STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF BANKING AND ) FINANCE, )
)
Petitioner, )
)
vs. )
) FIRST BANK OF JACKSONVILLE, )
a state-chartered bank; ) Case No. 00-0262 CLYDE N. WELLS, JR.; TIMOTHY )
D. ALTERS; CONRAD J. GUNTI, ) JR.; W. JOHN DRUMMOND; and )
R. EDWARD MINOR, individually) and as directors of First ) Bank of Jacksonville; )
)
Respondents. )
_____________________________)
) DEPARTEMNT OF BANKING AND ) FINANCE, )
)
Petitioner, )
)
vs. ) Case No. 00-0434
) FIRST BANK OF JACKSONVILLE, )
a state-chartered bank, )
)
Respondent. )
_____________________________)
RECOMMENDED ORDER
Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings, conducted the final hearing in Jacksonville, Florida, on July 31-August 4 and September 25 and 26, 2000.
APPEARANCES
For Petitioner: Richard T. Donelan, Jr.
Chief Banking Counsel Robert Alan Fox
Assistant General Counsel Department of Banking and Finance Suite 526, The Fletcher Building
101 East Gaines Street Tallahassee, Florida 32399
For Respondent Wells:
William G. Cooper
Cooper, Ridge & Beale, P.A.
200 West Forsythe Street, Suite 1200 Jacksonville, Florida 32202
For Respondents Gunti, Minor, and Drummond:
Jeffrey C. Regan
Hendrick, Dewberry & Regan, P.A.
50 North Laura Street, Suite 2225 Jacksonville, Florida 32202
For Respondent Alters:
Timothy D. Alters, pro se 2020 Vela Norte Circle
Atlantic Beach, Florida 32233 For Respondent First Bank:
Arthur G. Sartorius, III 1919 Atlantic Boulevard
Jacksonville, Florida 32207 STATEMENT OF THE ISSUES
In Case No. 00-0262, the issue is whether Respondent Wells is guilty of various acts and omissions that would justify the imposition of an order removing him as a director of Respondent First Bank or imposing upon him an
administrative fine of $10,000. In Case No. 00-0262, an additional issue is whether Respondent Alters waived his right to request a hearing; if not, an additional issue is whether Respondent Alters is guilty of various acts and omissions that would justify the imposition of an order removing him as a director of Respondent First Bank or imposing upon him an administrative fine of $5000.
In Case No. 00-0434, the issue is whether Respondent First Bank must pay Petitioner the costs of the examination conducted by Petitioner from September 13 through October 15, 1999, and, if so, the amount of such costs for which Respondent First Bank is liable.
PRELIMINARY STATEMENT
The amended administrative complaint in
DOAH Case No. 00-0262 alleges that Respondents, collectively and individually, have violated a consent final order issued by Petitioner. Petitioner seeks to remove Respondents as directors of Respondent First Bank; prohibit these persons from serving as officers, directors, committee members, or employees of Respondent First Bank; and impose civil monetary penalties against these respondents.
The amended administrative complaint alleges that Respondent First Bank is a financial institution chartered by the State of Florida. The amended administrative complaint
alleges that the principal place of business of Respondent First Bank is 11100 San Jose Boulevard, Jacksonville, Florida.
The amended administrative complaint alleges that Respondents Wells, Alters, Gunti, Drummond, and Minor are directors of Respondent First Bank and “financial institution- affiliated parties,” as defined by Section 655.005(1)(i)1, Florida Statutes.
The amended administrative complaint alleges that each Respondent, except First Bank, signed a settlement stipulation, dated September 29, 1998, which led to the entry of a consent final order, dated October 13, 1998, in Department of Banking and Finance v. First Bank of Jacksonville and Clyde N. Wells, Jr., Case No. 3736-B-11/96.
The amended administrative complaint alleges that each Respondent, except First Bank, willfully breached the settlement stipulation, which imposed upon them various cease and desist responsibilities. Petitioner alleged that the stipulation settlement required Respondents, within 60 days after signing the stipulation settlement, to hire “new and appropriately qualified management personnel to assume responsibility for daily operations and core banking functions
. . . for the duration of the consent order.” Petitioner alleged that the stipulation settlement required Respondent Wells to resign as president and chief executive officer,
effective on the date that his successor was approved by Petitioner and the Federal Deposit Insurance Corporation (FDIC) and that, after the resignation, Respondent Wells would take no further action on behalf of Respondent First Bank in the capacity of an “executive officer,” within the meaning of Section 655.005(1)(f), Florida Statutes, for the duration of the consent order. Petitioner alleged that the stipulation settlement required the respondents to adopt a resolution of the board of directors excluding Respondent Wells from participating, except as a director, in any “major policy making functions” for the duration of the consent order.
Petitioner alleged that the stipulation settlement required the respondents to acknowledge that the primary tasks of the new management “will be to eliminate all unsafe and unsound practices detailed in [Petitioner’s] September 1997 Report of Examination . . . and to assure compliance by [Respondent First Bank] with the FDIC Order dated May 26, 1998” and that they would provide new management with “written authority to take such actions as may be appropriate and necessary to implement remedial action and compliance assurance activity.” Petitioner alleged that the stipulation settlement required Respondent Wells not to “willfully or intentionally interfere” with new management in the execution of its duties.
Petitioner alleged that the stipulation settlement allowed
Respondent Wells to take whatever action within the scope of the authority of a bank director, but that these provisions were “a material term” of the stipulation settlement and any violation of this paragraph would be deemed a “material breach” of the consent order.
The amended administrative complaint alleges that Respondents, individually and collectively, have engaged in unsafe or unsound practices, thus justifying an order of removal and prohibition, pursuant to Section 655.037(1)(a) and (3), Florida Statutes.
The amended administrative complaint alleges that the unsafe or unsound practices include the failure of Respondents Wells, Alters, Gunti, Drummond, and Minor, individually and collectively, as the directors of Respondent First Bank, to comply with the following paragraphs of the FDIC Cease and Desist Order dated May 26, 1998: (1)(a)(ii), (1)(a)(iv), and (1)(b); (2); (3); (4), (4)(i), (4)(ii), (4)(iii), (4)(iv), and
(4)(v); (6); (7); (8); (10), (10)(i), (10)(ii), (10)(iii),
(10)(iv), (10)(vi), (10)(ix), and (10)(x); (12)(a)(i) and
(12)(a)(iv); (15); and (16). The amended administrative complaint alleges that each failure to comply with a provision of the Cease and Desist Order is a violation of a prior order of a federal regulatory agency; for some violations, the amended administrative complaint alleges alternatively that
each failure to comply is contrary to generally accepted standards applicable to the specific financial institution. The amended administrative complaint alleges that each alleged violation “creates the likelihood of loss or dissipation of assets”; for some violations, the amended administrative complaint alleges that each failure to comply “otherwise prejudices the interest of the specific financial institution.” For each violation, the amended administrative complaint alleges that the removal of directors is appropriate because the state financial institution “will likely suffer loss or other damage or that the interests of the shareholders could be seriously prejudiced by reason of such violation,” which is a “continuing disregard for the safety or soundness of the financial institution.” The amended administrative complaint alleges that, in determining that each failure to comply constitutes an unsafe or unsound practice, Petitioner considered the size and condition of First Bank, the gravity of the violations, and the prior conduct of the respondents.
The amended administrative complaint alleges that the
unsafe or unsound practices include the failure of Respondents Wells, Alters, Gunti, Drummond, and Minor, individually and collectively, as the directors of Respondent First Bank, to assure in a timely fashion that First Bank could demonstrate compliance with FDIC Year 2000 Y2K readiness requirements.
The amended administrative complaint alleges that Respondent First Bank was the last of 10,200 banks insured by the FDIC to achieve compliance with the Y2K requirements, and the date of compliance was December 14, 1999.
The amended administrative complaint alleges that Respondents Wells, Alters, Gunti, Drummond, and Minor, individually and collectively, as the directors of Respondent First Bank, failed to comply with the following paragraphs of the FDIC Safety and Soundness Order dated September 8, 1999: 1(a), 1(b), and 3. The amended administrative complaint alleges that each failure to comply with a provision of the Safety and Soundness Order is a violation of a prior order of a federal regulatory agency or is contrary to generally accepted standards applicable to the specific financial institution. The amended administrative complaint alleges that each failure to comply “creates the likelihood of loss or dissipation of assets or otherwise prejudices the interest of the specific financial institution.” For each failure to comply, the amended administrative complaint alleges that the removal of directors is appropriate because the financial institution “will likely suffer loss or other damage or that the interests of the shareholders [or depositors, in the case of paragraph 1(a)] could be seriously prejudiced by reason of
such violation,” which is a “continuing disregard for the safety or soundness of the financial institution.”
The amended administrative complaint alleges that Respondents Wells, Alters, Gunti, Drummond, and Minor have willfully breached the settlement stipulation and willfully violated the consent final order by failing to implement the affirmative remedial action required by the consent final order. Specifically, Petitioner alleged that Respondents had failed to hire and retain appropriately qualified management personnel to perform the functions of president/chief executive officer, cashier, and senior lending officer (as required by Paragraph 4.A.1, 2, and 3 of the settlement stipulation), and had failed to provide new management with written authority to take the actions necessary to implement the required remedial action and compliance assurance activity (as required by Paragraph 4.D of the settlement stipulation); Respondents Alters, Gunti, Drummond, and Minor had failed to exclude Respondent Wells from participating in management and major policymaking functions at First Bank (as required by Paragraph 4.B of the settlement stipulation); Respondent Wells had willfully breached the settlement stipulation and consent final order by continuing to act on behalf of First Bank in the effective capacity of executive officer (as prohibited by Paragraph 4.B of the settlement stipulation); and Respondent
Wells had willfully breached the settlement stipulation and consent final order by intentionally interfering with the new management hired to comply with the settlement stipulation and consent order (as prohibited by Paragraph 4.E of the settlement stipulation).
The amended administrative complaint alleges that a willful violation of Petitioner’s consent final order by a financial institution-affiliated party violates Section 655.037(1)(g), Florida Statutes, and is punishable by removal and prohibition, pursuant to Section 655.037(3), Florida Statutes; and a willful breach of a written agreement with Petitioner by a financial institution-affiliated party violates Section 655.037(1)(h), Florida Statutes, and is punishable by removal and prohibition, pursuant to Section 655.037(3), Florida Statutes.
The amended administrative complaint alleges that, by letter dated July 14, 1999, Petitioner gave Respondents Wells, Alters, Gunti, Drummond, and Minor, as required by Section 655.041(1), Florida Statutes, ninety days’ notice that Petitioner intended to seek specified civil money penalties against each of them for the failure of Respondent First Bank to comply with the settlement stipulation and consent final order. The amended administrative complaint alleges that Petitioner seeks fines of $10,000 against Respondent Wells;
$5000 each against Respondents Alters, Drummond, and Gunti; and $2500 against Respondent Minor.
The amended administrative complaint seeks to remove Respondents Wells, Alters, Gunti, Drummond, and Minor from their positions as directors; and prohibit each of them from future service as an officer, director, committee member, employee, or other person participating in the affairs of a state-chartered financial institution.
During the course of the final hearing, Petitioner struck its allegations against Respondents Drummond, Minor, and Gunti. Petitioner thus is seeking relief only against Respondents First Bank, Wells, and Alters.
The Administrative Law Judge is taking official notice of Administrative Law Judge Exhibit 1, which is an Order Terminating Safety and Soundness Order issued by the FDIC on April 4, 2000.
By letter dated December 21, 1999, to First Bank, Petitioner demanded payment of an invoice in the amount of
$28,299.89 for examination and supervision costs. The letter explains that First Bank owes this amount to Petitioner because First Bank has engaged in unsafe and unsound practices.
At the hearing, Petitioner called five witnesses and offered into evidence Petitioner Exhibits 1-2, 4-11, 13
(except paragraph 3), 23, 28-32, 34-39, 41-42, 45-50, 58-62,
66-90, 91a, 91b, and 92-94, 95 (except pages 57-64), and 96-
Respondents called five witnesses and offered into evidence Respondents Exhibits 1, 2, 4, 5a, 5b, 7a, 7b, 8, 15, 17a, 17b, 18-22, 23 (except the handwriting), 24-32, 33a, 33b, 33c, 34a, 34b, 34c, 36a, 36b, 37-39, 41-47, 52, and 56-58. Respondent Alters additionally offered into evidence one exhibit. All exhibits were admitted except Petitioner Exhibits 5-7, 28-32, 34-37, and 62, all of which Petitioner proffered, and Respondents Exhibits 41, 46-47, and 56, of which Respondents proffered Exhibit 56. The Administrative Law Judge admitted Petitioner Exhibits 8, 10, 59 (last sentence), and 97-98 for purposes other than proving the truth of the contents of these exhibits. The Administrative Law Judge admitted Petitioner Exhibit 9 for all purposes, except that hearsay statements and admissions could be used only against Respondent First Bank and not the respondent directors.
