{{4-30-04 p.A-3304}}
[¶5,278] In the Matter of Roque De La Fuente II, First International Bank, Chula
Vista, California, Docket No. 97-31e (2-17-04).
The FDIC issued an Order to Remove and Prohibit from Further
Participation against respondent Roque De La Fuente II. Respondent
appealed to United States Court of Appeals for the Ninth Circuit. The
Ninth Circuit remanded to the FDIC,
{{4-30-04 p.A-3305}}for consideration of certain legal
issues. Upon remand, the FDIC found the Order of Prohibition was
warranted against De La Fuente.
[.1] Regulation OProhibition and removal for violations of
[.2] Prohibition, Removal, or SuspensionEffects test, loss to bank
[.3] Prohibition, Removal, or SuspensionCulpability
[.4] Prohibition, Removal, or SuspensionMitigating factors
[.5] Statute of LimitationsRemoval proceedings
In the Matter of
ROQUE DE LA FUENTE II,
Individually and as an
institution-affiliated party of
FIRST INTERNATIONAL BANK
CHULA VISTA, CALIFORNIA
(Insured State Nonmember Bank)
DECISION AND ORDER TO PROHIBIT FROM FURTHER PARTICIPATION
FDIC-97-31e
This matter is before the Board of Directors ("Board") of
the Federal Deposit Insurance Corporation ("FDIC") on remand from
the United States Court of Appeals for the Ninth Circuit ("the Ninth
Circuit"), following its decision in Roque De La Fuente II v.
FDIC, 332 F.3d 1208 (9th Cir. 2003).
I. Procedural History
The remand followed the appeal by Roque De La Fuente II
("Respondent") of the Board's Decision and Order to Remove and
Prohibit From Further Participation ("Decision and Order") dated
November 21, 2000, and issued pursuant to section 8(e) of the Federal
Deposit Insurance Act ("FDI Act"), 12 U.S.C. §1818(e)
("section 8(e)"), removing Respondent from First International
Bank, Chula Vista, California ("Bank" or "FIB") and
prohibiting him from participating in the conduct of the affairs of any
insured depository institution. In the Matter of Roque De La
Fuente II, FDIC Enforcement Decisions and Orders,
¶5265, A-3180
(2000). The Board based its Decision and Order on evidence of loans
violating both section 23A of the Federal Reserve Act ("section
23A"), 12 U.S.C. §371c, and Regulation O of the Board of
Governors of the Federal Reserve System ("Regulation O"), 12
C.F.R. §215,1 and a pair of transactions involving
unsafe or unsound banking practices. The Board's Decision and Order
adopted a 116 page Recommended Decision issued by an Administrative Law
Judge ("ALJ") on March 24, 2000, following a hearing held between
April 20 and May 15, 1998. The violations centered around 14
transactions involving over $10 million in loans made to various
entities controlled by Respondent and his failure to reveal his
controlling interest. 2
In its June 18, 2003, Order, the Ninth Circuit concluded that
Respondent was not provided with the statutorily required notice and
hearing to determine whether he "controlled" the entities in
question pursuant to section 23A, and thus, the Board's Decision and
Order with respect to the section 23A violations was procedurally
flawed. At the same time, the Court sustained the Board's findings
that Respondent's misconduct violated Regulation O. Accordingly, the
Ninth Circuit remanded the case for a Board determination on the legal
question whether, in the absence of the section 23A violations, the
remaining regulatory violations by themselves justified imposition of a
lifetime prohibition. De La Fuente v. FDIC, 332 F.3d at
1219, 1227. The Ninth Circuit also ordered the Board to exercise its
discretion to determine whether to consider the statute of limitations
defenses Respondent raised for the first time on appeal. Id.
at 121920.
