Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders |
|||
FDIC Enforcement Decisions and Orders |
|
FDIC denied an application for approval of employment under Section 32 of the Federal Deposit Insurance Act. FDIC found that Applicant lacked the competence, experience, character or integrity required by law for employment as Bank's chairman and chief executive officer and that Applicant's employment in such positions would not serve the best interests of Bank or the public.
[.1] Practice and ProcedureExceptions to Recommended DecisionFederal Deposit Insurance Act §32
[.2] Federal Deposit Insurance Act §32Constitutionality
[.3] Federal Deposit Insurance Act §32Scope of Proceeding
[.4] Practice and ProcedureBurden of ProofFederal Deposit Insurance Act §32
{{2-28-91 p.A-1593}}
This proceeding arises out of an application dated February 27, 1990 ("Application"), by David W. Mann ("Applicant" or "Mann") submitted to the Dallas Regional Office under section 32(a) of the Federal Deposit Insurance Act ("the FDI Act"), 12 U.S.C. § 1831i, seeking approval to be employed as chairman of the board and chief executive officer of the First State Bank of Marlin, Marlin, Texas ("Marlin"), a troubled institution. The Dallas Regional Office of the Federal Deposit Insurance Corporation's ("FDIC") Division of Supervision disapproved the Application on April 16, 1990, based on a determination that Mann lacked the statutory prerequisites to become a senior official of Marlin. On June 28, 1990, the Director of the FDIC's Division of Supervision ("Director") denied the Applicant's appeal from the Regional Director's disapproval.
[.1] After a review of the entire record of this proceeding, the Board of Directors ("Board") of the FDIC adopts and incorporates herein by reference the Presiding Officer's Recommended Decision, without modification, and denies Applicant's section 32 Application.1
A. Application
On February 27, 1990, a Notification of Addition of a Director or Employment as a Senior Executive Officer was submitted to the FDIC Dallas Regional Office by David W. Mann seeking approval for his employment as chairman of the board and chief executive officer of the First State Bank of Marlin.2 The FDIC's Dallas Regional Director ("Regional Director") disapproved the Application on April 16, 1990, based on a review of the Applicant's competence, experience, fitness of character and integrity under section 32(e). The Regional Director advised the Applicant that regulatory reports indicated that the Applicant had participated in undesirable and/or objectionable practices detrimental to the financial institutions with which he had previously been associated.3
B. Appeal
The Applicant appealed the determination of the Regional Director on May 29, 1990, seeking to refute the factual findings and conclusions for each of the transactions outlined in the Regional Director's letter of May 7. The Director denied the appeal on June 28, 1990, again on the basis of unfavorable findings with respect to the Applicant's competence, experience, character and integrity such that his service as a senior executive officer of Marlin would not be in the best interest of either the depositors of Marlin or the public. The denial also cited inherent conflicts of interest that might exist due to the Applicant's positions with related financial institutions and business enterprises and the Applicant's lack of the specialized expertise necessary to address the problems of Marlin.
C. Hearing
At the Applicant's request, a hearing under Part 308 of the FDIC's Rules and Regulations was held in Waco, Texas, on August 29, 30, and 31, 1990. Eight witnesses testified, including the Applicant. Approximately one thousand pages of testimony were compiled, and a large number of exhibits were received. The main briefs of the parties were received on October 12 and the reply briefs on October 26, 1990. On November 9, 1990, the Presiding Officer issued his recommendation affirming the June 28, 1990, denial of the Appeal of the Notice of Disapproval of David W. Mann as Chairman of the Board and Chief Executive Officer of the First State Bank of Marlin.
D. The Presiding Officer's Recommended Decision
In a thorough and well-reasoned analysis of the testimony and documentary evidence presented by FDIC Enforcement Counsel and the Applicant, the Presiding Officer concluded that on the basis of Mr. Mann's record at other financial institutions and affiliated entities, the Division of Supervision was fully justified in denying approval for him to serve as chairman of the board and chief executive officer of Marlin. In reaching his decision, the Presiding Officer considered the evidence presented by FDIC Enforcement Counsel and the Applicant with regard to four transactions by banks at which Applicant was a director where his inaction was alleged to demonstrate his lack of competence, experience, character and integrity:
This is the first appeal from the denial of a section 32 application to come before the Board since the passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Based upon a thorough review of the testimony, the documentary evidence, the briefs and arguments of the parties and the Presiding Officer's Recommended Decision, we agree with the Presiding Officer's findings of fact and conclusions of law. The Board, therefore, adopts the Presiding Officer's Recommended Decision.
