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2000 - Rules and Regulations
{{4-28-00 p.2679}}
PART 340—RESTRICTIONS ON SALE OF ASSETS BY THE
FEDERAL DEPOSIT
INSURANCE CORPORATION
Sec.
340.1
What is the statutory authority for the regulation, what are its
purpose and scope, and can the FDIC have other policies on related
topics?
340.2
Definitions.
340.3
What are the restrictions on the sale of assets by the FDIC if the
buyer wants to finance the purchase with a loan from the FDIC?
340.4
What are the restrictions on the sale of assets by the FDIC regardless
of the method of financing?
340.5
Can the FDIC deny a loan to a buyer who is not disqualified from
purchasing assets using seller-financing under this regulation?
340.6
What is the effect of this part on transactions that were entered into
before its effective date?
340.7
When is a certification required, and who does not have to provide a
certification?
340.8
Does this part apply in the case of a workout, resolution, or
settlement of obligations?
Authority: 12 U.S.C. 1819 (Tenth), 1821(p).
SOURCE: The provisions of this part 340 appear at 65 Fed. Reg.
14818, March 20, 2000, effective July 1, 2000, except as otherwise
noted.
§ 340.1 What is the statutory authority for the regulation,
what are its purposes and scope, and can the FDIC have other policies
on related topics?
(a) Authority. The statutory authority for adopting
this part is section 11(p) of the Federal Deposit Insurance Act (FDI
Act), 12 U.S.C. 1821(p).
Section 11(p) was added to the FDI Act by section 20 of the Resolution
Trust Corporation Completion Act (Pub. L. 103--204, 107 Stat. 2369
(1993)).
(b) Purpose. The purpose of this part is to prohibit
individuals or entities who profited or engaged in wrongdoing at the
expense of an insured institution, or seriously mismanaged an insured
institution, from buying assets of failed financial institutions from
the FDIC.
(c) Scope. The restrictions of this part generally
apply to assets of failed institutions owned or controlled by the FDIC
in any capacity, even though the assets are not owned by the insured
institution that the prospective purchaser injured. Unless we determine
otherwise, this part does not apply to the sale of securities in
connection with the investment of corporate and receivership funds
pursuant to the Investment Policy for Liquidation Funds managed by the
FDIC as it is in effect from time to time. In the case of a sale of
securities backed by a pool of assets that may include assets of failed
institutions by a trust or other entity, this part applies only to the
sale of assets by the FDIC to an underwriter in an initial offering,
and not to any other purchaser of the securities.
(d) The FDIC retains the authority to establish other
policies restricting asset sales. Neither section 11(p) of the
FDI Act nor this part in any way limits the authority of the FDIC to
establish policies prohibiting the sale of assets to prospective
purchasers who have injured any failed financial institution, or to
other prospective purchasers, such as certain employees or contractors
of the FDIC, or individuals who are not in compliance with the terms of
any debt or duty owed to the FDIC. Any such policies may be independent
of, in conjunction with, or in addition to the restrictions set forth
in this part.
[Codified to 12 C.F.R. § 340.1]
§ 340.2 Definitions.
(a) Associated person of an individual or entity means:
(1) With respect to an individual:
(i) The individual's spouse or dependent child or any member of
his or her immediate household;
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(ii) A partnership of which the individual is or was a general or
limited partner; or
(iii) A corporation of which the individual is or was an officer
or director;
(2) With respect to a partnership, a managing or general partner
of the partnership; or
(3) With respect to any entity, an individual or entity who,
acting individually or in concert with one or more individuals or
entities, owns or controls 25 percent or more of the entity.
(b) Default means any failure to comply with the terms
of an obligation to such an extent that:
(1) A judgment has been rendered in favor of the FDIC or a failed
institution; or
(2) In the case of a secured obligation, the property securing
such obligation is foreclosed on.
(c) FDIC means the Federal Deposit Insurance
Corporation.
(d) Failed institution means any bank or savings
association that has been under the conservatorship or receivership of
the FDIC or RTC. For the purpose of this part, "failed
institution" includes any entity owned and controlled by a failed
institution.
(e) Obligation means any debt or duty to pay money owed
to the FDIC or a failed institution, including any guarantee of any
such debt or duty.
(f) Person means an individual, or an entity with a
legally independent existence, including: a trustee; the beneficiary of
at least a 25 percent share of the proceeds of a trust; a partnership;
a corporation; an association; or other organization or society.
(g) RTC means the former Resolution Trust Corporation.
(h) Substantial loss means:
(1) An obligation that is delinquent for ninety (90) or more days
and on which there remains an outstanding balance of more than $50,000;
(2) An unpaid final judgment in excess of $50,000 regardless of
whether it becomes forgiven in whole or in part in a bankruptcy
proceeding;
(3) A deficiency balance following a foreclosure of collateral in
excess of $50,000, regardless of whether it becomes forgiven in whole
or in part in a bankruptcy proceeding;
(4) Any loss in excess of $50,000 evidenced by an IRS Form
1099--C (Information Reporting for Discharge of Indebtedness).