On August 12, 2003, the Ninth Circuit issued the mandate in the case,
returning jurisdiction to the Board. Upon remand, the Executive
Secretary of the FDIC, on August 27, 2003, issued an Order Requesting
Briefing on Remand ("Order on Remand") reopening
1 Section 23A and Regulation O are made
applicable to FDIC insured nonmember banks such as the one in this case
pursuant to 12 U.S.C. §§ 1828(j)(1) and (2).2 Citations to the administrative record shall
be as follows:
Findings of Fact in the Recommended Decision"R.D. FOF No. ____"
Respondent's Brief in Opposition to Order of Prohibition and
Removal"Opp. Brief at ____"
{{4-30-04 p.A-3306}}
the record to
enable consideration by the Board of the respective legal arguments
from Respondent and FDIC Enforcement Counsel ("Enforcement
Counsel") on whether the Regulation O violations affirmed by the
Ninth Circuit form an adequate basis for an Order of Prohibition under
section 8(e), and whether to consider the statute of limitations issues
raised for the first time before the Ninth Circuit. The Executive
Secretary directed that the parties submit briefs within 30 days of
service of the Order on Remand. Following the granting of Respondent's
request for an extension, both parties submitted briefs on December 3,
2003.
II. Factual Background3
The Ninth Circuit affirmed in large part the findings made by the
Board in the administrative proceeding. With respect to the matters on
remand, the Ninth Circuit affirmed the Board's findings that
Respondent engaged in multiple Regulation O violations and also
affirmed the Board's findings that Respondent arranged and benefited
from two dealsa collateral substitution transaction ("collateral
substitution transaction") and a transaction involving a Bank loan
to Parking Company of America ("PCA"). Id. at 1218,
122126. The Ninth Circuit further found that the collateral
substitution and PCA transactions each included the three
elementsmisconduct, culpability and effectsnecessary to support
removal under section 8(e). Id. at 122226.
Specifically regarding the Regulation O charges, the Court agreed with
the Board's findings that Respondent4 controlled loan
recipients Rancho Vista del Mar ("RVDM"), National Enterprises,
Inc. ("NEI") and Fine Particle Technology Corporation
("FPTC") for purposes of Regulation O.5 De La
Fuente v. FDIC, 332 F.3d at 121618. The Ninth Circuit also
concluded that Respondent between July 15, 1992, and December 28, 1995,
violated the provisions of Regulation O6 with respect to
eight loans totaling $6,863,000 made by the Bank to RVDM, NEI, FPTC and
C.T. Produce.7 Id. at 121516.
In the collateral substitution transaction, Respondent, during 1994,
engineered a complex scheme involving several of his related interests
which resulted in substituting inferior collateral to secure the
Bank's $1.6 million loans to his related company, RVDM. The substitute
collateral was other RVDM real property on which the Bank already had a
secondary lien. As a result of the substitution, Respondent profited
from the sale of the original collateral (320 acres of California real
estate) at the Bank's expense. Id. at 122124. Respondent
was able to arrange the Bank board's approval of the transaction by
failing to disclose certain critical facts to the Bank's board
members. For example, he failed to correct the Bank board's mistaken
impression that the owner of the original collateral (a related
interest of Respondent) was in bankruptcy proceedings, and thereby led
the board to believe that it would be beneficial for the Bank to divest
itself of that property. Respondent also failed to inform the Bank
board that RVDM was delinquent on the loan at issue and subject to
foreclosure proceedings by another bank. Finally, Respondent failed to correct
the Bank board's mistaken assumption that the original collateral had
marketability issues because of environmental problems.
Id. at 1221. After the substitute transaction was approved,
RVDM defaulted on its loan causing the Bank to lose more than $700,000.
Id. at 1221.
3 The facts of this proceeding are detailed in
the Board's Decision and Order and in the opinion of the Court of
Appeals for the Ninth Circuit. See In the Matter of Roque De La
Fuente II,
¶5265, A-3180 and De La Fuente v. FDIC,
332 F.3d 1208. Therefore, the Board will summarize here only the facts
necessary to explain its decision on remand.
4 Respondent was, during the relevant time
period, the majority shareholder and a director of the Bank. He was
chairman of the Bank's board of directors from 1987 to 1993. In
the Matter of Roque De La Fuente II,
¶5265, A-3182.
5 Regulation O places limits on loans to an
"insider." 12 C.F.R. §215.4(d)(1). An "insider" includes
any "related interest[s] of that individual." 12 C.F.R.
§215.2(h). A "related interest" is an entity
"controlled" by the insider. 12 C.F.R. §215.2(n)(1).
