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4000 - Advisory Opinions


Addition of Acquired Shares to Shares in Existing Voting Trust

FDIC-80-11

June 4, 1980

Pamela E. F. LeCren, Attorney

The following is in response to your May 9, 1980 letter to Irvine H. Sprague, Chairman of the FDIC, which has been forwarded to the Legal Division for reply. Specifically you request that the FDIC make a determination as to the legality under the Depository Institutions Management Interlocks Act (12 U.S.C. § 3201 et seq. "Interlocks Act") of a transaction in which 22 percent of the outstanding stock of *** will be acquired by *** and placed in a voting trust along with shares owned by *** bringing the total held by the voting trust to approximately 48 percent of the outstanding stock. Five trustees *** will vote the stock by majority vote. *** who is to be elected president of *** is currently serving as executive vice president and as director of *** ***. *** is president and a principal shareholder of ***. *** is President of ***. *** is located in the same Standard Metropolitan Statistical Area ("SMSA") as *** and ***.

The Interlocks Act and FDIC's regulations which implement it (12 C.F.R. Part 348) prohibit the same person from serving two depository institutions as a management official if the institutions are located in the same SMSA (unless both institutions have assets of less than $20 million). The FDIC fully explored whether or not the above described transaction and surrounding circumstances would result in a violation of the Interlocks Act while considering the change in control notice filed under section 7(j) of the Federal Deposit Insurance Act regarding ***. In reviewing the interlocks question, it was determined that *** could not serve *** as president while continuing to serve ***. He is expected, however, to terminate his association with *** upon accepting the position as president of ***.

It was also determined that a prohibited interlock would exist if *** or *** had a representative or nominee who was serving as a management official of ***. Section 348.2(h) of FDIC's regulations defines the term "management official" to include any person who has a representative or nominee serving in a management official position (i.e., director, officer or employee with management functions). Section 348.2(k) defines "respresentative or nominee" to mean a person who has an express or implied obligation to act on another's behalf. Certain listed relationships between persons may be evidence of such an obligation. There was no basis under section 348.2(k) to preliminarily find that *** would have a representative or nominee serving as a management official of ***. *** was tentatively identified as the representative or nominee of *** and his response was invited. Upon careful review of (1) a response on behalf of ***, (2) the circumstances surrounding *** association with ***, (3) *** qualifications and experience, (4) the relationship between *** and ***, and (5) the terms of the voting trust agreement, it was determined that *** would not be acting as *** representative or nominee.

We wish to point out that a director elected to office at *** by the trustees of the voting trust would not automatically be considered a representative or nominee of a person who is a management official of another depository institution merely because one or more of the trustees of the voting trust are management officials elsewhere. Section 348.2(k) recognizes that the ability, and exercise of ability, to elect a director may be evidence of a representative or nominee relationship. Other factors must be present, however, before the FDIC would find a representative or nominee relationship to exist. We have found none here.


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