The court reporter filed the Transcript on October 25,
2000.
On December 8, 2000, Petitioner filed a Motion to Reopen Record for the admission of evidence that chief loan officer
T. Dale Ferguson had resigned from First Bank, effective November 30, 2000. Respondent Wells filed a response on
December 15, Petitioner filed an amended motion on the same day, Respondent Wells filed an amended response on December 21, and Respondent Wells filed a supplemental response on January 5, 2001. The supplemental response states that Respondent First Bank has replaced Mr. Ferguson with John Avery. For the reason set forth in the Conclusions of Law, the Administrative Law Judge has denied the request to reopen the record.
FINDINGS OF FACT
Background of First Bank and Wells
The incorporators filed Articles of Incorporation for Respondent First Bank of Jacksonville (First Bank) on August 8, 1988. Requiring at least five directors, the articles identify the following persons as the initial directors: Irby
S. Exley, Sr., Edward L. Green, Nicholas W. Kish, William C. Mick, Jr., and Respondent Clyde N. Wells, Jr. (Wells).
Wells, as “President/Cashier” of First Bank, filed amended articles of incorporation on July 25, 1990, naming the same initial directors. Elaborating upon the method of electing directors, the amended articles provide that the shareholders shall elect directors, except when the board of directors elects a director to fill a vacancy. Article V, Paragraph 4, of the amended articles authorize the election of a director by the vote of a “majority of the remaining or
sitting directors, although less than a quorum of the Board is sitting at such vote.”
Wells was a scholarship student at the University of Georgia, from which he graduated in 1958. He attended law school at the University of Georgia and earned his law degree in 1962. After a year or two practicing with a large corporate law firm in Philadelphia, Wells moved to Jacksonville, where he joined a local law firm and began to specialize in corporate, tax, and real estate law. He later obtained Florida Bar certification in tax law.
Wells first became professionally involved with banks when he represented several banks owned by Florida National Bank. Leaving the regulatory work to larger firms, Wells and his firm provided legal services in loans, transactions, and litigation.
In the late 1960s, Wells became a director of, and general counsel to, Marine National Bank. Although he continued to provide services for Florida National Bank, Wells served Marine National Bank until its sale in 1982.
Wells’ involvement with Marine National Bank introduced him to the operational side of banking, such as receiving and disbursing funds, and the regulatory environment in which banks function. At this time, Wells acquired some knowledge about banking hardware and software.
Wells’ involvement with Marine National Bank also introduced him to the regulatory side of retail banking. For instance, the Office of the Controller of the Currency criticized the extent to which buildings and land represented the bank’s capital. Wells communicated with the federal regulatory agency about a possible sale of a building, but the situation eventually resolved itself by the growth of the bank’s other assets. While associated with Marine National Bank, Wells was closely involved with the establishment of other banks owned by the holding company that owned Marine National Bank.
Following the sale of Marine National Bank in 1982, Wells served as special counsel to First Commercial Bank of Live Oak. He also served as special counsel to General Financial Systems, a 29-bank holding company that controlled the banks with the largest deposits in Palm Beach County.
After General Financial Systems sold its banks, Wells returned to a general law practice in Jacksonville. In 1985, after Wells had been out of banking for at least three years, Wells and some Jacksonville residents discussed the possibility of forming a new bank, which became First Bank.
From 1986-89, Wells was involved in organizing First Bank. He and the others hired Scott Bain as a consultant and president. Mr. Bain, who had been a vice president of Barnett
Banks for several years, served the group for a couple of years. However, at about the time of the opening of First Bank, Mr. Bain suffered a personal tragedy in the death of a young child, and he and his wife moved to North Carolina.
Wells tried to persuade Mr. Bain to return to Jacksonville and manage First Bank when it opened. Wells had not intended to serve as the president of First Bank, although he had likely intended to provide legal services to the bank. Of the 310,000 outstanding shares in First Bank, Wells personally owns 75,000 shares and Welco Investment Trust, of which Wells owns beneficially, 90,000 shares. The value of Wells’ overall investment in First Bank was originally valued at $1.7 to $2.0 million.
Background of Federal and State Regulation of First Bank
Annual Examinations and Reports of Examination
First Bank began operations on August 28, 1989, as a federally insured State bank that is not a member of the Federal Reserve System. As such, First Bank is under the concurrent jurisdiction of the Federal Deposit Insurance Corporation (FDIC) and Petitioner. In practice, the federal and state banking agencies alternate responsibility for conducting annual bank examinations, which must take place at intervals no greater than 36 months.
Following annual examinations, Petitioner has prepared reports of examinations (ROE) dated July 5, 1995; September 2, 1997; and September 13, 1999. The FDIC has prepared ROEs dated May 22, 1996; December 7, 1998; and March 20, 2000. Petitioner commenced the proceeding to remove the directors approximately three months after the ROE dated September 13, 1999. The 1999 ROE followed the 1998 ROE by only nine months, and the 2000 ROE followed the 1999 ROE by only six months.
Counsel devoted a significant amount of hearing time to issues involving the admissibility of these six ROEs. The Administrative Law Judge declined to admit any of the ROEs as hearsay exceptions in the form of official records or business records. After considerable discussion, the Administrative Law Judge admitted the ROE dated September 13, 1999, for all purposes (subject to a relatively minor exception set forth above) and admitted the 1998 and 2000 ROEs, but not for the truth of their contents.
A particularly difficult evidentiary issue arose as to the admissibility of the 2000 ROE. Although the FDIC was prepared to allow Petitioner to call as a witness the FDIC examiner who had prepared this ROE, the FDIC was unwilling, until several days after the hearing had started, to allow opposing counsel to examine the work papers supporting this
ROE. As authorized by federal law, the FDIC had withheld these work papers when the FDIC examiner had been deposed.
After the FDIC belatedly agreed to produce these work papers, opposing counsel argued that the tardiness of the production had prejudiced their clients. Most persuasively, counsel argued that this tardy production of work papers would impose upon their clients considerable additional costs that would have been saved if the FDIC had produced the work papers by the time of the deposition of the federal examiner.
Finding merit to this claim, the Administrative Law Judge excluded the 2000 ROE for the truth of its contents.
Federal and State Enforcement Decisions
Using the findings of the various ROEs, Petitioner and the FDIC have issued three orders concerning First Bank. These are the FDIC’s May 26, 1998, Decision and Order to Cease and Desist, which is based on a Recommended Decision dated January 22, 1998 (collectively, Cease and Desist Order); Petitioner’s October 13, 1998, consent Final Order approving a September 29, 1998, Settlement Stipulation (collectively, Consent Order); and the FDIC’s September 8, 1999, Safety and Soundness Order (Safety and Soundness Order).
FDIC’s 1998 Cease and Desist Order
Based on Petitioner’s ROE dated July 5, 1995, and the FDIC’s ROE dated May 22, 1996, the Cease and Desist Order
notes that Petitioner had assigned First Bank a composite CAMEL rating of 2, with a 5 for the management component, and that the FDIC also had assigned a 5 for the management component.
The evaluation scheme, now known as CAMELS ratings, assigns a rating ranging from the best of 1 to the worst of 6 for composite performance and for each of six criteria crucial to a bank’s operation: capital, assets, management, earnings, liquidity, and sensitivity.
“Capital” is the adequacy of the capital. As defined in the FDIC Division of Supervision Manual of Examination Policies (FDIC Examination Manual), “capital” is a measure of the maintenance of “capital commensurate with the nature and extent of risks to the institution and the ability of management to identify, measure, monitor, and control these risks.” For capital, a rating of 1 means “a strong capital level relative to the institution’s risk profile”; a rating of
2 means “a satisfactory capital level relative to the financial institution’s risk profile”; a rating of 3 means “a less than satisfactory level of capital that does not fully support the institution’s risk profile,” even “if the institution’s capital level exceeds minimum regulatory and statutory requirements”; a rating of 4 means “a deficient level of capital” in which “viability of the institution may
be threatened”; and a rating of 5 means “a critically deficient level of capital such that the institution’s viability is threatened.”
“Assets” is the quality of assets, including the loan and investment portfolios, real estate, and other assets. As defined in the FDIC Examination Manual, a rating of 1 means “strong asset quality and credit administration practices”; a rating of 2 means “satisfactory asset quality and credit administration practices”; a rating of 3 means “asset quality or credit administration practices are less than satisfactory”; a rating of 4 means “deficient asset quality or credit administration practices”; and a rating of 5 means “critically deficient asset quality or credit management practices.”
“Management” is, according to the FDIC Examination Manual, the “capability of the board of directors and management, in their respective roles, to identify, measure, monitor, and control the risks of an institution’s activities and to ensure a financial institution’s safe, sound, and efficient operation in compliance with applicable laws and regulations.”
As defined in the FDIC Examination Manual, the following ratings apply to management:
A rating of 1 indicates strong performance by management and the board of directors
and strong risk management practices relative to the institution’s size, complexity, and risk profile. All significant risks are consistently and effectively identified, measured, monitored, and controlled. Management and the board have demonstrated the ability to promptly and successfully address existing and potential problems and risks.
A rating of 2 indicates satisfactory management and board performance and risk management practices relative to the institution’s size, complexity, and risk profile. Minor weaknesses may exist, but are not material to the safety and soundness of the institution and are being addressed. In general, significant risks and problems are effectively identified, measured, monitored, and controlled.
A rating of 3 indicates management and board performance that need improvement or risk management practices that are less than satisfactory given the nature of the institution’s activities. The capabilities of management or the board of directors may be insufficient for the type, size, or condition of the institution. Problems and significant risks may be inadequately identified, measured, monitored, or controlled.
A rating of 4 indicates deficient management and board performance or risk management practices that are inadequate considering the nature of the institution’s activities. The level of problems and risk exposure is [sic] excessive. Problems and significant risks are inadequately identified, measured, monitored, or controlled and require immediate action by the board and management to preserve the soundness of the institution. Replacing or strengthening management or the board may be necessary.
A rating of 5 indicates critically deficient management and board performance or risk management practices. Management and the board of directors have not demonstrated the ability to correct problems and implement appropriate risk management practices. Problems and significant risks are inadequately identified, measured, monitored, or controlled and now threaten the continued viability of the institution. Replacing or strengthening management or the board of directors is necessary.
Section 4.1.V of the FDIC Examination Manual links a bank’s performance under the other CAMELS components to its management component: “Consequently, examiners’ findings and conclusions in regard to the other four elements of the CAMELS rating system are often major determinants of the management rating.”
“Earnings” means “not only the quantity and trend of earnings, but also factors that may affect the sustainability or quality of earnings,” such as likely loan losses or undue exposure to interest-rate volatility. As defined in the FDIC Examination Manual, a rating of 1 indicates “earnings that are strong”; a rating of 2 indicates “earnings that are satisfactory”; a rating of 3 indicates “earnings that need to be improved”; a rating of 4 indicates “earnings that are deficient” because they are “insufficient to support operations and maintain appropriate capital and allowance levels” and may leave the institution with “erratic
fluctuations in net income or net interest margin, the development of significant negative trends, nominal or unsustainable earnings, intermittent losses, or a substantive drop in earnings from the previous years”; and a rating of 5 indicates “earnings that are critically deficient.”
“Liquidity” is the ability of the financial institution to meet its anticipated funding needs with cash, assets readily convertible to cash, deposits, and loans. As defined in the FDIC Examination Manual, a rating of 1 means “strong liquidity levels and well-developed funds management practices”; a rating of 2 means “satisfactory liquidity levels and funds management practices” so that the institution “has access to sufficient sources of funds on acceptable terms to meet present and anticipated liquidity needs,” even though “[m]odest weaknesses may be evident in funds management practices:; a rating of 3 means “liquidity levels of funds management practices in need of improvement” because the institution “may lack ready access to funds on reasonable terms or may evidence significant weaknesses in funds management practices”; a rating of 4 means “deficient liquidity levels or inadequate funds management practices”; and a rating of 5 means “liquidity levels or funds management practices so critically deficient that the continued viability of the institution is threatened.”
“Sensitivity” is sensitivity to market risk, which reflects the “degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or economic capital.” As defined in the FDIC Examination Manual, a rating of 1 means that “market risk sensitivity is well controlled and that there is minimal potential that the earnings performance or capital positions will be adversely affected”; a rating of 2 means that “market risk sensitivity is adequately controlled and that there is only moderate potential that the earnings performance or capital position will be adversely affected”; a rating of 3 means that “control of market risk sensitivity needs improvement or that there is significant potential that the earnings performance or capital position will be adversely affected”; a rating of 4 means that “control of market risk sensitivity is unacceptable or that there is high potential that the earnings performance or capital position will be adversely affected”; and a rating of
5 means that “control of market risk sensitivity is
unacceptable or that the level or market risk taken by the institution is an imminent threat to its viability.”