"Control" of an entity requires that the insider have either
direct or indirect control of 25 percent of the voting securities, the
power to elect a majority of the directors, or otherwise have power to
"exercise a controlling influence." 12 C.F.R. §215.2(c).
6 The Ninth Circuit also found that
four additional loans made by the Bank prior to June 11, 1992, were in violation
of Regulation O but fell outside the five-year statute of limitations
established by 28 U.S.C. §2462. (The FDIC commenced this
action against Respondent on June 11, 1997). The Ninth Circuit
recognized, however, that the Board might on remand consider evidence
as to whether the statute should be tolled as a result of Respondent's
fraud or concealment. Id. at 121920.
7 With regard to the C.T. Produce loan (made
on December 18, 1995 in the amount of $200,000, the ALJ found and the
Board affirmed that because the proceeds were used to fund a joint
venture between NEI (an entity controlled by Respondent) and C.T.
Produce, the loans were for the indirect benefit of a related interest
and thus, subject to Regulation O. In the Matter of Roque De La
Fuente II,
¶5265, A-3186, A-3190, A-3202, R.D. FOF 61, 66, 79,
304, 33132, 371, 377. The Ninth Circuit agreed with the Board's
Regulation O analysis. De La Fuente v. FDIC, 332 F.3d at
1218.
{{4-30-04 p.A-3307}}
In the PCA transaction, which occurred in 1995, Respondent, as part of
an effort to conceal and forestall recognition of Bank losses on a
$560,000 loan made to PCA, misled FDIC examiners and arranged for a
non-qualified employee to assume the loan. As a result of Respondent's
conduct, FDIC examiners did not uncover the true negative status of the
loan, and Respondent was relieved of his obligation to infuse capital
into the Bank. Id. at 122426.
III. Discussion
A. A Section 8(e) Prohibition is Warranted
Removal proceedings under section 8(e) require the establishment
of three elements: (1) that the Respondent engaged in prohibited
conduct (misconduct); (2) the effect of which was to cause the Bank to
suffer financial loss or damage, to prejudice or potentially prejudice
the Bank's depositors, or to provide financial gain or other benefit
to the Respondent (effects); and (3) that such misconduct evidences
personal dishonesty or a willful or continuing disregard for the safety
and soundness of the Bank (culpability). Id. at 1222;
Seidman v. Office of Thrift Supervision, 37 F.3d 911, 929
(3rd Cir. 1994); In the Matter of James L. Leuthe, FDIC
Enforcement Decisions and Orders, ¶5249, A-2915, A-29612963
(1998), 1998 WL 438323, at *11, aff'd. 194 F.3d 174 (D.C.
Cir. 1999). As discussed below, the Board finds that Respondent's
activities during the period July 1992 through December 1995 plainly
satisfy the three standards necessary to impose a prohibition under
section 8(e).
[.1]1. Misconduct
Misconduct under section 8(e) encompasses violations of law and
regulation as well as participation in activity deemed to be an unsafe
or unsound banking practice or in breach of a party's fiduciary duty.
12 U.S.C. §1818(e)(1)(A). The FDIC has interpreted "violations of
law" as including violations of state lending or credit
concentration restrictions as well as credit extended in violation of
Regulation O. See In the Matter of Charles Watts, FDIC Enforcement
Decision and Orders,
¶5267, A-3247(2002); 2002 WL
*31259465.
Regulation O governs the permissible lending relationships
between a financial institution and its executive officers, directors,
principal shareholders and their related interests. Regulation O
prohibits a bank from making an extension of credit to one of the
above-described categories of persons and related interests unless the
extension of credit falls within limits permitted by the regulations.
As a majority shareholder and a director of the Bank, Respondent
was an insider under Regulation O. 12 C.F.R. §215.2(h). For purposes
of Regulation O, any transaction whereby an insider becomes obligated
either directly or indirectly to pay money to his or her bank is an
extension of credit to that insider. Regulation O provides that an
extension of credit is considered to be made to an insider to the
extent that the proceeds are transferred to the insider or are used for
the tangible economic benefit of the insider. 12 C.F.R. §215.3(f).