[Codified to 12 C.F.R. § 340.2]
§ 340.3 What are the restrictions on the sale of assets by the
FDIC if the buyer wants to finance the purchase with a loan from the
FDIC?
A person may not borrow money or accept credit from the FDIC in
connection with the purchase of any assets from the FDIC or any failed
institution if:
(a) There has been a default with respect to one or more
obligations totaling in excess of $1,000,000 owed by that person or its
associated person; and
(b) The person or its associated person made any fraudulent
misrepresentations in connection with any such obligation(s).
[Codified to 12 C.F.R. § 340.3]
§ 340.4 What are the restrictions on the sale of assets by the
FDIC regardless of the method of financing?
(a) A person may not acquire any assets from the FDIC or from any
failed institution if the person or its associated person:
(1) Has participated, as an officer or director of a failed
institution or of an affiliate of a failed institution, in a material
way in one or more transaction(s) that caused a substantial loss to
that failed institution;
(2) Has been removed from, or prohibited from participating in
the affairs of, a failed institution pursuant to any final enforcement
action by the Office of the Comptroller of the Currency, the Office of
Thrift Supervision, the Board of Governors of the Federal Reserve
System, the FDIC, or any of their successors;
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(3) Has demonstrated a pattern or practice of defalcation
regarding obligations to any failed institution; or
(4) Has been convicted of committing or conspiring to commit any
offense under 18 U.S.C. 215,
656,
657,
1005,
1006,
1007,
1014,
1032,
1341,
1343 or
1344 affecting any failed
institution and there has been a default with respect to one or more
obligations owed by that person or its associated person.
(b) For purposes of paragraph (a) of this section, a person has
participated "in a material way in a transaction that caused a
substantial loss to a failed institution" if, in connection with a
substantial loss to a failed institution, the person has been found in
a final determination by a court or administrative tribunal, or is
alleged in a judicial or administrative action brought by the FDIC or
by any component of the government of the United States or of any
state:
(1) To have violated any law, regulation, or order issued by a
federal or state banking agency, or breached or defaulted on a written
agreement with a federal or state banking agency, or breached a written
agreement with a failed institution;
(2) To have engaged in an unsafe or unsound practice in
conducting the affairs of a failed institution; or
(3) To have breached a fiduciary duty owed to a failed
institution.
(c) For purposes of paragraph (a) of this section, a person or its
associated person has demonstrated a "pattern or practice of
defalcation" regarding obligations to a failed institution if the
person or associated person has:
(1) Engaged in more than one transaction that created an
obligation on the part of such person or its associated person with
intent to cause a loss to any financial institution insured by the FDIC
or with reckless disregard for whether such transactions would cause a
loss to any such insured financial institution; and
(2) The transaction, in the aggregate, caused a substantial loss
to one or more failed institution(s).
[Codified to 12 C.F.R. § 340.4]
§ 340.5 Can the FDIC deny a loan to a buyer who is not
disqualified from purchasing assets using seller-financing under this
regulation?
The FDIC still has the right to make an independent determination,
based upon all relevant facts of a person's financial condition and
history, of that person's eligibility to receive any loan or extension
of credit from the FDIC, even if the person is not in any way
disqualified from purchasing assets from the FDIC under the
restrictions set forth in this part.
[Codified to 12 C.F.R. § 340.5]
§ 340.6 What is the effect of this part on transactions that
were entered into before its effective date?
This part does not affect the enforceability of a contract of sale
and/or agreement for seller financing in effect prior to July 1, 2000.
[Codified to 12 C.F.R. § 340.6]
§ 340.7 When is a certification required, and who does not have
to provide a certification?
(a) Before any person may purchase any asset from the FDIC that
person must certify, under penalty of perjury, that none of the
restrictions contained in this part applies to the purchase. The FDIC
may establish the form of the certification and may change the form
from time to time.
(b) Notwithstanding paragraph (a) of this section, a state or
political subdivision of a state, a federal agency or instrumentality
such as the Government National Mortgage Association, or a
federally-regulated, government-sponsored enterprise such as Fannie
Mae
{{4-28-00 p.2682}}or Freddie Mac does not have to
give a certification before it can purchase assets from the FDIC,
unless the Director of the FDIC's Division of Resolutions and
Receiverships, or his designee, in his discretion, requires a
certification of any such entity.
[Codified to 12 C.F.R. § 340.7]
§ 340.8 Does this part apply in the case of a workout,
resolution, or settlement of obligations?
The restrictions of §§ 340.3 and 340.4 do not apply if the sale
or transfer of an asset resolves or settles, or is part of the
resolution or settlement of, one or more obligations, regardless of the
amount of such obligations.
[Codified to 12 C.F.R. § 340.8]
[The page following this is 2705.]
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