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FDIC Enforcement Decisions and Orders |
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Board adopts ALJ's recommended decision, finding misconduct, breach of fiduciary duty, culpability and financial benefit to Respondent, and prohibits Respondent from participating in the conduct of affairs of, or exercising voting rights in, any insured institution without the prior consent of the FDIC.
[.1] Practice and ProcedureOral Argument
[.2] ProhibitionLiabilityFactors Determining
[.3] Regulation OLoans to InsidersAggregation of Loans
[.4] Unsafe or Unsound PracticesExcessive Concentrations of Credit
[.5] ProhibitionLiabilityLosses to BankPersonal Gain
[.6] ProhibitionLiabilityDisregard for Safety and Soundness
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[.8] EvidenceHearsay Rule
In the Matter of
A Notice of Intention to Prohibit From Further Participation ("Notice") was served by the Federal Deposit Insurance Corporation ("FDIC") on Robert S. Stoller ("Respondent") on July 17, 1990. Based on allegations that Respondent had engaged in unsafe or unsound banking practices, violations of law and regulation, and/or breaches of fiduciary duty, the Notice sought to prohibit Respondent from further participation in the conduct of the affairs of Coolidge Corner Co-operative Bank, Brookline, Massachusetts ("Bank"), and any other insured depository institution, as provided by section 8(e)(7) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(e)(7) (1989). The Notice was issued pursuant to section 8(e) of the FDI Act, 12 U.S.C. § 1818(e), and Part 308 of the FDIC's Rules of Practice and Procedures, 12 C.F.R. Part 308.1 The Notice alleges that Respondent engaged in unsafe or unsound banking practices in connection with his role as president of the Bank, and that he breached his fiduciary duty as a director of the Bank as a result of his lending practices. The Notice further alleges that, as a result of the unsafe or unsound practices and breaches of fiduciary duty, the Bank suffered substantial financial losses or other damage, and/or that the interests of the Bank's depositors were seriously prejudiced. Notice at 11-13. The Notice also charges that Respondent has received financial gain or other tangible economic benefit by reason of such violations, practices, and/or breaches of fiduciary duty; that Respondent's conduct demonstrates personal dishonest and a willful or continuing disregard for the safety and soundness of the Bank and, as such, is evidence of the Respondent's unfitness to participate in the affairs of the Bank or to participate in the conduct of the affairs of any other federally insured depository institution. The Notice seeks to prohibit Respondent from further participation in the Bank, and seeks to bar him from further participation in the affairs of any federally insured depository institution.2
[.1] Under the FDIC's Rules and Regulations, the decision to hear oral argument is within the discretion of the Board. However, a party seeking oral argument has the burden of showing good cause for such argument and establishing that arguments may not be adequately presented in writing. 12 C.F.R. § 308.40(b). After considering Respondent's request for oral argument and the allegations and arguments presented in the briefs, the Board finds that: (1) the factual and legal arguments are fully set forth in the parties' written submissions; (2) the Board will not be aided in deciding this matter by oral argument; and (3) Respondent will not be prejudiced by the lack of oral argument. Therefore, the Board declines to exercise its discretion under section 308.40(b) of the FDIC's Rules and Regulations (to be condified at 12 C.F.R. § 308.40(b)) and denies the request for oral argument. See In the Matter of Harold Hoffman, FDIC-88-156c& b, 2 P-H ¶5140 (1989); FDIC-85-42b, 1 P-H ¶5062 (1986).
Respondent was a director, president, and chief executive officer of the Bank from 1975 until he was asked to resign by the Bank's board of directors on March 15, 1990. He was also the principal lending officer and made all the extensions of credit at issue in this proceeding. The Bank, a small community bank with about $85 million in assets, initially provided loans for purchasers of one to four family residences. However, in 1986, the Bank underwent a major change in its lending philosophy, and began to shift from primarily residential to commercial lending. FDIC Ex. 70 at 1-A; R.D. at 2. A number of these commercial loans, primarily to real estate trusts, form the basis for the allegations concerning Respondent.