The Applicant contended that section 32 of the FDI Act, 12 U.S.C. § 1831i, is void for vagueness and overbreadth, and that he was denied procedural due process due to alleged inadequate notice of the reasons for denial of the Application. The Presiding Officer ruled that he lacked subject matter jurisdiction over constitutional claims and dismissed the motion without prejudice so the Applicant could bring the issue before a court of competent jurisdiction following exhaustion of his administrative remedies.9
[.2] Statutes regulating business behavior are held to a less strict vagueness test. Village of Hoffman Estates v. Flipside, Hoffman Estates, 455 U.S. 489, 499 (1982). A law regulating business behavior which does not restrict constitutionally protected conduct is not void for vagueness if it is sufficiently clear as applied to the conduct of the complaining party. Id. at 500. The Board finds that section 32 is not vague, as it is designed to give the banking agencies the flexibility and discretion to utilize their expertise in screening senior officials who seek to serve in institutions that are troubled, newly chartered, or have recently changed control. The Board has reviewed the statutory language and the criteria employed by the Regional Director in assessing the Application and finds no constitutional defect in the application of the statute.
[.3] The Applicant's motion to limit the scope of the proceeding was also based on his argument that the statute and the regulations set forth a "vague, general standard, leaving the determination of such wholly within the subjective discretion of the FDIC ..." and are thus "void for vagueness and overbreadth." Motion to Limit Scope of Proceedings at 4. The Board has reviewed the considerations used by the Regional Director to satisfy the statutory criteria and finds that the Regional Director employed standards which were considered in light of the risks
[.4] Finally, the Board also finds that the preponderance of the evidence standard is appropriate in reviewing a section 32 application and adopts the Presiding Officer's Recommended Decision with respect to this standard. See, e.g., Herman & McLean v. Huddleston, 459 U.S. 375 (1983).
Section 32 is a regulatory tool by which the FDIC may further the safety and soundness of insured depository institutions by screening those persons who seek to manage the affairs of institutions that have been newly chartered, have recently changed control and/or are in a troubled condition. The senior officials of a troubled institution need to be persons with demonstrable records of proactive management. The Applicant's record demonstrates a pattern of reactive management, taking corrective action only after apparent violations are reported and penalties threatened. In each of the transactions cited, the Applicant could and should have known of the apparent violations and conflicts of interest either at their inception or after assuming the duties of a senior officer. The record demonstrates that the Applicant failed to take action to protect the interests of the banks which he served, particularly when those interests conflicted with his own. The chief executive officer of a troubled institution must recognize potential regulatory violations and conflicts and steer the institution clear of such hazards.
ORDER
The Board of Directors of the Federal Deposit Insurance Corporation, having considered the entire record in this proceeding, hereby adopts the recommendation of the Presiding Officer to deny the appeal of David W. Mann.
In the Matter of
Background
On February 27, 1990, a Notification of Addition of a Director or Employment of a Senior Executive Officer was submitted to the FDIC by Chairman of the Board and Chief Executive Officer of the First State Bank of Marlin, Marlin, Texas.
Appeal of David W. Mann
On May 29, 1990, David W. Mann appealed the determination of the Dallas Regional Director. In a detailed submission accompanied by extensive documentation (Rx 1), Mr. Mann took issue with the facts and conclusions of the Regional Director's letter of May 7, 1990. In summary, without repeating every argument or assertion of fact, David W. Mann through counsel took up each of the items or transactions recited by the Regional Office and sought to refute the facts relied on and the inferences drawn. Mr. Mann's contentions were again made at the hearing and will be clear from discussion later in this recommendation.
{{5-31-92 p.A-1598}}
On June 28, 1990, the Director, Division of Supervision of the FDIC in Washington, denied David W. Mann's appeal contained in the letter of May 29, 1990, from his counsel, noting that the FDIC could not find favorably with respect to his competence, experience, character and integrity, that service as the senior executive officer of the First State Bank of Marlin would not be in the best interests of either the depositors of the bank or the public, that inherent conflicts of interest might exist due to his serving in positions with interrelated financial institutions and business enterprises, and that Mr. Mann did not possess the specialized expertise necessary to address the many problems associated with the bank. The Director, Division of Bank Supervision, observed that the Marlin bank required a full-time and more experienced Chairman of the Board and Chief Executive Officer than Mr. Mann. A hearing was directed in the event David W. Mann so requested.