According to the FDIC examination manual, the composite rating is based on a “careful evaluation of an institution’s managerial, operational, financial, and
compliance performance.” A composite rating of 1 means that the financial institution is “sound in every respect and generally [has] components rated 1 or 2.” A composite rating of 2 means that the financial institution is “fundamentally sound” and generally has “no component rating more severe than 3.”
A composite rating of 3 means that the financial institution exhibits:
some degree of supervisory concern in one or more of the component areas. These financial institutions exhibit a combination of weaknesses that may range from moderate to severe; however, the magnitude of the deficiencies generally will not cause a component to be rated more severely than a 4. Management may lack the ability or willingness to effectively address weaknesses within appropriate time frames. Financial institutions in this group generally are less capable of withstanding business fluctuations and are more vulnerable to outside influences . .
.. Additionally, these financial institutions may be in significant noncompliance with laws and regulations. Risk management practices may be less than satisfactory relative to the institution’s size, complexity, and risk profile. These financial institutions require more than normal supervision, which may include formal or informal enforcement actions.
Failure appears unlikely, however, given the overall strength and financial capacity of these institutions.
A composite rating of 4 means that the financial institution exhibits:
unsafe and unsound practices or conditions. There are serious financial or managerial deficiencies that result in unsatisfactory performance. The problems range from severe to critically deficient. The weaknesses and problems are not being satisfactorily addressed or resolved by the board of directors and management.
Financial institutions in this group are generally not capable of withstanding business fluctuations. There may be significant noncompliance with laws and regulations. Risk management practices are generally unacceptable relative to the institution’s size, complexity, and risk profile. Close supervisory attention is required, which means, in most cases, formal enforcement action is necessary to address the problems. Institutions in this group pose a risk to the deposit insurance fund. Failure is a distinct possibility if the problems and weaknesses are not satisfactorily addressed and resolved.
A composite rating of 5 means that the financial institution exhibits:
extremely unsafe and unsound practices or conditions; exhibit[s] a critically deficient performance; often contain[s] inadequate risk management practices relative to the institution’s size, complexity, and risk profile; and [is] of the greatest supervisory concern. . . .
The Cease and Desist Order states that Petitioner’s ROE dated July 5, 1995, found the management of First Bank unsatisfactory because:
[First Bank’s] staffing was found to be inadequate, in part because of excessive employee turnover.
[First Bank’s] board of directors was failing to provide [First Bank] sound
management, adequate guidance in the form of appropriate written policies, or adequate supervision of management.
Wells dominates [First Bank’s] board of directors, and the board of directors did not adequately supervise management’s operation of [First Bank].
[First Bank’s] board of directors had not responded to regulatory recommendations with respect to deficiencies in [First Bank’s] operating policies.
[First Bank] did not have a Strategic Plan.
[First Bank] employed an annual budget that had no written assumptions to support its projections and unrealistically continued to project net losses.
Wells could not attest to the accuracy of the general ledger, [First Bank] lacked an effective internal audit program, and [First Bank] needed to hire a full-time president, a cashier, and a loan officer.
[First Bank’s] board of directors inappropriately delegated its authority by permitting Wells to set his own salary and bonus and by permitting Wells to authorize and approve payments of legal bills by [First Bank] to Wells’ law firm without review by [First Bank’s] board of directors. [Petitioner] cited these practices as an apparent conflict of interest.]
[First Bank’s] Consolidated Reports of Condition and Income as of December 31, 1994 and March 31, 1995 contained errors and needed to be amended and re-filed.
During the period covered by the Report, [First Bank] had violated six laws and regulations, including violations of the Financial Record Keeping and Reporting
of Currency and Foreign Transactions regulation, 31 C.F.R. Part 103.
[First Bank] did not adequately segregate the duties of its employees.
The door to the Bank’s computer room was frequently left open, providing unrestricted access to the computer facility.
The Cease and Desist Order states that the FDIC’s ROE dated May 22, 1996, found that Wells, who was the controlling shareholder of First Bank, had been the only officer of First Bank since its formation and had served as the bank’s president, chief executive officer, chairman of the board of directors, and general counsel--all despite the fact that, prior to September 1989, Wells’ banking experience had been limited to that of bank counsel and director.
The Cease and Desist Order states that the ROE dated May 22, 1996, found that First Bank had failed to respond as required to Petitioner’s July 5, 1995, ROE because:
[First Bank’s] board had not adopted the following policies in conformity with the Board resolution [adopted after Petitioner’s examination]: Loan Policy, Appraisal Policy, Regulation O Policy, Amendment and Restatement of Asset/Liability Management Policy, and Strategic Plan.
[First Bank’s] general ledger had not been reconciled and appropriate internal routine and controls had not been implemented.
The Board had neither adopted the First Amended Internal Controls and Audit Program, nor implemented it as required.
[First Bank] still employed a budget that had not been revised since 1994, which incorporated outdated assumptions.
[First Bank] had engaged in twenty-five violations of fifteen statutes and regulations.
[First Bank] had failed to submit any reports with respect to its continuing violation of section 655.60(2) of the Florida Statutes.
Concerning internal routine and controls, the Cease and Desist Order states that the ROE dated May 22, 1996, found that First Bank had failed to respond as required to Petitioner’s ROE dated July 5, 1995, because:
[First Bank] had not reconciled its general ledger suspense account since February, 1995.
During the period covered by the FDIC’s May 22, 1996 examination, [First Bank] did not routinely reconcile its subsidiary ledgers.
[First Bank] failed to segregate the duties of its employees.
From October, 1995 until March 31, 1996, [First Bank’s] general ledger suspense account had an unreconciled gross credit balance that ranged from $96,000 to
$186,000.
As of March 31, 1996, which was the date as of which the FDIC examined its financial records during the May 22, 1996 examination, [First Bank’s] general ledger
suspense account had an unreconciled gross credit balance of $137,000.
From February, 1995 through May 22, 1996, [First Bank] did not reconcile the demand deposit suspense account.
As of March 29, 1996, [First Bank’s] demand deposit accounts as reflected in the general ledger exceeded the demand deposit accounts as reflected in subsidiary ledgers by $8,949.
As of March 29, 1996, [First Bank’s] time deposit accounts as reflected in the general ledger exceeded the time deposit accounts as reflected in subsidiary ledgers by $740,367.
As of June 12, 1996, [First Bank’s] time deposit accounts as reflected in the general ledger were short by $74,474 of the time deposit accounts as reflected in subsidiary ledgers.
As of May 27, 1996, [First Bank’s] total loan accounts as reflected in the general ledger were short by $12,000 of the total loan accounts as reflected in the subsidiary ledgers, and examiners were unable to reconcile these accounts during the FDIC’s May 22, 1996 examination.
From January 1996 to April, 1996, [First Bank] did not reconcile its correspondent account with Independent Banker’s Bank of Florida.
As a result of [First Bank’s] failure to reconcile its correspondent account with the Independent Banker’s Bank of Florida from January, 1996 to April, 1996, [First Bank] filed a Report of Condition and Income (“Call Report”) as of March 31, 1996, that incorrectly stated [First Bank’s] federal funds sold position by
$51,000.
As of the FDIC’s May 22, 1996 examination, three of [First Bank’s] prepaid expense accounts had not been accurately reconciled since March, 1996, and an accurate reconciliation of these accounts during the examination led to a correction in [First Bank’s] March 31, 1996 Call Report and to two items being classified as Loss.
[First Bank’s] vault cash account was not reconciled between March, 1995 and April, 1q996, and during the FDIC’s examination, [First Bank’s] vault cash was found to be short by $831.
[First Bank’s] teller cash accounts were not reconciled from September, 1995 until the FDIC’s May 22, 1996 examination, when one teller cash account was found to be short by $97 and another teller cash account was found to be short by $498.
[First Bank] failed to make appropriate entries reflecting depreciation in four depreciation accounts from January, 1996 until the FDIC’s May 22, 1996 examination and in two other depreciation accounts from February, 1996 until the FDIC’s May 22, 1996 examination.
As a result of the failure to keep the depreciation accounts current, [First Bank’s] March 31, 1996 Call Report failed to reflect $5,000 in depreciation for February and March, 1996, and the May 22, 1996 classified [sic] as Loss $6,000 in unrecognized depreciation for April and May, 1996.
During the period covered by the FDIC’s May 22, 1996 [ROE, First Bank’s] wire transfer logs were incomplete, no review of daily wire transfer transaction logs was performed, and neither internal nor external audit procedures extended to review of [First Bank’s] wire transfers.
Legal expenses of $4,284 for services performed by Wells’ law firm on behalf of [First Bank] between September and December, 1995, did not reflect the dates the expenses were incurred.
[First Bank] operated without a security officer from March, 1996, until the FDIC’s May 22, 1996 examination.
Concerning administration, supervision, and control, the Cease and Desist Order states that the ROE dated May 22, 1996, found the following conditions:
Forty seven percent of the loan files reviewed by FDIC examiners, as measured by dollar volume, reflected documentation exceptions regarding credit data or collateral documentation.
[First Bank] had not incorporated the requirements of Rule 3C-100.600 into its Appraisal Policy despite the fact that this discrepancy was pointed out to [First Bank] in [Petitioner’s] July 5, 1995 [ROE] and in subsequent correspondence between the Bank and [Petitioner].
Several of [First Bank’s] commercial loan files did not contain current financial statements from the borrowers.
Some of [First Bank’s] loan files contained no evidence that financial statements that had been obtained from borrowers had ever been analyzed by [First Bank’s] personnel.
Although [First Bank’s] Loan Policy includes a loan grading system, [First Bank’s] management had not implemented a loan grading program and did not maintain a watch list of loans that merit special attention.
[First Bank] had not corrected deficiencies in its Investment Policy that had been identified by [Petitioner] in its July 5, 1995 [ROE]. These deficiencies included a failure to address potential investments in mortgage derivatives and structured note securities.
[First Bank] had neither implemented a consistent system of accounting procedures nor employed a full-time accounting person or a qualified cashier or a qualified loan officer in response to the recommendations received from its external auditor and from [Petitioner] during 1995.
In the absence of a qualified cashier and in the absence of a qualified loan officer, [First Bank] required lower level employees to perform functions for which they were not qualified.
As for electronic data processing systems, the Cease and Desist Order notes that the FDIC, which, on June 11, 1996, had conducted an examination of First Bank’s information systems, had assigned them an unsatisfactory rating of a 4, signifying “unacceptable conditions and a high potential for operational or financial failure.” Noting that the FDIC examiner had recommended that the FDIC pursue action against First Bank to correct the deficiencies in its information systems, the Cease and Desist Order states that the FDIC’s ROE dated June 11, 1996, found the following deficiencies:
[First Bank] operated its data center without internal audit coverage of the data center’s operations.
[First Bank] had not tested a backup site for its data processing operations for three years.
[First Bank] failed to maintain backup data files in a fireproof area.
[First Bank] operated its data center without a disaster recovery program.
[First Bank’s] electronic information system was not compatible with the system in use at the backup site, because [First Bank’s] operating system and applications software had not been updated with the vendor’s new software releases for the previous two years. [First Bank’s] software was not updated because [First Bank’s] hardware system was outdated and lacked the capacity to operate the updated software.
[First Bank] was operating its data center in contravention of its EDP Policy with respect to the following: failure to store daily backup tapes in a fireproof location; failure to review on line log reports daily; failure to perform reconciliations on records regarding demand deposit accounts, savings accounts, certificates of deposit, or loan accounts; and failure to perform periodic internal audits of [First Bank’s] data processing functions.
[First Bank’s] disaster recovery program was such that [First Bank’s] ability to continue operations without interruption after a disaster was questionable.
[First Bank] operated its data center without appropriate internal controls with respect to the following: failure to reflect access to the data center by non- data center personnel; failure to review the daily on-line activity report; [and] failure to reconcile the daily totals
generated by [First Bank’s] application programs to the general ledger.
[First Bank] operated without a policy regarding the use of microcomputers, although [First Bank] was using microcomputers in its operations.
Concerning annual financial disclosures,
the Cease and Desist Order states that the ROE dated May 22, 1996, found the following failures:
As of the FDIC’s May 22, 1996 examination, [First Bank] had failed to prepare an annual financial disclosure statement by March 31 of any year since [First Bank] opened for business in 1989.
By letter dated April 24, 1996, in response to a request for [First Bank’s] annual financial disclosure, [First Bank] transmitted to William L. Durden, an attorney for minority shareholders of [First Bank], a financial disclosure that consisted only of a balance sheet and a net income figure and did not include the legend required by section 350.4(d)
In April of each year from 1990 through 1996 inclusive, [First Bank] transmitted to its shareholders a notice of the annual shareholder’s [sic] meeting but failed to include in each such notice an announcement regarding the availability of annual financial disclosures.