Respondent's multiple violations of Regulation O are well established
by the record. The Ninth Circuit specifically affirmed the Board's
conclusion that Respondent violated the provisions of Regulation O with
respect to eight loans made by the Bank to Respondent, RVDM, NEI, FPTC
and C.T. Produce.8 De La Fuente v. FDIC, 332
F.3d at 1218. Respondent's Regulation O violations are described as
follows:
1. A July 15, 1992, loan in the amount of $1.6 million to RVDM,
which exceeded the Bank's lending limit of $976,000;
2. A September 9, 1992, loan in the amount of $800,000 to Respondent,
which combined with the $1.6 million loan to RVDM exceeded the Bank's
lending limit of $976,000;9
8 Although the Ninth Circuit affirmed the
Board's findings that all twelve of the cited loans violated
Regulation O (see 332 F.3d at 1218), the Board excludes from
this analysis the four Regulation O violations which occurred prior to
June 11, 1992. As discussed further herein, because these transactions
on their face occurred outside the statute of limitations established
under 28 U.S.C. §2462and absent the application of tolling
doctrines which the Board declines to considerthey are not considered
among the bases for Respondent's removal under section 8(e).
9 Respondent, without citing any legal
authority in support of his position, suggests that the July and
September 1992 extensions of credit cannot serve as bases for his
removal because the actual amount of credit extended in July 1992 was
$800,000an amount which did not in and of itself exceed the $976,000
lending limit but only reached the $1.6 million cited amount when
combined with previous extensions of credit made outside the statute of
limitations period on the same line of credit. Opp. Brief at 1314.
Respondent's contention is without merit. Regulation O by its own
terms prohibits loans to bank insiders "in an amount that when
aggregated with the amount of all other extensions of credit
by the member bank to that person and to all related interests of that
person exceeds the lending limit of the member bank as specified in
§215.2(l)." 12 C.F.R. §215.4(c). As such, it is proper to find
violations based on an aggregation of loan amounts regardless of when
the loans were originated. See, e.g., Fitzpatrick v. FDIC,
765 F.2d 569, 572 (6th Cir. 1984). Thus, regardless of when these
transactions originated, so long as the lending limit violations
occurred within the statutory periodwhich they clearly didthese
loans may serve as bases for Respondent's removal. To accept
Respondent's reasoning would severely undermine the concept of
aggregation and create a clearly unintended loophole which would permit
bank insiders to structure loans in such a way as to render meaningless
the spirit of Regulation O.
{{4-30-04 p.A-3308}}
3. A July 20, 1995, loan in the amount of $763,000 to FPTC, which
combined with an outstanding balance of $800,000 on the loan to RVDM
and/or the September 9, 1992, $800,000 loan to Respondent exceeded
the Bank's lending limit of $814,000;
4. An August 11, 1995, loan in the amount of $1,350,000 to FPTC, which
alone and/or combined with the $800,000 balance on the RVDM loan and/or
the $800,000 loan to Respondent exceeded the Bank's lending limit of
$814,000;
5. An October 27, 1995, loan in the amount of $750,000 to NEI, which
combined with the $800,000 balance on the RVDM loan exceeded the
Bank's lending limit of $854,000;
6. A November 8, 1995, loan in the amount of $600,000 to FPTC, which
combined with the $800,000 balance on the RVDM loan and/or the $750,000
loan to NEI exceeded the Bank's lending limit of $854,000;
7. A December 18, 1995, loan in the amount of $200,000 to C.T. Produce,
which combined with the $800,000 balance on the RVDM loan, the $600,000
loan to FPTC and/or the $750,000 loan to NEI exceeded the Bank's
lending limit of $854,000; and
8. A December 28, 1995, loan in the amount of $800,000 to FPTC, which
combined with the $800,000 balance on the RVDM loan, the $600,000 loan
to FPTC, the $750,000 loan to NEI and/or the $200,000 loan to C.T.
Produce exceeded the Bank's lending limit of $854,000.
Id. at 121516; R.D. FOF Nos. 351372.
In addition to Respondent's misconduct in the form of Regulation
O violations, Respondent's wrongdoing in connection with the
collateral substitution and PCA transactions is also well documented.
