation of the Deputy General Counsel for Litigation.
Dated at Washington, D.C., this 17th day of July, 2003.
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