[.2] The Recommended Decision analyzes Respondent's defenses and the factual support for each of the elements of this prohibition action: (1) Misconduct - violations of Regulation O, unsafe or unsound banking practices, breach of fiduciary duty; (2) Effect; and (3) Culpability. The ALJ concludes, and the Board agrees, that there is sufficient factual support in this record for each element of this prohibition action.
5 Respondent excepts to the characterization of the $90,000 loan on September 27, 1988, and its rewriting for $93,500 on November 21, 1988, as two separate loans. Resp. Except. at 2. Since the record indicates that one loan was secured and one was not, and there were separate loan transaction, albeit one a rewriting of the other, the Board finds that separate identification of the loan transactions is appropriate.
[.3] The ALJ properly rejects Respondent's argument that only a portion of this loan, reflecting his interest in the trust, is attributable to him. The ALJ notes that the purpose of Regulation O was to restrain insiders (such as this Respondent) from treating a bank's funds as their own. R.D. at 11. The ALJ states, and the Board agrees, that the purpose of Regulation O is to limit the access of insiders to depositors' money, not to create exceptions so they could have more access. The ALJ concluded, and the Board agrees, that the entire amount of an extension of credit is attributable to an insider within the scope of Regulation O.8
[.4] b. Unsafe or Unsound Banking Practices and Breach of Fiduciary Duty.
[.5] 2. Effect
[.6] 3. Culpability
The ALJ's Recommended Decision contains an analysis of the factual evidence and the applicable law. Based upon a complete review of the record in this proceeding, the Board finds that the ALJ's Recommended Decision is well-supported by the evidence and his conclusions are correct.
[.7] 1. Retroactive Application of FIRREA Remedies
{{4-30-92 p.A-1873}}represent federally insured institutions as legal counsel.20 However, Respondent is prohibited from being an officer, director, or employee or otherwise engaging in the business activities of a federally insured financial institution.
[.8] 2. Other Matters Raised in Respondent's Exceptions
[.9] Respondent also excepts to the admission through FDIC Bank Examiner James Moore of certain Bank records, including loan files, board of directors' minutes and other documents reviewed as part of the examination process.26 Respondent asserts that since Moore was not a custodian of the Bank's records, he cannot personally identify each document, and therefore, they were not properly authenticated. The Board finds that Respondent's exceptions lack merit and the ALJ properly overruled Respondent's objection to the admission of these documents.27
Section 8(e)(4) of the FDI Act, 12 U.S.C. § 1818(e)(4) (1989), provides that "[i]f upon the record made at any such hearing the [FDIC] shall find that any of the grounds specific in such notice have been established, the [FDIC] may issue such orders of suspension or removal from office, or prohibition from participation in the conduct of the affairs of the depository institution, as it may deem appropriate." Upon a thorough review of the record in this proceeding, the Board finds that the serious nature of Respondent's unsafe or unsound conduct and serious breaches of fiduciary duty merit prohibition from participating in the conduct of the affairs of any other federally insured depository institution or organization listed in section 8(e)(7) of the FDI Act, 12 U.S.C. § 1818(e)(7) (1989).
For the reasons set forth in the above Decision, and pursuant to section 8(e) of the FDI Act, 12 U.S.C. § 1818(e), the Board of the FDIC hereby ORDERS that:
In the Matter of
This matter was tried before me on June 3, 4 and 5, 1991, at Boston, Massachusetts, upon the FDIC's Notice of Intention to Prohibit from Further Participation. The FDIC and the Respondent were represented by counsel. Following the hearing, counsel submitted detailed proposed findings of fact and conclusions of law, supporting briefs and reply briefs. Upon the record as a whole, including my observation of the witnesses and briefs and arguments of counsel, I hereby make the following findings and conclusions and recommended order that the Respondent be prohibited from further participation in the affairs of federally insured financial institutions.
