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FDIC Enforcement Decisions and Orders |
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Civil money penalties assessed against bank officers and directors for extending credit to themselves and their related interests in an amount exceeding five percent of the bank's capital and unimpaired surplus, and in the absence of advance approval of a majority of the disinterested members of the bank's board of directors. Higher penalties were assessed against those officers and directors who violated Regulation O by overdrawing their personal accounts with the bank.
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[.2] Directors Ratification of Prior Acts
[.3] Practice and ProcedureExpertise of Administrative Agencies
[.4] Regulation OApproval By Board of DirectorsCredits Exceeding Lending Limits
[.5] Civil Money PenaltiesAmount of PenaltyStatutory Standard
[.6] Civil Money PenaltiesAmount of PenaltyCorrectional Violation
[.8] DirectorsEffect of Experience in Banking
In the Matter of * * *, individually and
The Board of Review of the Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice") to the above Respondents on October 9, 1985. The Notice alleged that Respondents individually and as executive officers and/or directors of * * * Bank, * * * ("Bank"), each violated section 22(h) of the Federal Reserve Act (12 U.S.C. § 375b) and Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O") (12 C.F.R. Part 215), promulgated thereunder and made to apply to insured State nonmember banks by section 18(j)(2) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. § 1828(j)(2)) and section 337.3 of the FDIC Rules and Regulations (12 C.F.R. § 337.3). These violations occurred in connection with the Bank's extensions of credit to * * *, * * *, * * * and * * * and their related interests and in connection with overdrafts of the accounts of * * * and * * *. The FDIC assessed civil money penalties of $5,000 against Mr. * * *; $1,800 against Mr. * * *; and $1,000 each against the other Respondents. This matter was referred to Administrative Law Judge Edwin S. Bernstein ("ALJ") for hearing and recommended decision and a formal hearing was held on February 11, 1986.
ORDER TO PAY CIVIL MONEY
The Board of Directors of the Federal Deposit Insurance Corporation ("FDIC"), after taking into account the appropriateness of the penalties with respect to the financial resources and good faith of Respondents * * *, * * *, * * *, * * *, * * *, * * * * * *, and * * * the gravity of the violations, the history of previous violations, and such other matters as justice may require:
RECOMMENDED DECISION
The Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Assessment of Civil Money Penalties, Order to Pay, and Notice of Hearing against the above Respondents on October 9, 1985. The FDIC alleged that the * * * Bank, * * * ("the Bank") violated Regulation O of the Board of Governors of the Federal Reserve Board, 12 C.F.R. Part 215, in connection with its extensions of credit to * * *, * * *, * * * and * * * and their related interests and in connection with overdrafts of the accounts of * * * and * * *. The FDIC assessed civil money penalties of $5,000 against Mr. * * *; $1,800 against Mr. * * *; and $1,000 each against the other Respondents. This matter was referred to me for hearing and decision and a formal hearing was held on February 11, 1986, in * * *. The parties filed excellent proposed findings of fact, proposed conclusions of law, briefs, and reply briefs. All proposed findings, proposed conclusions and arguments have been considered. To the extent indicated, they have been adopted. Otherwise, they have been rejected as irrelevant or not supported by the evidence. Upon the entire record, I make the following findings of fact, conclusions of law and proposed order.
FINDINGS OF FACT
1. The Bank is a corporation existing and doing business under the laws of the State of * * *, having its principal place of business in * * *, and is an insured State nonmember bank subject to the Federal Deposit Insurance Act, 12 U.S.C. § 1811 et seq. ("the Act") (Admitted in para. 1 of Respondents' Answer).
(FDIC Ex. 3)
CONCLUSIONS OF LAW
1. The Bank's extensions of credit to * * * and his related interests on March 26, 1984 and September 10, 1984, violated section 215.4(b) of Regulation O and section 337.3(b) of the FDIC Rules and Regulations.
OPINION
The FDIC's assessment of civil money penalties is based upon two kinds of alleged violations: (1) extensions of credit by the bank to officers and directors in excess of permissible limits and (2) overdrafts of officers and directors accounts in the absence of a written overdraft agreement.
I. The Extensions of Credit
[.1] The prohibition against extensions of credit that exceed in the aggregate an amount determined by the appropriate federal agency, without prior board of directors' approval, is contained in section 22(h)(2) of the Federal Reserve Act, 12 U.S.C. 375b(2) and is implemented by section 215.4(b) of Regulation O which reads:
[.4] Because five percent of the Bank's capital and unimpaired surplus was less than $500,000, the Bank was required to obtain the prior approval of a majority of the disinterested members of the Bank's board of directors for any extensions of credit which, when aggregated with all other extensions of credit exceeded five percent of the Bank's capital and unimpaired surplus. During the relevant time period, five percent of the Bank's capital and unimpaired surplus never exceeded $124,000. Therefore, the extensions of credit herein violated the FDIC's regulations.
II. The Payment of Overdrafts
Respondents do not deny that the Bank paid overdrafts on the accounts of * * * and * * * in violation of section 215.4(d) of Regulation O.
III. Penalties
Section 18(j)(3)(A) of the Act provides that any officer or director of a non-member insured bank, who violates any provision of Sections 23A or 22(h) of the Act or any lawful regulations shall pay a civil money penalty of not more than $1,000 per day for each day during which such violation continues.
[.5] Section 18(j)(3)(B) of the Act provides the following guidelines for the assessment of penalties:
[.6] The factors favorable to Respondents are that Respondents took immediate corrective action, cooperated with the FDIC in correcting the problem, did not attempt to conceal the violations (although Respondents did not voluntarily disclose the violations); as acknowledged by the FDIC, there was no loss or risk of loss; Respondents made restitution in the form of interest paid by Mr. * * * and Mr. * * * for their overdrafts; and there were no previous violations by Respondents.
[.7,.8] Upon consideration of the foregoing, I find that the penalties assessed by the FDIC are appropriate and not excessive. In making this determination I have also considered the financial resources of Respondents. As indicated in FDIC Exh. 3, Mr. * * * had a net worth of over $500,000, Mr. * * * had a net worth of
{{4-1-90 p.A-975}}approximately $850,000 and the remaining Respondents had net worths of between approximately $149,000 and $900,000. With the exception of Mr. * * * and Mr. * * * , all Respondents were assessed penalties of $1,000. Larger penalties for Mr. * * * and Mr. * * * are justified because of their overdrafts. Additionally, as president of the Bank and an individual with extensive banking experience (Tr. 159), * * * carries a heavier burden for responsibility for knowing and complying with the laws and regulations. In view of the foregoing, the penalties assessed are appropriate to serve notice on Respondents of the importance of complying with the requirements of the Act and its regulations in order to prevent future violations.
PROPOSED ORDER
Based upon the foregoing findings of fact and conclusions of law, I recommend that the following order be entered by the FDIC's Board: |
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Last Updated 6/6/2003 | legal@fdic.gov |
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