See De La Fuente v. FDIC, 332 F.3d at 122126. The Ninth
Circuit affirmed the Board's findings that Respondent's activities in
connection with the collateral substitution and PCA transactions
amounted to unsafe or unsound banking practices which demonstrate
misconduct under section 8(e). De La Fuente v. FDIC, 332
F.3d at 1222, 1224; see also Simpson v. Office of Thrift
Supervision, 29 F.3d 1418, 1425 (9th Cir. 1994) (An unsafe
practice is "one which is contrary to generally accepted standards
of prudent operation, the possible consequences of which, if continued,
would be abnormal risk or loss or damage to an institution, its
shareholders, or the agencies administering the insurance funds and
that it is a practice which has a reasonably direct effect on an
association's financial soundness."). The Ninth Circuit also
affirmed the Board's findings that Respondent's participation in the
collateral substitution transaction was in breach of his fiduciary duty
to the Bank and, as such, also constituted misconduct under section
8(e). De La Fuente v. FDIC, 332 F.3d at 1222. See,
e.g., Seidman v. Office of Thrift Supervision, 37 F.3d 911 at 935
n.34 ("A fiduciary's duty of candor is encompassed within the duty
of loyalty. The duty of candor requires corporate fiduciaries to
disclose all material relevant to corporate decisions from which they
may derive a personal benefit."). Thus, as shown, Respondent's
activities in connection with the Regulation O violations that occurred
after June 11, 1992, as well as his involvement in the collateral
substitution and PCA transactions amount to ten instances of misconduct
as contemplated by section 8(e).
[.2]2. Effects
The record also establishes satisfaction of the "effects"
test. As a direct result of the Regulation O violations, Respondent and
his related interests benefited by more than $5 million. R.D. FOF
319401.10 A loan made
10 This analysis excludes benefits to
Respondent and his related entities incurred prior to June 11, 1992.
{{4-30-04 p.A-3309}}
in violation of law to an
institution-affiliated party or his related interest, like those to
Respondent, has been held to be a benefit in and of itself.
See Leuthe
¶5249, A-2929, 1998 WL 438323, at
*15; In the Matter of Wayne Lowe, FDIC Enforcement Decisions and Orders,
¶5153, A-1537 (1990), 1990 WL 711070, at *8,
aff'd, 958 F.2d 1526 (11th Cir. 1992). Thus, each of the
eight loans made to Respondent or his related interests in violation of
Regulation O resulted in a gain or benefit to Respondent for purposes
of section 8(e).11 Id. Moreover, the Ninth
Circuit affirmed the Board's finding that Respondent's orchestration
of the collateral substitution transaction met the "effects" test
established under section 8(e) and found that his involvement in the
deal not only caused him to benefit from the sale of the original
property but also caused the Bank to suffer losses of more than
$700,000. De La Fuente v. FDIC, 332 F.3d at 122123.
Finally, the Ninth Circuit affirmed the Board's conclusion that
Respondent's misrepresentation in connection with the PCA transaction
spared him from having to make a capital contribution to the Bank.
Id. at 122526. Thus, although it is unnecessary to
establish both alternatives under the section 8(e) "effects"
requirement, the findings in this case demonstrate both a benefit to
Respondent as well as a loss to the Bank. See id. at 1226.
[.3]3. Culpability
The term "personal dishonesty" as it is used in section 8(e)
has been held to mean "a disposition to lie, cheat, defraud,
misrepresent, or deceive. It also includes a lack of
straightforwardness and a lack of integrity." In the Matter of
Allan Hutensky, FDIC Enforcement Decisions and Orders,
¶5224,
A-2566 (1995), 1994 WL 812351 at *26, aff'd. 82 F.3d 1234
(2nd Cir. 1996). The Board finds, as it did in the earlier Decision and
Order adopting the ALJ's Recommended Decision, that Respondent engaged
in many instances of deceitful behavior. As found by the ALJ,
Respondent deliberately concealed from the Bank his control over
certain entities and engaged in other dishonest conduct which resulted
in the Regulation O violations and the misconduct involved in the
collateral substitution and PCA transactions. In the Matter of
Roque De La Fuente II,
¶5265, A-3208, A-3209.
The Board finds too that Respondent's conduct demonstrates "willful
or continuing disregard." Although proof of either willful or
continuing disregard is enough to meet the culpability threshold for
purposes of section 8(e) of the FDI Act, in this case Respondent's
conduct was sufficiently egregious to meet both tests. See, e.g.,
Brickner v. FDIC, 747 F.2d 1198, 12021203 (8th Cir. 1984).