By letter[s] dated July 17, 1995, August 1, 1995, September 25, 1995, and October 10, 1995, Donald A. Robinson, an attorney for the estate of a deceased shareholder of [First Bank] requested [First Bank’s] annual financial disclosure statement for the year 1994. [First Bank] had not, as of the FDIC's May 22, 1996 examination, provided the annual financial disclosure statement required by Robinson.
By letter dated May 8, 1996, William L. Durden, an attorney representing minority shareholders of [First Bank], requested [First Bank’s] annual financial statement. On May 24, 1996, [First Bank] transmitted to Durden financial information that included a balance sheet but did not include the remainder of the information required by section 350.4(a).
The Cease and Desist Order discusses the failure of Wells, who was representing First Bank in the FDIC proceeding, to participate effectively. In early 1997, Wells failed to comply timely with an order compelling discovery, and he belatedly produced documents that were not fully responsive to the discovery requests, although he later supplemented his response. During oral argument on May 1, 1997, in response to a motion for sanctions, Wells claimed that arm and back conditions had prevented him from moving boxes of documents and fulfilling his discovery obligations. Unpersuaded by Wells’ “incredible” claims, the federal Administrative Law Judge determined, at the hearing and by written order dated May 12, 1997, that Wells had tried to delay the hearing. For sanctions, the federal Administrative Law Judge excluded all evidence related to documents not timely produced, except for certain documents prepared by the FDIC and documents generated by First Bank and delivered to the FDIC before the commencement of the proceeding. Following the administrative hearing, which took place from June 2-9, 1997, the
Administrative Law Judge assessed total costs for discovery abuses of $3245.44.
The Cease and Desist Order determines that the FDIC proved by a preponderance of the evidence that First Bank had engaged in unsafe or unsound banking practices, as defined by
12 U.S.C. section 1818(b), “by operating with a board of directors that had failed to require Bank management to implement necessary practices and procedures that reflect operational guidelines established by the board of directors.”
The Cease and Desist Order determines that the FDIC proved by a preponderance of the evidence that First Bank had violated 12 C.F.R. 364.101, Standards for Safety and Soundness, by failing to maintain adequate internal controls and information systems; 12 C.F.R. 326.8 by failing to develop and maintain administration of a program reasonably designed to monitor compliance with the Bank Secrecy Act; 12 C.F.R. 350.3(a) by failing to prepare and make available on request an annual disclosure statement; 12 C.F.R. 350.3(b) by failing to timely provide its annual financial disclosures statement to persons requesting this document; 12 C.F.R. 350.4(a)(1) by failing to include in its annual financial disclosures information that is comparable to the information contained in specified Call Report schedules; and 12 C.F.R. 350.8 by
failing to promptly provide an annual financial disclosure statement to persons requesting this document.
The Cease and Desist Order determines that the FDIC proved by a preponderance of the evidence that First Bank had violated Section 658.48(1), Florida Statutes, by extending credit to any one borrower exceeding 25 percent of the bank’s capital accounts when the loan was fully secured; Section 655.044(2), Florida Statutes, by carrying as an asset in any published report or any report submitted to Petitioner a note or obligations that is past due or upon which no interest has been received for at least one year; Section 658.48(5)(d), Florida Statutes, by failing to document as a first lien real estate mortgages securing loans; and Section 655.60(2), Florida Statutes, by making loans based on the security of the real estate without adequate written appraisal standards and without policies previously established by the board of directors.
Based on these violations, the Cease and Desist
Order concludes that First Bank “repeatedly engaged in imprudent acts that resulted in an abnormal risk of loss or damage to the Bank” and “defiantly refused to implement needed remedial actions.” The Cease and Desist Order thus suggests an “enforceable functioning program that will facilitate operation of the Bank in a safe and sound manner.” In
conclusion, the Cease and Desist Order warns that the “fact that the institution may not be operating at a loss in the current economic climate is no guarantee that unsafe and unsound practices will not eventually bear a bitter fruit.”
The Cease and Desist Order discusses at length one substantive exception of First Bank and two substantive exceptions of the FDIC to the Recommended Decision, from which the preceding citations have been drawn. As for First Bank’s exception, the Cease and Desist Order recognizes that “smaller institutions cannot be expected to maintain the same level of segregation of responsibilities as their larger counterparts,” but the order rejects the exception. As for the FDIC’s exceptions, the Cease and Desist Order concludes that First Bank also violated 12 U.S.C. Section 1817(a)(1) by submitting erroneous, uncorrected Call Reports dated December 31, 1994; June 30, 1995; September 30, 1995; December 31, 1995; and March 31, 1996; and 12 C.F.R. 309.6(a) by disclosing its (favorable) supervisory subgroup assignment without FDIC authorization.
The Cease and Desist Order orders First Bank to
cease and desist from the following unsafe or unsound banking practices or legal violations:
Failing to provide adequate supervision and direction over the affairs of the Bank by the board of directors of the Bank to
prevent unsafe or unsound practices and violations of laws and regulations;
Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits.
Failure by the Bank’s board of directors to require Bank management to implement practices and procedures that reflect operational guidelines established by the Bank’s board of directors;
Failing to provide the Bank with operational personnel who have experience that is adequate to ensure safe and sound operation of the Bank and to ensure compliance with applicable laws and regulations;
Failing to provide adequate training to operational personnel;
Operating the Bank with policies and practices that result in excessive employee turnover;
Failing to implement generally accepted internal accounting procedures and effective internal audit controls;
Failing to adopt and implement fully an appropriate loan policy, an . . . appropriate appraisal policy, and an appropriate asset/liability management policy;
Failing to maintain financial records sufficiently accurate to enable the Bank to comply with applicable reporting requirements established by federal laws and regulations;
Failing to prepare accurate annual financial statements;
Failing to make accurate annual financial disclosure statements available to shareholders in a timely manner;
Omitting pertinent or required financial information from the Bank’s annual disclosure statements;
Failing to maintain adequate documentation in loan files;
Failing to correct operational problems identified by the Bank’s external auditors;
Operating the Bank with inadequate information systems and management reporting systems, as described in the FDIC’s EDP [ROE dated] June 11, 1996; and
Engaging in violations of applicable federal and state laws and regulations, as more fully described [in the FDIC’s ROE dated] May 22, 1996.
The Cease and Desist Order directs First Bank and its institution-affiliated parties to take the following affirmative action:
Not later than thirty (30) days from the effective date of the ORDER, the Bank’s board of directors shall develop, or shall retain an independent banking consultant with experience in the evaluation of bank management to develop, a written analysis of the Bank’s management and staffing needs (“Management and Staffing Plan”), which shall include, at a minimum:
identification of both the type and number of officer and operational staff positions that are needed to manage and supervise the affairs of the Bank in a
safe and sound manner;
evaluation of each current Bank officer and staff member to determine
whether these individuals possess the ability, knowledge, experience,training, and other qualifications that are required to perform present and anticipated duties, including adherence to the requirements of this ORDER, adherence to the Bank’s policies,
and operation of the Bank in a safe and sound manner;
a review of the rate of turnover of Bank employees during the past five years and a plan to recruit, hire, and retain any additional or replacement personnel with the requisite ability, knowledge, experience, and other qualifications to fill Bank officer or staff positions consistent with the analysis and assessment heretofore described in Paragraph 1(a)(i) and (ii) of this ORDER; and
a review of the training deficiencies that were identified in the FDIC’s [ROE dated] May 22, 1996.
Not later than thirty (30) days from the effective date of this ORDER, the written Management and Staffing Plan shall be submitted to the Regional Director and to the Comptroller for review and comment. Not later than sixty (60) days from the date of such submission, the Bank’s board of directors shall approve the Management and Staffing Plan, taking into consideration any comments received from the Regional Director and/or the Comptroller within that period, and such approval shall be recorded in the minutes of the Bank’s board of directors. Thereafter, the Bank shall implement the Management and Staffing Plan. Subsequent modifications of the Management and Staffing Plan may be made only if, at least
[30] days prior to the effective date of
any proposed modification, the Bank submits such proposed modification to the Regional Director and to the Comptroller for review
and if the Bank’s board of directors shall have approved such modification after considering any responsive comments submitted by the Regional Director and/or the Comptroller.
Not later than ninety (90) days from the effective date of this ORDER, the Bank shall have and retain qualified management consistent with the Management and Staffing Plan that is required by Paragraph 1 of this ORDER. At a minimum, such management shall include officers with proven ability in managing a bank of comparable size.
Such officers shall have proven ability in managing a loan portfolio of at least comparable size and shall have an appropriate level of lending, collection, and loan supervision experience necessary to supervise any anticipated growth in the Bank’s loan portfolio, and shall have proven ability in managing the assets and operations of a financial institution of at least comparable size and with banking operations experience sufficient to supervise the upgrading of the Bank’s operational deficiencies. Such officers shall be provided the necessary written authority to implement the provisions of this ORDER. The qualifications of management shall be assessed on its ability to:
comply with the requirements of this Order;
operate the Bank in a safe and sound manner;
comply with applicable laws and regulations; and
restore all aspects of the Bank to a safe and sound condition.
As long as this ORDER remains in effect, the Bank shall notify the Regional Director and the Comptroller in writing of any
changes in management. Such notification shall be in addition to any application and prior approval requirements established by section 32 of the FDI Act, 12 U.S.C.
§1831i, and implementing regulations; must include the names and qualifications of any replacement personnel; and must be provided at least [30] days prior to any individual’s assuming a management position.
Not later than sixty (60) days from the effective date of this ORDER, the Bank shall adopt and implement an internal audit program. Thereafter, the Bank shall operate with an effective, ongoing system of internal audits.
Not later than thirty (30) days from the effective date of this ORDER, the Bank’s board of directors shall adopt, and the Bank shall implement, a plan to correct the Bank’s internal routine and control deficiencies, including specific provisions to assure that:
suspense accounts are reconciled in a timely fashion;
subsidiary accounts are reconciled to the general ledger in a timely fashion;
accounting errors, once discovered, are resolved in a timely fashion;
general ledger entries are initiated consistently, correctly, and in a timely fashion; and
the duties of Bank employees are segregated in a manner that minimizes the potential for misapplication of funds, defalcation, or sabotage.
Effective immediately, and until such time as the Bank’s accounts are
successfully reconciled, the Bank shall retain the full-time services of a qualified, independent accountant, who shall be responsible for reconciling the Bank’s accounts as expeditiously as possible, but in no event later than thirty
[30] days from the effective date of this ORDER.
Not later than thirty (30) days from the effective date of this ORDER, the Bank shall amend its [Call Reports] as of December 31, 1996; December 31, 1997; and March 30, 1998, to the extent deemed necessary by the Regional Director, and shall file amended [Call Reports] that accurately reflect the Bank’s financial condition as of the date of each such report.
Not later than thirty (30) days from the effective date of this ORDER, complete and accurate annual financial disclosure statements that conform in all respects to the requirements of Part 350 of the FDIC Rules and Regulations, 12 C.F.R. Part 350, shall be provided without charge to all persons who have requested copies of the Bank’s annual disclosure statements as of December 31, 1996, and December 31, 1997. Thereafter, the Bank shall prepare such disclosure statements, and make such disclosure statements available, in conformity with Part 350 of the FDIC Rules and Regulations.
Not later than January 31, 1999, the Bank shall engage a qualified, independent accounting firm to conduct an opinion audit of the Bank’s books as of December 31, 1998. Upon completion of such audit, the independent accounting firm shall present its final report directly to the Bank’s board of directors. The Bank’s board of directors shall cause the Bank to correct promptly all deficiencies that may be identified in such audit report. The minutes of the Bank’s board of directors
shall record any action that is taken by the Bank’s board of directors in response to such audit report.
Effective immediately, and until such time as the Bank has been able to reconcile its accounts, as required by Paragraph 5 of this ORDER, and to correct its [Call Reports], as required by Paragraph 6 of the ORDER, the Bank’s board of directors shall, not less frequently than monthly, review all actions taken by the Bank to correct the deficiencies in the Bank’s accounting practices and internal routines and controls identified [in the FDIC’s May 22, 1996, ROE]. Such review shall be recorded in the minutes of the Bank’s board of directors.