From 1975 until asked to resign by the board of directors on March 15, 1990, the Respondent, Robert S. Stoller, was a director and president and chief executive officer of the Coolidge Corner Co-Operative Bank (herein the Bank). He was also the principal lending officer and made all the extensions of credit involved in this matter.
Misconduct
Violation of Regulation O.
It is alleged that each of the transactions outlined above was in some way violative of Regulation O, 12 C.F.R. Part 215. Specifically it is alleged that some of the transactions, to be detailed below, were extensions of credit to the Respondent in excess of five percent of the Bank's capital and unimpaired surplus without prior approval of the board of directors in violation of Section 215.4(b). Other transactions are alleged to have been violative of Section 215.4(c) in that they were extensions of credit to the Respondent, or his related interests, which in the aggregate exceeded 15 percent of the Bank's unimpaired capital and unimpaired surplus.
Star Trust loans:
Each of these credits, when added to the Respondent's others with the Bank at the time extended, well exceeded 15 percent of the Bank's unimpaired capital and unimpaired surplus. When the Respondent made the April 28, 1986, loan to Rustro his outstanding credits far exceeded those permissible under Regulation O, and over the next two and one-half years the overline grew substantially. Thus when he made the extension of credit of November 21, 1988, the outstanding balance of credits to him was $6,785,709.70.2 The outstanding balance had been as much as $8,350,444.60 as of July 13, 1987. (FDIC Ex. 75) The aggregate credits attributable to the Respondent clearly violated Section 215.4(c).
These extensions of credit the Respondent made to his own related interests, as noted, far exceeded the limits of 12 U.S.C. § 84. While Section 84 was not specifically applicable to the Bank its policy considerations were. Section 84 means to limit concentrations of credit, Congress concluding that too much concentration of credit is inherently risky.
In general corporate matters, the Supreme Court has held, when directors and officers and directors place their personal interests above those of the corporation, or utilize corporate resources for personal gain, they have committed a serious breach of their common law fiduciary duty. Pepper v. Litton, 308 U.S. 295, 311 (1939). The standards are even higher in banking, where the officers and directors are charged with looking after other people's money. Indeed, given the paramount importance of a credible and safe and sound banking system, there can be no question that officers and directors of banks are held to the very highest standard of fiduciary duty. Thus, "directors of banking corporations generally owe a greater duty than other corporate directors." Gadd v. Pearson, 351 F. Supp. 895, 903 (M.D. Fla. 1972).
2. Effect
Under the second tier of Section 1818(e)(1), as applicable to this case, misconduct is deemed to have had an actionable effect if a) the Bank suffered, or would have probably suffered, substantial (deleted in the
3. Culpability.
The third tier provides three alternative standards of culpability: continuing disregard for the bank's safety and soundness; willful disregard for the bank's safety and soundness or personal dishonesty. I conclude the FDIC proved the existence of all three.
1. Since February 13, 1986, and at all times material, Coolidge Corner Co-operative Bank, Brookline, Massachusetts (herein the Bank) was state chartered, not a member of the Federal Reserve System, and was insured by the FDIC.
10. The Respondent personally guaranteed the loans of October 22, 1986, and the two of July 13, 1987.
13. In making the loans to Star Trust, the Respondent did not obtain prior approval of the Bank's board of directors for the following: October 22, 1986; both of June 12, 1987; both of July 13, 1987; September 27, 1988.
15. On December 23, 1986, Danert Realty Trust was created and on that day the Respondent caused the Bank to extend to its a credit of $263,000, which the Respondent caused the Bank to extend to it a credit of $263,000, which the Respondent personally guaranteed.
1. The FDIC has jurisdiction over the Respondent, the Bank and the subject matter of this proceeding pursuant to 12 U.S.C. §1811 et seq. and the FDIC's Rules and Regulations, 12 C.F.R. Chapter III.
/s/ James L. Rose |
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Last Updated 6/6/2003 | legal@fdic.gov |
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