"`Willful disregard' means `deliberate conduct which
exposed the bank to abnormal risk of loss or harm contrary to prudent
banking practices.'" De La Fuente v. FDIC, 332
F.3d at 1223, quoting Grubb v. FDIC, 34 F.3d 956, 96162
(10th Cir. 1994). In this case, Respondent took deliberate
stepsincluding knowingly misrepresenting facts to the Bank's board
and to FDIC examinersto conceal his related interests and, in so
doing, benefited from the Regulation O violations. As for the
collateral substitution and PCA transactions, the Ninth Circuit
specifically affirmed the Board's conclusion that Respondent's
actions in both instances evidenced personal dishonesty and, therefore,
satisfied the "culpability" requirement under section 8(e).
De La Fuente v. FDIC, 332 F.3d at 122324, 1226.
"Continuing disregard" refers to that conduct which is
voluntarily engaged in over time, with heedless indifferences to the
possible consequences. Grubb v. FDIC, 34 F.3d at 962;
In the Matter of Henry P. Massey, FDIC Enforcement Decisions and Orders
¶5204, A-2330 (1993), 1993 WL 853749 at *21; In the
Matter of Constance C. Cirino, FDIC Enforcement Decision and Orders,
¶5261, A-3166 (2000), 2000 WL 1131919, at *5354. The Board
finds that Respondent's conduct exemplifies the "willful or
continuing disregard" standard. On eight
11 Respondent, in his Opposition Brief, argues
that many of the transactions in question did not ultimately result in
a financial benefit to himself or his related entities and, in certain
instances, benefited the Bank. See, e.g. Opp. Brief. at
1519, 2325, 3134. Regardless of whether Respondent's statements
on this point are factually correct, his argument is unpersuasive for
purposes of this analysis because, as noted, the fact that he was able
to obtain loans to his related interests without regard to regulatory
limitations was enough of a benefit to satisfy the "effects" test
under section 8(e). As the Board noted in Leuthe, "[i]t
has been a substantial benefit to Respondent to be able to go
repeatedly to the till for funds, without ever giving a thought to
lending limit restrictions, approval requirements, collateral
requirements, reporting requirements and other statutory and regulatory
requirements created to protect depositors from just these abuses."
1998 WL 438323, at *17.
¶5249,
A-2931A-2932.
{{4-30-04 p.A-3310}}
occasions over a three
and a half year period, Respondent deliberately violated Regulation O.
See, e.g., In the Matter of Ramon M. Candelaria, FDIC Enforcement
Decisions and Orders,
¶5242, A-2842 (1997), 1997 WL
211341, at *6 ("continuing disregard" found by two nominee
loans over a period of six months); In the Matter of Frank E.
Jameson, FDIC Enforcement Decisions and Orders,
¶5154A,
A-15411542.1, 1542.6 (1990), 1990 WL 711218, at *8,
aff'd. 931 F.2d 290 (5th Cir. 1991) (two incidents of
falsifying loan records to hide self-serving transactions occurring
within three months held to be "continuing disregard"). In
addition to our finding here that Respondent acted culpably with
respect to the Regulation O violations, the Ninth Circuit affirmed the
Board's findings in the Decision and Order that Respondent's
participation in the collateral substitution transaction evidenced
willful and continuing disregard for the safety and soundness of the
Bank and, thus, demonstrated "culpability" pursuant to
section 8(e). De La Fuente v. FDIC, 332 F.3d at 1223.
[.4]B. Mitigating Factors
Respondent, citing mitigating factors, urges that the Board
consider lesser sanctions such as imposing lending restrictions and
requiring that he attend remedial courses. Opp. Brief at 3544. While
Respondent's active participation in local civic and business
organizations is laudable, these factors do not touch on the issue of
his fitness to serve in a regulated industry. Moreover, each of the
additional arguments offered by Respondent in favor of mitigation is
equally unpersuasive and can be dismissed summarily. For example,
Respondent's claim that each of the transactions was approved by
disinterested persons (i.e., the Bank's board) is particularly
disingenuous as the facts clearly show that, for many of the
transactions, Respondent withheld critical information from the board
regarding his control over the loan recipients. Likewise, his argument
regarding the FDIC's prior review of some of the transactions has
already been discounted by the Ninth Circuit. De La Fuente v.