Not later than sixty (60) days from the effective date of this ORDER, the Bank shall develop, and the Bank’s board of directors shall review, an appropriate plan (the “EDP Plan”) for the safe and sound operation of the Bank’s electronic data processing equipment, software, operating procedures, and facilities, which shall include any modifications, consistent with guidance issued by the Federal Financial Institutions Examination Council, that may be necessary for the Bank to achieve Year 2000 readiness. Within [60] days from the effective date of this ORDER, the Bank shall submit such EDP Plan to the Regional Director and to the Comptroller for review and comment. Within 30 days from the receipt by the Bank of the FDIC’s written response to the EDP Plan, and after consideration by the Bank’s board of directors of comments from the Regional Director, if any, the Bank’s board of directors shall approve, and the Bank shall implement, such EDP Plan. Thereafter, for as long as this ORDER shall remain in effect, the Bank’s board of directors shall ascertain that the Bank’s electronic data processing is conducted in accordance with
such EDP Plan. At a minimum, such EDP Plan shall provide for:
the acquisition and operation by the Bank of hardware and software systems that are appropriate for the safe and sound conduct of the Bank’s business;
development and implementation of an appropriate, ongoing internal audit of the operations of the Bank’s information systems;
immediate acquisition and permanent retention of access to an EDP backup facility that is operationally compatible with the Bank’s hardware, software, and data files;
appropriate segregation of duties among the Bank employees (and contractor personnel, if any) who perform functions related to electronic data processing;
storage of backup copies of operating systems, application programs, and data files in a secure, fire- resistant environment at a remote site;
reconciliation of all major applications to the general ledger on a daily basis;
development and implementation of an appropriate policy . . . regarding the Bank’s use of microcomputers;
prompt review by the Bank’s board of directors of all audit reports and regulatory reports regarding the Bank’s electronic data processing, and written recordation of the responses by the Bank’s board of directors to such reports;
i[x]. prompt correction of all information systems deficiencies
identified in audit reports and regulatory reports; and
x. periodic review of the Bank’s EDP Policy by the Bank’s board of directors and of Bank management’s implementation of the Bank’s EDP Policy and EDP Plan.
Not later than thirty (30) days from the effective date of this ORDER, the Bank shall eliminate from its books, by collection, charge-off or other proper entries, all assets or portions of assets classified “Loss” by the FDIC as a result of its examination of the Bank as of May 22, 1996, which have not been previously collected or charged off, unless otherwise approved in writing by the Regional Director and the Comptroller.
Not later than sixty (60) days from the effective date of this ORDER, the Bank shall review and revise its written loan policy to include the following elements:
a requirement that before advancing any loan the Bank must obtain, analyze, and verify credit information which will be sufficient to identify a source of repayment and support for the scheduled repayment plan;
a requirement that all collateral documentation or evidence of collateral documentation be obtained and reviewed before loan proceeds are disbursed;
a requirement for the maintenance and review of complete and current credit files on each borrower with extensions of credit outstanding;
[a] requirement for the establishment of criteria and guidelines for the acceptance and review of financial statements; and
[a] requirement for appraisal procedures which, at a minimum, satisfy the requirements of Part 323 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 323, and applicable Florida banking laws and regulations.
Not later than sixty (60) days from the effective date of this ORDER, the Bank shall implement procedures to ensure that the Bank’s loan policy and all subsequent modifications to the Bank’s loan policy are strictly enforced.
13. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the assets listed for “Credit Data or Collateral Documentation Exceptions” [in the FDIC ROE dated] May 22, 1996. Thereafter, the Bank shall service these loans in accordance with its written loan policy as amended to comply with this ORDER and in accordance with safe and sound banking practices.
Not later than January 31, 1999, the Bank shall prepare a realistic and comprehensive budget and earnings forecast for calendar year 1999 and shall submit this budget and earnings forecast to the Regional Director and Comptroller for review and comment.
As long as this ORDER remains in effect, the Bank shall prepare annually realistic and comprehensive calendar year budget and earnings forecasts for each year subsequent to 1998 and shall submit these budget and earnings forecasts to the Regional Director and the Comptroller for review and comment no later than January 31 of each year.
In preparing the budget and earnings forecasts required by paragraph 14 of this ORDER, the Bank shall, at a minimum:
identify the major areas in, and means by which the board of directors will seek to improve, the Bank’s operating performance; and
describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components.
Quarterly progress reports comparing the Bank’s actual income and expense performance with budgetary projections shall be submitted to the Regional Director and Comptroller concurrently with the other reporting requirements set forth in paragraph 23 of this ORDER. The Bank’s board of directors shall meet and review such progress reports, which review shall be recorded in the minutes of the board of directors.
Not later than thirty (30) days from the effective date of this ORDER, the Bank shall take all necessary steps, consistent with sound banking practices, to eliminate or correct all violations of law and regulations committed by the Bank, as described [in the FDIC ROE dated] May 22, 1996. In addition, the Bank’s board of directors shall take appropriate steps to ensure that the Bank is operated in compliance with all applicable laws and regulations.
Not later than thirty (30) days from the effective date of this ORDER, the Bank shall adopt and implement an internal loan review and grading system to provide for the periodic review of the Bank’s loan portfolio in order to identify and categorize the Bank’s loans, and other extensions of credit which are carried on the Bank’s books as loans, on the basis of credit quality.
Within ninety (90) days from the effective date of this ORDER, the Bank
shall have and thereafter retain a qualified Bank Secrecy Act officer (“Officer”). The Officer must be a senior bank official who shall be responsible for the Bank’s compliance with [the] Bank Secrecy Act, 31 U.S.C. §§5211-5326, its implementing regulation, 31 C.F.R. Part 103, and Part 326 of the FDIC Rules and Regulations, 12 C.F.R. Part 326. The Officer shall be given written authority by the Bank’s board of directors to implement and supervise the Bank’s Bank Secrecy Act program, including but not limited to, providing appropriate training for the Bank’s employees in the bank secrecy laws and regulations (the “Bank Secrecy Laws”) enumerated in section 326.8(b) of the FDIC Rules and Regulations, 12 C.F.R. §326.8(b); establishing internal controls and procedures reasonably designed to prevent violations of the Bank Secrecy Laws; and performing or supervising periodic internal audits to ascertain compliance with the Bank Secrecy Laws and/or the Bank’s Bank Secrecy program. The Officer shall report directly to the Bank’s board of directors. The Bank shall provide the Officer with appropriate training in the Bank Secrecy Laws, and each instance of said training shall be reported to, and recorded in, the minutes of the board of directors.
The Bank shall promptly notify the Regional Director and the Comptroller of the identity of the Officer. If the Officer is to be added as a director of the Bank or employed as a senior executive officer, the Bank shall comply with the requirements of section 32 of the Act, 12
U.S.C. §1831i, and section 303.14 of the FDIC Rules and Regulations, 12 C.F.R.
§303.14, prior to the addition of the Officer to such position.
The assessment of whether the Bank has a qualified Officer shall be based upon the Officer’s record of achieving
compliance with the requirements of this ORDER and with the Bank Secrecy Laws.
Within ninety (90) days from the effective date of this ORDER, the Bank shall adopt and implement a written program to ensure the Bank’s compliance with the Bank Secrecy Act, 31 U.S.C. §§5311-5326, as required by 12 C.F.R. §326, Subpart B.
At a minimum, a system of internal controls shall be designed to:
identify reportable transactions in a timely manner in order to obtain all the information necessary to properly complete
the required reporting forms;
ensure that all required reports are accurately completed and properly filed;
ensure that customer exemptions are properly granted and recorded, including the maintenance of documentation sufficient in detail so as to substantiate exemptions granted;
provide for adequate supervision of employees who accept currency transactions, complete reports, grant exemptions, or engage in any other activity covered by 31
C.F.R. Part 103; and
v. establish dual controls and provide for separation of duties.
The Bank shall adopt and implement a system of testing, internal or external, for compliance with the Bank Secrecy Act and the Department of the Treasury’s Regulation for Financial Record Keeping and Reporting of Currency and Foreign Transactions (“Financial Record Keeping
Regulations”), 31 C.F.R. Part 103, which include, at a minimum:
a test of the Bank’s internal procedures for monitoring compliance with the Bank Secrecy Act, including interviews of employees and their supervisors who handle cash transactions;
a sampling of large currency transactions followed by a review of currency transaction report filings;
a test of the validity and reasonableness of the customer exemptions granted by the Bank;
a test of the Bank’s record keeping system for compliance
with the Bank Secrecy Act; and
documentation of the scope of the testing procedures performed
and findings of the testing. Any apparent violations, exception or other problems noted during the testing procedures should be promptly reported to the board of directors.
Each calendar quarter following the effective date of this ORDER, the Bank or a consultant shall perform an internal audit of the Bank’s Bank Secrecy Act program.
Any audit of the Bank Secrecy Act program performed by the Bank shall be performed or supervised by the Officer. The results of the audit and any recommendation by the Officer, the consultant and/or the board of directors shall be recorded in the minutes of a meeting of the board of directors.
Effective immediately, and for as long as the ORDER shall remain in effect, the Bank’s board of directors, not less frequently than monthly, shall review all
actions taken by the Bank to comply with the requirements of this ORDER. Such review by the board of directors shall be recorded in the minutes of the Bank’s board of directors.
Not later than sixty (60) days from the effective date of this ORDER, the Bank’s board of directors shall develop a three-year strategic plan for the Bank (“Strategic Plan”), which shall address, at a minimum: (i) economic conditions and economic forecasts regarding the Bank’s market area; (ii) potential methods for achieving growth in the Bank’s total assets; (iii) potential methods for improving the Bank’s operations in the context of any projected growth in the size of the Bank’s total assets; (iv) carrying on the functions of the Bank’s management in the event of a loss of the services of current personnel; and (v) integration of an assessment of the Bank’s staffing needs with the Bank’s business plan.
Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER: (i) in conjunction with the Bank’s next shareholder communication and also (ii) in conjunction with its notice or proxy statement preceding the Bank’s next shareholder meeting. The description shall fully describe this ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC . . . and to the Comptroller, for review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC or the Comptroller shall be made prior to dissemination of the description, communication, notice or statement.
Not later than ninety (90) days from the effective date of this ORDER, and not
later than thirty (30) days following the end of each calendar quarter while this ORDER is in effect, the Bank shall furnish written progress reports to the Regional Director and to the Comptroller detailing the form and manner of all actions taken to secure compliance with this ORDER and the results of such actions. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Comptroller have released the Bank in writing from making further reports. All progress reports and other written responses to this ORDER shall be reviewed by the board of directors of the Bank and made a part of the minutes of the appropriate board meeting.
As a result of the sanctions imposed upon [First Bank] for failure to produce discovery and violations of Orders issued by the Administrative Law Judge, not later than thirty (30) days from the receipt of this ORDER, the Bank’s board of directors shall pay costs in the amount of $3,235.44 to the FDIC.
Pursuant to delegated authority, the Regional Director may, upon a showing of good cause, amend the compliance deadlines for any of the undertakings required by this ORDER.
The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the Bank, its institution-affiliated parties, and its successors and assigns. Further, the provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
Petitioner’s 1998 Consent Order
Based on Petitioner’s ROE dated September 2, 1997, the Consent Order settled administrative litigation that Petitioner had instituted against First Bank, Wells, and the other directors who are respondents in this case, plus one director no longer serving as a director of First Bank. In that litigation, Petitioner sought, among other things, an order removing Wells from the board of directors of First Bank and prohibiting Wells from serving on the board of directors of any other state-chartered financial institution.
Paragraph 4 of the Settlement Stipulation incorporated into the Consent Order requires the respondents to cease and desist from violations of Section 655.033(1), Florida Statutes, and to take the following “affirmative remedial action”:
As soon as practicable, but in no event later than sixty days after the execution of this Settlement Stipulation by the Respondents, and subject to prior approval by [Petitioner], Respondents shall hire new and appropriately qualified management personnel to assume responsibility for daily operations and core banking functions of [First Bank] for the duration of the Consent Order. Management personnel acceptable to [Petitioner] shall be selected and employed to perform the positions of president/chief executive officer, cashier, and senior lending officer.
Any person selected by the Board of Directors to serve as president/chief
executive officer shall have a demonstrated capability to manage a bank comparable in size to [First Bank].
Any person selected by the Board of Directors to serve as cashier shall have a demonstrated ability to manage and balance the accounts of a bank comparable in size to [First Bank].
Any person selected by the Board of Directors to serve as senior lending officer must have a demonstrated level of lending, collection, and loan supervision experience necessary to supervise and enhance the safety and soundness of the loan portfolio of the Bank.
In determining whether to approve the selection of any person under this paragraph, [Petitioner] shall make its determination based on the ability of the candidate to: operate the bank in a safe and sound manner; comply with all applicable laws and regulations; assist in restoring the Bank to a safe and sound condition; and comply with the requirements of the [Cease and Desist Order] applicable to their area(s) of responsibility.
The president, as chief lending officer of the Bank, may also discharge the duties of senior lending officer until the Bank has employed an individual to fill the position on a permanent basis. Upon written request submitted to [Petitioner] by the president employed by the Bank pursuant to Paragraph 4.A.1 of this Stipulation, the selection of a permanent senior lending officer may be delayed for no more than 90 days beyond the deadline specified in Paragraph 4.A in order to facilitate the hiring of a qualified person.
For the duration of [the] Consent Order . . ., the Respondents shall provide [Petitioner] and the FDIC with written
notice of any change in the complement of executive officers employed by the Bank. Any replacement executive officer as defined in §655.005(1)(f), Florida Statutes, shall be subject to the approval procedures of §655.0385, Florida Statutes. An application for approval must be submitted to [Petitioner] and to the FDIC at least 30 days before the candidate’s assumption of management duties on behalf of the Bank.