Hearing
Pursuant to David W. Mann's request, a hearing was held in Waco, Texas, on August 29, 30 and 31, 1990. Eight witnesses testified, including David W. Mann. Approximately one-thousand pages of testimony were compiled and a large number of exhibits were received. The transcript was received from the reporter on September 26, the main briefs of the parties on October 12 and the reply briefs on October 26, 1990.
Evidence and Decision
Testimony and documentary evidence was received on David W. Mann's participation or position as a Director or Officer in connection with the following transactions or matters:
I. Transactions at Citizens State Bank
1. Lease of ATM facility from The Omni-
The Citizens State Bank of Woodville, as described, leased an automated teller machine, the structure in which it was housed, and the land on which it was situated from The Omnibus Corporation (FDIC Ex. 1, p. 7-a; TR. II, p. 316). This lease was dated August 1, 1982, and became effective September 1, 1982. It provided for monthly payments of $2430 for the machine, housing and land, and provided an option to purchase the ATM at the expiration of five years for $3800, 10 percent of the original cost of the machine (Rx 1, Tab 9A).
2. Sale of Real Estate to the Pine Tree
The Citizens State Bank, after approval of the transaction by its Board of Directors, sold a five acre tract of land containing a shopping center to an organization known as the Pine Tree Trust.
{{2-28-91 p.A-1602}}
II. Charges and Fees Imposed by Holding
1. Data Processing Fees Paid to United
In 1988 the Farmers State Bank of Madisonville paid its affiliate, United Data Services, Inc., $116,000 in data processing fees and paid $40,000 in such fees up to May 31, 1989, at which time the bank was examined by the FDIC.
2. Fee of $1200 paid by the Farmers State
The report of the examination of the Farmers State Bank of May 31, 1989, by the FDIC criticised a $1200 fee paid by the Farmers State Bank for David W. Mann to attend its Board of Directors meeting. The report stated that as a Director of the Farmers bank he should only be entitled to the normal director's fee of $100 per meeting attended. At this time Mr. Mann was also Executive Vice-President of United Bankers, Inc.
3. Compliance by United Bankers, Inc.,
In March 1988 there was a Federal Reserve examination of United Bankers, Inc. (TR. III, p. 66). The report issued criticised the fees imposed on its subsidiary banks as excessive and stated that the methodology for imposing the fees did not comply with Federal Reserve policy.
III. Other Issues
1. Contention that David W. Mann lacks
A very large number of subsidiary and affiliated firms were connected directly or indirectly with United Bankers, Inc. (see TR. I, pp. 301-39). In all there were 49 business entities with which David W. Mann was connected (TR. II, p. 4). At the time of his application for approval as Chairman and Chief Executive Officer of the First State Bank of Marlin, he was receiving a salary from four, the United Bank of Waco, the First Financial Corporation, the Farmers State Bank of Madisonville, and United Western Life Insurance Company.
2. Contention that David W. Mann lacks
The First State Bank of Marlin is a troubled institution under the supervision of a Texas banking supervisor, James Scamardo. It is a small bank located in an agricultural community. The financial problems of the bank derive mainly from participation loans purchased from its affiliate, the United Bank of Waco (TR. III, p. 244). Although the bank had some problem agricultural loans, these are not the main cause of the bank's troubled state (Id.). These nonperforming or defaulted participation loans of the Marlin bank are beyond the control of David W. Mann or any Chief Executive Officer to rectify.
Conclusion and Recommendation
Based upon the record of Mr. Mann at other banks and affiliates with which he has been associated, the FDIC Regional Director was fully justified in disapproving him as Chairman of the Board and Chief Executive Officer of the First State Bank of Marlin. |
|
Last Updated 6/6/2003 | legal@fdic.gov |
Home Contact Us Search Help SiteMap Forms Freedom of Information Act (FOIA) Service Center Website Policies USA.gov |
FDIC Office of Inspector General |