FDIC, 332 F.3d at 1220. Moreover, the Board disputes Respondent's
claim that he received only minimal benefits as a result of the
violations because, regardless of how much or how little he personally
profited, Respondent, by placing himself above the law, created an
environment where he was in the advantageous but improper position of
having ready funds at his disposal for himself and his related
entities. Finally, Respondent's claim that he has been punished enough
by having been barred from the Bank for three years is not persuasive
because, although a respondent may experience adverse effects as the
result of being the subject of a section 8(e) proceeding, the statute
was designed as a remedial measure to "protect the banking industry
from the predatory behavior of bank insiders." In the Matter
of Hutensky, FDIC Enforcement Decisions and Orders,
¶5243, at
A-2854 (1997), 1997 WL 557612, at *2.12
Contrary to what Respondent would have the Board believe, his
violations were not merely minor technical infractions. Rather, his
conduct was deliberate and unremitting, and as such, threatened the
Bank and its depositors. There is no room in the banking industry for
individuals committing such misconduct. As the Board noted in
Hutensky after remand by the Second Circuit:13
"Declining to issue an order to prohibition or limiting it in any
manner would weaken the statutory agencies in protecting the public
interest, and with respect to the FDIC, the viability of the Bank
Insurance Fund, by lessening the deterrent effect of agency enforcement
actions." In the Matter of Hutensky,
¶5243, at A-2854,
1997 WL 557612, at *2. (Prohibition order issued upon finding that two
loans violated Regulation O). See also, In the Matter of Ronald
Grubb, FDIC Enforcement Decisions and Orders,
¶5181, A-2006
(1992), 1992 WL 813163, aff'd. Grubb v. FDIC, 34 F.3d 956
(10th Cir. 1994) (Prohibition order issued based on respondent's
numerous extensions of credit for his related interests.); In the
Matter of Stoller, FDIC Enforcement Decisions and Orders,
¶5174, A-1865 (1992), 1991 WL 789616 (Prohibition order issued based
on finding that respondent obtained 11 loans for related interests in
violations of Regulation O).
12 The Board's view regarding the remedial
purpose of the statute is consistent with the D.C. Circuit Court of
Appeals' ruling in Proffitt v. FDIC, 200 F.3d 855 (D.C.
Cir. 2000),discussed in further detail belowthat a removal under
section 8(e) constitutes a penalty for purposes of the limitation
period established under 28 U.S.C. §2462. As the Court found in
Proffitt, "the FDIC's expulsion of Proffitt from the
banking industry had the dual effect of protecting the public from a
dishonest banker and punishing Proffitt for his misconduct . . . ' Id. at 861.
13 Hutensky v. FDIC, 82 F.3d 1234
(2nd Cir. 1996).
{{8-31-04 p.A-3311}}
[.5]C. Statute of Limitations Issue
On January 21, 2000, shortly before the Recommended Decision was
issued in this matter, the District of Columbia Circuit Court of
Appeals ruled in Proffitt v. FDIC, 200 F.3d 855, 86062
(D.C. Cir. 2000), that an action under section 8(e) of the FDI Act
imposes a penalty and, therefore, triggers the five-year statute of
limitations of 28 U.S.C. § 2462. Before Proffittand at
the time the Notice in this case was issued on June 11, 1997the FDIC
took the position that 28 U.S.C. §2462 was not applicable to section
8(e) proceedings.
The Ninth Circuit noted that as a result of Proffitt, a
statute of limitations defense would be applicable to each of the four
transactions in this case that occurred prior to June 11, 1992. But
because Respondent raised the defense only as to a 1990 loan, the Ninth
Circuit disallowed only that one transaction. De La Fuente v.
FDIC, 322 F.3d at 1219. Although the Ninth Circuit indicated that
the three other loans cited in the original Decision and Order which
were made prior to June 11, 1992, might be barred as well, it invited
the FDIC to exercise its discretion to consider on remand the argument
"that the statute of limitations should be equitably tolled to these
other loans due to De La Fuente's fraud or concealment."