Effective on the date that his successor as president and chief executive officer is approved by [Petitioner] and FDIC, [Wells] shall resign as President and Chief Executive Officer of [First Bank]. All named Respondents agree on behalf of the Bank, and [Wells] agrees individually as well, that, subsequent to this resignation, Wells will take no further action on behalf of [First Bank] in the capacity of “executive officer” within the meaning of §655.005(1)(f), Florida Statutes, for the duration of the Consent Order . . .. Nothing in this paragraph shall be construed to prohibit Wells from serving as legal counsel, inclusive of general counsel, or as consultant to [First Bank], or from receiving appropriate, reasonable compensation from [First Bank] for services provided by Wells in the capacity of counsel or consultant to the Bank.
[Petitioner] agrees that Wells may serve as a director of [First Bank] and may serve on any duly constituted committee of the Board of Directors. Wells may continue to serve as Chairman of the Board of Directors if, and only if, by appropriate resolution of the Board of Directors of the Bank in accordance with §655.005(1)(f), Florida Statutes, he is excluded from participating, other than in the capacity of a director, in any major policymaking functions of [First Bank], and receives no additional compensation attributable to
service as Chairman of the Board of Directors of the Bank. This paragraph shall not be deemed to disallow [Wells] from participation in reasonable Bank-paid group insurance.
Respondents agree to adopt a resolution of the Board of Directors of [First Bank], pursuant to §655.006(1)(f), Florida Statutes, excluding [Wells] from participating, other than in the capacity of a director, in any major policymaking functions of [First Bank]. This resolution shall be maintained in force by the Board of Directors for the duration of [the] Consent Order . . ..
Respondents agree that the primary tasks of the new management employed pursuant to this Stipulation will be to eliminate all unsafe and unsound practices detailed in [Petitioner’s] September 1997 [ROE] and to assure compliance by [First Bank] with the [Cease and Desist Order]. Respondents agree to provide new management with written authority by resolution to take such actions as may be appropriate and necessary to implement remedial action and compliance assurance activity.
Respondents, individually and collectively,
agree to take all actions appropriate and necessary to remedy any and all deficiencies in policies and procedures applicable to [First Bank] as noted in periodic examination reports prepared by [Petitioner] and the FDIC.
[Wells] agrees that he shall not willfully or intentionally interfere with the proper execution or discharge of delegated or assigned duties performed by the new management personnel employed by the Bank under the provisions of this Stipulation. Actions taken by [Wells] that fall within the scope of authority of a director of the Bank shall not be deemed to violate this paragraph. [Wells] acknowledges that [Petitioner] considers
this paragraph to be a material term of this Stipulation and that any violation of this paragraph will be deemed a material breach of the Consent Order.
Paragraph 10 of the Settlement Stipulation states that the respondents acknowledge that, although they do not waive their right to litigate such issues, the “failure to comply with any of the terms, obligations, and conditions of this Stipulation or [Consent Order] will constitute grounds for disciplinary or other adverse action.”
3. FDIC’s 1999 Safety and Soundness Order
Paragraph 2 of the Safety and Soundness Order states that the FDIC has determined that First Bank is deficient in meeting the safety and soundness standards set forth in Part
364 of the FDIC Rules and Regulations, 12. C.F.R. Chapter III, and the laws of the State of Florida. In particular, Paragraph 2 states:
The board of directors has failed to provide sufficient resources for the Bank to meet Year 2000 timetables established by the FFIEC;
The Bank’s Year 2000 project plan does not adequately address critical aspects of the Year 2000 program;
The Bank’s Business Resumption Contingency Plan is inadequate;
The Bank has not fully implemented its formal Year 2000 liquidity guidelines;
The Bank has not completed an effective external review of its Year 2000 program.
The Safety and Soundness Order asserts that the FDIC notified First Bank of these deficiencies on May 21, 1999, and “requested” that First Bank submit a compliance plan. First Bank submitted a compliance plan, but the FDIC found it unacceptable and issued, on July 21, 1999, a Notice of Intent to Issue a Safety and Soundness Order. In a response filed on August 4, 1999, First Bank submitted a revised Year 2000 Plan.
However, Paragraph 6 of the Safety and Soundness Order states that the FDIC found the revised plan “unacceptable” for the following reasons:
The board of directors has failed to allocate the necessary resources in order to comply with FFIEC guidelines. The bank is currently operating without a President and Chief Executive Officer and the Year 2000 project manager has not been given the requisite authority to fulfill his responsibilities regarding Year 2000 readiness.
The plan does not establish acceptable guidelines for the renovation of all mission-critical systems within an acceptable time frame.
The plan fails to address implementation of internal mission-critical systems that are Year 2000 ready.
The plan does not provide a strategy to test the business resumption contingency plan.
The plan does not specifically require that monthly management reports to the board of directors contain the information
outlined in the “Interagency Statement on Year 2000 Business Risk.”
The plan does not provide for the submission of monthly written progress reports to the Regional Director of the FDIC and the Comptroller of the State of Florida.
Concluding that First Bank is deficient in meeting the safety and soundness standards established under Part 364 of the FDIC Rules and Regulations, 12 C.F.R. Part 364, the Safety and Soundness Order directs First Bank to:
Allocate all necessary resources to achievement compliance with FFIEC Year 2000 guidelines. Within 15 days of the effective date of this Order, the board of directors shall:
hire and retain a qualified Year 2000 consultant, or qualified personnel, to oversee implementation of an acceptable Year 2000 Plan, whereby the Bank achieves compliance with all FFIEC Year 2000 guidelines within 20 days of the effective date of this Order. The board of directors shall provide the consultant or hired personnel with sufficient resources to achieve Year 2000 compliance within that time frame. The qualifications of the Year 2000 consultant or personnel shall be assessed on the ability of the Year 2000 consultant or personnel to comply with the provisions of this Order.
appoint and retain a qualified senior bank officer as the Year 2000 project manager. The board of directors shall provide the Year 2000 project manager with sufficient resources and authority to achieve Year 2000 compliance. The Year 2000 project manager shall submit monthly reports regarding the status of the Bank’s Year 2000 readiness to the board of
directors. The monthly reports shall address the items specified for quarterly board reports in the Guidelines, the FFIEC Guidelines and, specifically, the FFIEC’s December 17, 1997 issuance entitled “Interagency Statement on Year 2000 Business Risk.” The qualifications of the Year 2000 project manager shall be assessed on his/her ability to comply with the provisions of this Order.
Within 15 days of the effective date of this Order, renovate, as necessary, all mission-critical systems used by the Bank to make them Year 2000 ready and, within 20 days from the effective date of this Order, implement those Year 2000 ready systems.
Develop a Business Resumption Contingency Plan within 20 days of the effective date of the Order that provides workable plain language guidance to employees and can be implemented immediately. At a minimum, the Business Resumption Contingency Plan shall:
set forth the Bank’s plans to recover lost or damaged data and to mitigate risks associated with the failure of its systems at critical dates;
include identification of the Bank’s core business processes and a specific recovery plan for the possible failure of each core business process;
establish a manual bookkeeping system to operate parallel with the computer system beginning November 1, 1999, unless the FDIC and State Regulatory authorities have reviewed and verified that the bank is operating in compliance with all FFIEC Year 2000 guidelines; and
develop a method to validate and test the Business Resumption Contingency Plan within 20 days of the effective date of the Order.
Provide for the external review of Year 2000 readiness by a qualified, independent third party within 30 days from the effective date of the Order.
Establish a line of credit with the appropriate Federal Reserve Bank within 20 days of the effective date of this Order.
Following the effective date of this Order[,] the Bank shall send to its shareholders or otherwise furnish a description of this Order (i) in conjunction with the Bank’s next shareholder communication and also (ii) in conjunction with its notice or proxy statement preceding the Bank’s next shareholder meeting. The description shall fully describe this Order in all material respects. . . .
Provide for the submission of a progress report on the requirements of this Order within 30 days of the effective date of the Order, and monthly thereafter, until the Order is terminated. The progress report shall be sent to the Regional Director of the FDIC and the Comptroller of the State of Florida.
The Safety and Soundness Order concludes:
This ORDER will become effective ten (10) days after its issuance. The provisions of this ORDER will be binding upon the Bank, its institution-affiliated parties, successors and assigns. Each provision of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision shall be modified, terminated, suspended, or set aside by the FDIC.
By Order Terminating Safety and Soundness Order issued on April 2, 2000, the FDIC cancelled the Safety and Soundness Order.
First Bank’s Response to Regulatory Interventions
These cases are about the adequacy of First Bank’s efforts to solve its operational problems as addressed by the directives from Petitioner and the FDIC. The Cease and Desist Order and Consent Order arise from the three reports of examination issued in 1995, 1996, and 1997. The period during which First Bank responded to these directives is largely 1998 and 1999. Petitioner’s ROE dated September 13, 1999, is the contemporaneous, comprehensive assessment of the adequacy of First Bank’s efforts and responses.
These cases also require consideration of the role of Wells in creating and eliminating the operational problems experienced by First Bank. Petitioner’s representatives have frequently stated that the problems of First Bank would be amenable to quick solution if Wells were to sever his policymaking, consulting, and legal counseling ties to the bank.
Although the determinative facts in this case are largely confined to 1998 and 1999, the preceding nine years’ operation of First Bank is relevant to the analysis of the events of 1998 and 1999. During the first nine years of the
bank’s existence, Wells served as the president, until he was forced to resign, pursuant to the Consent Order, in the fall of 1998. After his resignation, though, Wells remained intimately involved with the bank’s operations as a director, consultant, and general counsel.
Under Wells’ supervision as president, the bank’s internal accounting was so poorly maintained that nearly all of the internal accounts of First Bank were out of balance for extended periods of time and demanded many months of effort to balance these accounts and reconcile the subsidiary ledger accounts with the general ledger account. Under Wells’ supervision as president, an unreasonably large opportunity for employee theft existed because the bank's employees did not perform financially sensitive tasks under dual control, even to the extent practicable for a small bank. Under Wells’ supervision as president, the bank’s information technology and data processing systems were poorly integrated into operations and insufficiently secured to prevent the loss of data in the event of catastrophe. Under Wells’ supervision as president, the bank’s personnel turned over at excessive rates.
However, under Wells’ supervision as president,
First Bank initially earned composite CAMELS ratings of 2 during four ROEs conducted by Petitioner and the FDIC in 1992,
1994, and 1995. During this time, First Bank earned four ratings of 1 for capital and assets, three ratings of 2 and one rating of 1 for liquidity, and three ratings of 2 and one rating of 3 for earnings. However, even during this period, First Bank earned three ratings of 3 and, in 1995, one rating of 5 for management. The 1996 and 1997 ROEs, on which the Cease and Desist Order are based, assigned First Bank composite ratings of 3, and the 1998, 1999, and 2000 ROEs assigned First Bank composite ratings of 4.
The record does not explain why these management problems intensified in the mid 1990s. However, under Wells’ supervision as president, these problems undermined the operations of First Bank and ultimately necessitated the regulatory interventions of the Cease and Desist Order and Consent Order. The record amply demonstrates that, without these interventions, First Bank, under Wells’ supervision as president, would have been unable or unwilling to resolve the numerous issues undermining its operations.
The Cease and Desist Order and Consent Order issued at a point when the federal and state regulators reasonably expected that First Bank, although a small bank, would have matured operationally after nine years’ existence. However, even the minutes of the meetings of the board of directors of First Bank for 1997 reveal a disturbing level of
disorganization and lack of focus among the directors, especially Wells.
The minutes of the March 11, 1997, meeting of the board of directors illustrate one aspect of the organizational problems confronting First Bank and Wells’ inability to identify a plan for resolving the matter. According to the minutes of this meeting, Wells complained that:
Organization of the Bank was proving to be one of the most difficult challenges possible. Personnel have failed or refused to follow policy guidelines and administrative requirements. The Bank generated several hundred forms prior to the organization of the Bank to expedite the handling of administrative, operational, loan and compliance matters.
Most of these forms are basically disregarded by staff personnel.
Employee turnover has been an ongoing problem at First Bank. However, the March 11 minutes reveal that Wells ignored the opportunity to analyze the challenge of attracting and retaining qualified personnel and identify specific solutions. Instead, Wells indulged himself in a personal diatribe whose evident purpose seems to have been to assign the blame for First Bank’s personnel problems on the undisciplined youth of Jacksonville and, to a lesser extent, their parents and school administrators. Displacing an informed examination of First Bank’s pay structure and working
conditions, Wells’ denunciation of the pool of potential bank employees stated:
Virtually all of the businesses and trades are publicly complaining over the quality of personnel and the ability of employees to to [sic] discharge assigned duties.
This results from either lack of or poor training and the failure of the student or institution to educate the graduate in the various disciplines of which he or she were engaged in the educational process.
Unfortunately, high school graduates exhibit a “warehousing” mentality. These young people oftimes describe and exhibit the attitude that they have been warehoused for their last few years of high school as opposed to receiving serious educational training and support. Conversations with educators at the high school level indicate that the students are undisciplined and virtually out of control. Responsible teachers from both Wolfson and Mandarin High Schools have advised the Bank that discipline is missing from the children’s home life. These educators say that School policy and procedures, as well as parent objections, prevent adequate discipline being applied during the school day. We are continuing to search for qualified personnel or graduates of various institutions who may be able to assist the Bank within the available employment funds of the Bank.
Evidently having satisfied himself that he had adequately addressed the bank’s considerable personnel issues, Wells, according to the minutes, then turned to apparent maintenance deficiencies concerning the exterior of First Bank and, again, found Jacksonville youth to blame. Noting that three juveniles had recently been arrested for throwing golf
balls and shooting guns into merchants’ signs along San Jose Boulevard, Wells stated that vandals had broken off all outside water spigots and removed floodlights at the bank. “Consequently, we are cautious about the implementation of further sign work and about repair to existing exterior facilities because of a continuing destructive environment. Merchants advise the Bank that these are, in large part, ‘latchkey’ young people who are frustrated and bored, but because of circumstances engage in destructive conduct against both public and private property.”
Three months later, though, the minutes were not so richly detailed as to Wells’ description of the pending FDIC administrative litigation, in which he represented First Bank without fee. As already noted, Wells’ inability or refusal to comply timely with discovery and his “incredible” explanation not only resulted in the imposition of over three thousand dollars in discovery costs, but also in the exclusion of much of the bank’s evidence from the hearing.
The first meeting of the board of directors after the Administrative Law Judge imposed these sanctions was May 20, 1997. The minutes state only that Wells advised the other directors that all pleadings would be kept in the wall unit at the bank, and he “encouraged the Directors to become very aware of the various allegations and defenses being filed in
this regard.” The minutes of the meeting of the board of directors on June 26, 1998, report confirmation from Wells that “the payment of costs on sanctions had been paid to the FDIC,” although the statement does not reveal whether Wells or First Bank paid this amount.
The record does not permit detailed findings of the substance of Wells’ legal representation of First Bank, apart from his obvious mishandling of the FDIC litigation and his prudence in deferring to outside counsel for the present litigation. Much of Wells’ work has involved the preparation of documentation, as to which he is experienced, and nothing in the record suggests any incompetence in this area. Some of his work has involved regulatory matters, as to which he is now experienced, but the record does not support a finding of any special competence in this area, even now.
However, the record reveals a considerable level of disorganization in at least one aspect of Wells’ legal work: invoicing. According to the minutes of the meeting of the board of directors on October 31, 1997, Wells presented the board in October 1997 several invoices for legal work that he had done in 1996. The minutes of the meeting of the board of directors on April 16, 1998, note that bank staff had found an unpaid legal statement from Wells dating back three years.
The minutes of the meeting of the board of directors on
October 15, 1998, acknowledge the receipt of previously unpresented legal invoices for work done by Wells 12-21 months earlier.
Under Wells’ supervision as president, First Bank adhered to conservative financial practices, protecting the quality of the bank’s loan portfolio, but at the expense of growth. In its initial business plan, First Bank had projected total assets of $15 million within three years. As of June 30, 1999, First Bank had total assets of only $8.3 million, down from a high of $9.3 million on December 31, 1993. Although its capital remains sufficient for its level of operations, First Bank had, until the quarter ending March 31, 2000, less capital than when it was organized. First Bank has never paid a dividend to Wells or its minority shareholders, who are dissatisfied with the performance of their investment and have commenced litigation against Wells and First Bank.
First Bank’s earnings have declined in recent years.
Net income in 1995 and 1996 was about $100,000 annually. Net after-tax earnings were $71,000 and $31,000 for 1997 and 1998, respectively. In 1999, First Bank suffered a net after-tax loss of $33,000. From 1997-99, First Bank’s interest income was $675,000, $624,000, and $290,000, respectively.
However, year-to-date figures, through June 30, 2000, reveal that First Bank’s total income was $313,298--107 percent of budget--and its total expenses were $278,851--85 percent of budget. The bank’s performance through June 30, 2000, may reflect a reversal of the negative trends in earnings and revenues, which, at least for revenues, may have been partly attributable to the end of adverse local publicity concerning Y2K compliance.
During the latter half of 1999 and early 2000, First Bank was the subject of numerous unflattering newspaper stories in The Florida Times-Union reporting, among other things, that the FDIC had issued the Cease and Desist Order, Petitioner had required Wells to resign as president in the Consent Order, the person hired to replace Wells as president had resigned only nine months after taking the job, First Bank was the last of over 10,000 banks under the FDIC to have demonstrated Y2K compliance, minority shareholders had sued for $3.5 million for the mismanagement of the bank, and First Bank, although financially sound, had been unable to balance its books and maintained poor internal controls.
The directors are unpaid and, except for Wells, do not appear to own shares of First Bank. When he served as president, Wells earned $20,000 in 1989, $40,000 annually from 1990-93, and $62,000 annually from 1994 through his
resignation as president in 1998. Following Wells’ resignation as president, a consulting agreement between First Bank and Welco, Inc., a corporation controlled by Wells, has required Wells personally to provide consulting services at the hourly rate $40 with a guaranteed annual minimum of
$38,000. From all sources, as president, general counsel, and consultant, Wells has received compensation of over $500,000 from First Bank in its 11 years of existence.
Three major additions to personnel marked 1998. The first such addition was the replacement of Wells by
A. Richardson Tosh (Tosh), as reflected by the minutes of the meeting of the board of directors on September 9, 1998. The minutes state that First Bank hired Tosh, as president and chief executive officer, for $50,000 annually. Following regulatory approval, Tosh began working in these capacities in mid October 1998.
The next two personnel events were the addition of James Giddens (Giddens) and Kim Jufer (Jufer). The minutes of the meeting of the board of directors on November 13, 1998, confirm and ratify the employment of Giddens in an unspecified capacity and Jufer as the manager of the operations department and staff accountant.
Tosh’s banking career began in March 1964. Prior to his arrival at First Bank, Tosh had been the president of
three financial institutions for a total of over 16 years. In his conversations with Wells, Tosh learned that his duties would be twofold: eliminating operational problems and marketing. The two main operational problems confronting Tosh were out-of-balance accounts and Y2K compliance.
Tosh found the books and records in extremely poor condition. As Giddens testified, almost every account was out of balance. These erroneous books and records generated unreliable financial information for the board of directors and the FDIC in quarterly financial reports known as call reports submitted by the bank. The directors were aware of the problem, although probably not its severity; the 1997 and 1998 minutes reflect unsuccessful attempts by the directors to have a bank employee balance the internal accounts.
Jufer and Giddens proved indispensable to the task of balancing the bank’s accounts. However, consistent with the relatively limited authority extended Tosh, he had to obtain the approval of the board of directors to hire these two employees. Jufer worked fulltime on the books and records, and Tosh worked parttime to help her until Giddens, who is a certified public accountant with considerable bank audit experience, joined First Bank a few weeks after Jufer’s arrival.
Tosh’s second operational concern was Y2K compliance. By October 1998, First Bank had already missed one FDIC deadline. Shortly after Giddens’ arrival, Tosh turned his attention to the Y2K problem.
If ever good, the relationship between Tosh and Wells did not take long to start to deteriorate. Other directors assured Tosh that they wanted him to report any incidents of interference by Wells in the performance of Tosh’s duties as president. An early example of the extensiveness of the involvement of the board of directors, although not necessarily Wells alone, in the management of First Bank is reflected in the minutes of the meeting of the board of directors on November 13, 1998, in which the directors approved directives detailing specific job responsibilities of all bank employees. The board issued numerous directives, whose effects were to limit Tosh’s managerial authority.
At the next meeting of the board of directors, which took place on December 10, 1998, the minutes state that Tosh informed the board that he was outsourcing payroll functions, and the board directed Tosh not to outsource the payroll due to the limited number of employees.
At the first board meeting of 1999, which took place on January 14, Tosh reported that he had found a bank in Perry
whose hardware and software systems were sufficiently compatible with those of First Bank that it might serve as a backup source for disaster recovery. The directors requested that Tosh find a second site, but Tosh justly responded that their first priority should be testing the Perry bank to see if the backup plan could be implemented there.
By this time, Tosh was handling Y2K issues, as well as other operational matters, such as compliance with the requirements of the Bank Secrecy Act, collection matters, and some internal control issues. As to these matters, Respondent Gunti was also intimately involved.
By letter to Wells and the other directors dated February 7, 1999, Tosh complained about their use of directives without obtaining management input to solve the problems of the bank. In particular, Tosh criticized directives that could delay time-sensitive projects, such as Y2K testing. Tosh also noted a tendency for the directors to provide employees with binders full of policies and procedures, rather than hire experienced, competent employees capable of implementing bank policies.
Addressing Wells, Tosh suggested that “it is time for him to limit his duties to those that we agreed on at the time of my interviews.” He added: “it is clear that nearly everyone that works here at the bank has a difficult time
working with Mr. Wells. This level of frequent tension is not conducive to a productive workplace. Furthermore, tension produces turnover.”
Turning to recent accomplishments, Tosh commended Jufer and Giddens for their work. Referring to the recent FDIC examination, which resulted in the ROE dated December 7, 1998, Tosh observed that as many as seven FDIC examiners had been at the bank for four weeks. Conceding that they were only doing their job, Tosh wrote that the timing of the examination “could not have been much worse for us.” Exacerbating the disruption to staff, such as Jufer and Giddens, was that the examiners were having the same problem that staff has in finding necessary records.
Turning to work to be undertaken, Tosh noted that First Bank was having trouble finding a senior loan officer, but had obtained an extension to mid March from Petitioner to fill this position. Referring to marketing, Tosh conceded that he had not been active and that the bank needs to grow, but, when he had agreed to take on substantial marketing duties, he had had no idea of the “chaos” present at First Bank. As for Y2K mainframe testing, Tosh expressed his concern that the bank has no one with the expertise to evaluate their testing.
Tosh concluded this portion of the letter with his concern, shared by the board, of the “lack of income in the near term for the bank.” He repeated his expectation, first stated during his interviews, that he hoped that the bank would spend the money to prepare to make profitable loans. On this point, he reemphasized the importance of a good senior loan officer who, although costly, would bring a book of business to First Bank.
Tosh described the building as “exceptional,” but “filthy dirty” inside and lacking bright lighting and signs at night. Tosh concluded his letter by returning to the issue of Wells. Asserting that “Wells has steadfastly held onto the CEO functions,” Tosh warned that he would not remain with First Bank only to serve as a branch manager and ensure apparent compliance with the Consent Order. Tosh asked the board to “reassign and limit [Wells’] continued management function.”
At the meeting of the board of directors on March 30, 1999, Tosh reported that the testing at the Perry bank had been successful, and the board reminded him that they wanted a second backup site.
The minutes of the March 30 meeting reveal another aspect of the disorganization of First Bank. Hampering the bank’s efforts to timely find documents and present an
attractive place to bank for customers, the minutes note that several directors “had complained of the organization and clean-up of internal Bank facilities because of the unsightly stacking of binders, file boxes standing in the teller areas visible to customers, records stacked in the lounge area, discarded equipment being stacked in a pile in the lounge area, waste materials needing shredding or other destruction, [and] unsightly organization of the storage areas (including material storage).” However, the minutes of the special meeting of the board of directors on August 18, 1999, disclose that, five months later, the unattractive disarray and obvious disorganization of the bank’s premises continued to be a problem.
At a special meeting of the board of directors on April 12, 1999, the directors
emphasized the need for prompt action on marketing and business development. The [Acting] Chairman [Respondent Gunti] restated the continuing operating loss must be addressed by management promptly. He again reaffirmed repeated requests for a marketing plan from Mr. Tosh and recommendations for business development activity. The Chairman stated that the Bank staff is being underutilized for customer service because of the poor attendance of customers. . . .
At a special meeting of the board of directors on April 20, 1999, the directors asked Tosh to review available services for prospective customers and to survey competitors for the services that they provide customers.
At the meeting of the board of directors on April 22, 1999, Tosh reported that he had made little progress in finding a senior loan officer. However, he reiterated that Wells had not interfered with his performance of his duties.
By internal memorandum to the directors dated April 28, 1999, Tosh asked the board to consider Jufer’s compensation. The memorandum states that Tosh had promised her a salary review in six months, if she would initially accept $30,000 annually. Praising her work to this point, Tosh recommended that the board promote her to vice president, raise her salary to $34,000 annually, and pay her a bonus of
$2000.
At the meeting of the board of directors on May 13, 1999, Tosh reported that the findings of the Y2K examination team were unsatisfactory, and he recommended that the board engage a consultant to review the status of the bank’s Y2K compliance. The minutes are not clear as to the action that the board took, but it did not accept Tosh’s recommendation. Wells opposed this recommendation because he had not yet finished preparing the bank’s Y2K plan.