Id. at 121920. Because the Board finds that the eight
Regulation O violations which occurred after June 11, 1992, along with
the collateral substitution and PCA transactions (both of which
occurred after June 11, 1992), form more than a sufficient basis to
remove Respondent pursuant to section 8(e), the Board finds it
unnecessary to consider the statute of limitations issue and declines
to do so in this matter.
IV. Conclusion
After a thorough review of the record in this proceeding,
including the Ninth Circuit's decision in De La Fuente v.
FDIC, the Board, for the reasons set forth above, finds that an
Order of Prohibition is warranted against Respondent. In this case, the
record plainly shows that on eight occasions Respondentin addition to
profiting at the Bank's expense by engineering the collateral
substitution transaction and the PCA transactionengaged in a series
of self-dealing transactions which resulted in violations of Regulation
O. Because he deliberately concealed from the Bank's board and the
FDIC his control over the entities involved in the transactions,
Respondent was able to continue his misconduct over a period of more
than three years.
Although the Ninth Circuit remanded this case to the Board for
consideration of certain legal issues (which have been resolved
herein), the Court by no means suggested (as does Respondent in his
pleadings) that Respondent was an innocent businessman caught up in a
bureaucratic morass created by heavy-handed regulators. On the
contrary, the Ninth Circuit was unequivocal in its view that Respondent
acted in his own self-interest at the expense of the Bank and other
interested parties: "We also cannot help but note that De La
Fuente's use of FIB as his personal piggy bank was in shocking
disregard of sound banking practices and the law to the detriment of
depositors, shareholders, and the public." De La Fuente v.
FDIC, 332 F.3d at 122627. In view of Respondent's continuing
misconduct and, in particular, his purposeful dishonesty, the Board
concludes that Respondent must be permanently barred from the banking
industry.
ORDER OF REMOVAL AND PROHIBITION
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:
1. Roque De La Fuente II is hereby removed from First International
Bank, Chula Vista, California.
2. Roque De La Fuente II shall not participate in any manner in any
conduct of the affairs of any insured depository institution, agency or
organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C.
§1818(e)(7)(A), without the prior written consent of the FDIC and
the appropriate federal financial institutions regulatory agency as
that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C.
§1818(e)(7)(D).
3. Roque De La Fuente II shall not solicit, procure, transfer, attempt
to transfer, vote, or attempt to vote any proxy, consent or
authorization with respect to any voting rights in any financial
institution, agency, or organization enumerated in section 8(e)(7)(A)
of the FDI Act, 12 U.S.C. §1818(e)(7)(A), without the prior written
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consent of the FDIC and the appropriate federal financial institutions
regulatory agency, as that term is defined in section 8(e)(7)(D) of the
FDI Act, 12 U.S.C. §1818(e)(7)(D).
4. Roque De La Fuente II shall not violate any voting agreement with
respect to any insured depository institution, agency, or organization
enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C.
§1818(e)(7)(A), without the prior written consent of the FDIC and
the appropriate federal financial institutions regulatory agency, as
that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C.
§1818(e)(7)(D).
5. Roque De La Fuente II shall not vote for a director, or serve or act
as an institution-affiliated party, as that term is defined in section
3(u) of the FDI Act, 12 U.S.C. §1813(u), of any insured depository
institution, agency, or organization enumerated in section 8(e)(7)(A)
of the FDI Act, 12 U.S.C. §1818(e)(7)(A), without the prior written
consent of the FDIC and the appropriate federal financial institutions
regulatory agency, as that term is defined in section 8(e)(7)(D) of the
FDI Act, 12 U.S.C. §1818(e)(7)(D).
Inasmuch as this ORDER is identical to the Order issued by the
FDIC Board of Directors on November 21, 2000, and that Order remains in
full force and effect, this ORDER shall be effective immediately.
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.
IT IS FURTHER ORDERED that copies of this Decision and Order shall be
served on counsel for the parties, the ALJ, the U.S. Court of Appeals
for the Ninth Circuit, and the Commissioner of Financial Institutions
for the State of California.
By direction of the Board of Directors.
Dated at Washington, D.C. this 17th day of February, 2004.