According to the minutes of the May 13 meeting, Tosh again reported that Wells had not interfered with Tosh’s performance of his duties and that efforts to find a senior loan officer had not been successful. On questioning by directors as to possible interference by Wells, Tosh noted one incident in which a signature on a bank check had been lined out, but Respondent Gunti stated that he had done it because he was not aware of the nature of the payment. Illustrative, though, of the extent to which the directors involved themselves in management, Tosh had written the check to purchase some much-needed office furniture.
Again, the directors inquired about the marketing efforts. The minutes note that Tosh was to have implemented a call program, but he had been unable to do so.
The May 13 minutes also disclose that the directors had appointed Giddens as vice president and comptroller. Two days later, Tosh announced his resignation, effective June 15, 1999. Jufer also resigned at this time.
By memorandum dated May 25, 1999, to the board of directors, Tosh warned that First Bank needed immediately to engage a consultant to assure timely Y2K compliance. The memorandum states: “We are lay people trying to do a specialty project. . . . Since the overall Y2K plan should
have been done last summer, we are risking too much by doing it at this late date by ourselves.”
Petitioner called Tosh as a witness, and his testimony was somewhat adverse to Respondents. However, Tosh testified that Respondents Gunti and Minor participated actively in directors' meetings and were concerned about compliance with the Cease and Desist Order and Consent Order. Tosh also testified that, by the summer of 1999, the mainframe and software were Y2K compliant. This testimony is credited.
Tosh’s experiences at First Bank reveal the detailed level to which directors involved themselves in management issues, although, for a bank as small as First Bank, this is not unusual. However, Tosh’s experiences also reveal some of the shortcomings of the directors in handling management issues.
The directors repeatedly misprioritized important tasks. From the start of their relationship with Tosh, for example, the directors were preoccupied with Tosh's spending valuable time finding a second backup site. As Tosh recognized, this would have been a misallocation of limited resources given the numerous operational challenges lying ahead of First Bank, especially as to Y2K compliance.
Later, the directors became preoccupied with Tosh's spending time marketing First Bank. Although Tosh could have
improved revenues by focusing more effort in marketing, his insignificant shortcomings in marketing had considerably less effect on revenues than did the directors’ misguided refusal to take Tosh’s recommendations to pay a sufficient sum of money to attract a senior loan officer with a book of business and to hire a Y2K consultant in May of 1999.
The failure of the directors to timely obtain expert Y2K assistance proved especially costly to bank revenue later in 1999 after a deposit runoff due to adverse publicity surrounding First Bank. Although First Bank’s hardware and software were in fact Y2K compliant when Tosh departed, the directors failed to appreciate the magnitude of the remaining tasks of demonstration testing and preparation of a Y2K compliance plan, which Wells, despite his unfamiliarity with hardware and software systems, had been trying without success to prepare.
However, Tosh also serves as a useful reference point concerning the overall condition of First Bank, despite the managerial shortcomings revealed during his tenure. Two weeks after his departure, Tosh introduced investors who, with Tosh, were interested in purchasing the stock of First Bank.
At a special meeting of the board of directors on June 8, 1999, the directors approved the hiring of T. Dale Ferguson (Ferguson) as loan officer, effective June 15, 1999.
At a regular meeting of the board of directors on June 10, 1999, the directors approved the hiring of Ferguson as senior loan officer, subject to regulatory approval.
At a special meeting of the board of directors on June 24, 1999, the directors approved the appointment of Giddens to the position of interim president, pending the conclusion of an advertisement campaign for a permanent president. As Wells and Respondent Gunti noted, though, the adverse publicity received by First Bank had also hampered its search for a president.
By letter dated July 14, 1999, to the board of directors, Petitioner notified each director that he was in violation of the Consent Order and Settlement Stipulation and, absent corrective action within 90 days, Petitioner would seek administrative fines in the amounts of $10,000 against Wells,
$5000 against Respondents Alters, Drummond, and Gunti, and
$2500 against Respondent Minor.
At a special meeting of the board of directors on July 16, 1999, the directors approved the hiring of outside counsel to defend the bank in the legal action brought by the minority shareholders. Also, noting deficiencies cited by the FDIC in First Bank’s Y2K compliance, the directors approved an enlargement of the duties of a consultant, Reed Dearing (Dearing), to various Y2K duties.
At a special meeting of the board of directors on August 10, 1999, the directors reviewed with Ferguson the marketing plan to increase bank revenues. The directors approved an executive directive specifying officer marketing activity and asked Ferguson to survey the activity of competitors to assist the directors in strategic planning.
At a meeting of the board of directors on August 26, 1999, Ferguson, who was serving as Y2K project manager for First Bank, reported that the bank’s Y2K plan had failed to win approval for a second time, and the bank had assigned to Dearing the task of rewriting the plan.
A letter dated August 23, 1999, from Dearing to Wells states that the May 13, 1999, business resumption contingency plan, which First Bank adopted as part of its Y2K plan, lacked necessary content, made vague assumptions, and was extremely wordy and unreadable. The letter notes that Y2K work by Ferguson has been hampered by the failure of the board to delegate him any authority, so that he must continually seek board approval for all decisions. Dearing noted that the deficiencies in the business resumption contingency plan were the focus of the FDIC’s pending Safety and Soundness Order.
After Tosh’s departure, Giddens continued to work on the books and records. Although he had already completed the majority of the work, considerable, detailed effort
remained. Having already restored the books and accounts so that they were accurate on a going-forward basis, Giddens analyzed information, often years old, to achieve a comprehensive balancing and reconciliation. Eventually, the main adjustment was an addition, to the bank’s favor, of
$21,214.36 to the cash items account, as accepted by the board of directors on October 29, 1999. At the request of Petitioner’s examiners, Giddens issued corrected call reports to reflect this adjustment.
The best indicator of the point of completion of Giddens’ work on the books and records is found in the minutes of a special meeting of the board of directors on August 31, 1999. The outside auditor appeared at the meeting and informed the directors that he was again working on his audit for the years 1996 and 1997, which he had been forced to suspend due to the condition of the books and records. On August 18, 1999, outside auditors issued an independent auditors report concerning First Bank’s financial position through 1998.
As interim president of First Bank, Giddens was only employed at the rate of $14 hourly for an average of 15 hours of week. Freely expressing his dissatisfaction with his rate of pay, although not the hours, Giddens nevertheless testified that Wells had not interfered with Giddens’
performance of his duties. In reality, those duties are more in the nature of a chief financial officer, not chief executive officer.
Giddens has over 30 years’ experience in bank auditing and accounting, including internal controls. His limited experience in operations derives from an assignment to Jamaica on which he was to hire and train a bank auditor, but, due to an unexpected strike, Giddens had to run operations for a relatively short period of time.
Working on the books and records, Giddens gained a unique insight into the problems of First Bank. For example, where Wells might complain generally about employees misusing forms, Giddens encountered specific instances, such as the practice of some employees to use loan checks when they ran out of cashier checks, thus leaving both accounts out of balance.
As his work on the books and records began to reach completion in the summer of 1999, Giddens devoted more time to internal controls. Dual control of sensitive assets, such as travelers’ checks or the night deposit box, poses unique problems for a bank with only a half of a dozen employees. However, Giddens implemented numerous internal controls to reduce the risk of employee theft.
For example, under Giddens, First Bank imposed dual control upon travelers’ checks, even though Giddens had never seen another bank have to do this; Fedline wire transfers (where one person had to load and another person had to transmit), even though First Bank’s wire transfer procedures left it no more exposed to risk than had the procedures of Barnett Bank, where Giddens had worked for many years immediately prior to coming to First Bank; tellers’ cash drawers, for which different persons do unannounced money counts; and official checks, where, due to employee attrition, different persons perform the necessary reconciliations.
As for internal auditing, Giddens admitted that First Bank lacks a program, but, befitting a bank of its size, has internal control systems that are verified periodically by independent persons. As Respondents Gunti and Minor testified, the directors do not do internal audits, but Giddens does. In fact, on December 20, 1998, Giddens and Tosh found a $1700 shortage in one teller’s cash box, and they referred the matter to the state attorney’s office.
As for accounting practices, Giddens detailed all of the objections of Petitioner’s examiners and rebutted each of them or showed that they did not present a material risk of loss or damage.
As for security practices, Giddens acknowledged that the combinations and locks had not been changed since the departure of Tosh, and the bank needs to deal with these issues. However, the bank had already dealt with minor deficiencies with the bait money that it supplies tellers in the event of a robbery.
In general, Giddens testified credibly that First Bank is adequately staffed to handle the volume of business that it experiences. As described by Respondent Gunti, First Bank handles only about 40 transactions daily.
At a special meeting of the board of directors on September 17, 1999, the directors gave Ferguson the authority to do whatever was necessary to implement the Y2K plan, including the business resumption contingency plan, and authorized him to purchase, on a competitive basis, needed items, as outlined in a Y2K budget.
At a meeting of the board of directors on September 29, 1999, the directors for the first time in this record cast opposing votes as to a matter. Respondent Alters noted that the directors had received a letter of intent to purchase the assets or stock from the Bank by Evergreen Bancshares, Inc., evidently a different group from that in which Tosh had been involved. Wells moved that the board require the prospective purchaser first to provide background
information, but Respondent Alters moved that the directors waive this requirement and consider the prospective offer directly. Joining Wells were Respondent Drummond and Wells’ son, who had been recently appointed to the board, so that Respondent Alters’ attempt to waive the requirements was defeated. However, Respondent Drummond later switched his vote, so that the directors waived the requirements that the prospective purchaser first provide background information.
At Wells’ request, the directors deferred consideration of the matter until October 1, 1999.
At the same meeting, Ferguson reported to the directors that the FDIC had rejected the first two Y2K plans submitted by First Bank. Dearing had given management a rough draft of his rewrite on September 15, 1999, but management had made some changes with which Dearing had disagreed. The Y2K committee had adopted a revised plan on September 27, 1999, but the FDIC had recently informed the bank that it had to rewrite the entire Y2K plan. Ferguson reported to the directors that he had deferred implementing his business development responsibilities until he had completed his Y2K tasks.
At a special meeting of the board of directors on October 4, 1999, the directors agreed to respond to the Evergreen letter of intent, but to require certain conditions
precedent to further discussion, including disclosure to the directors of the amount of the purchase offer to the minority shareholders.
At a special meeting of the board of directors on October 25, 1999, the board of directors discussed the Safety and Soundness Order and the Y2K deficiencies cited in that order.
At a meeting of the board of directors on October 29, 1999, the directors addressed earnings, noting that expenses were over budget and income was under budget. They discussed the continuation of an operating loss and addressed Ferguson’s marketing activity, which remained on hold until resolution of the Y2K issues. Directors advised
Ferguson that customer service and attention to detail would increase revenues, not, as he had tried, reduced banking costs.
By letter dated November 12, 1999, to the board of directors, Ferguson noted that the FDIC had still not determined that First Bank was Y2K compliant. However, according to his letter, the FDIC Y2K examiner had said that the plan looked “fine,” but that the FDIC had not issued a written determination. Ferguson detailed recent Y2K activity, documenting his considerable efforts at securing regulatory approval.
At a meeting of the board of directors on November 12, 1999, the directors discussed five loan delinquencies. The largest of the loans was for about $101,000 and was secured by a first mortgage on a residence valued at $400,000 several years ago. The smallest loan was for $649.
A third loan was due to an internal error by First Bank in which it credited an account with $22,000 and did not discover the error for five months. After obtaining a note from the account holder, First Bank received a couple of payments, but had received nothing more, and collections prospects were dim.
The last two loans were to Respondent Alters. One was a $20,000 unsecured note for leasehold improvements that became due on August 1, 1999. Respondent Alters had requested a renewal of the loan. The other loan was for a balance of
$2800, which had been renewed in January 1999 for an additional 18 months; however, Respondent Alters had already fallen behind by three monthly payments of $153 each.
Respondent Alters assured Ferguson that he would pay the past- due payments on these loans.
Also at this meeting, Ferguson assured the directors that First Bank had complied with all Y2K requirements and should be certified as having done so. Ferguson stated that the bank had discharged all of its
responsibilities under the Safety and Soundness Order, except for mailing notices to shareholders at the next regular communication with shareholders.
At a special meeting of the board of directors on November 19, 1999, the directors told the chair of the loan committee to obtain from Respondent Alters adequate security for the $20,000 unsecured loan, as well as to require that Respondent Alters bring current a first mortgage loan and home equity loan secured by his residence. Ferguson advised the directors that Petitioner’s examiners, as part of their examination resulting in the September 13, 1999, ROE, would require that First Bank add $16,000 to its loan loss reserves due to the loans to Respondent Alters and the account holder wrongly credited with $22,000. Giddens also informed the board that one of Petitioner’s examiners had told him to amend the bank’s call reports to reflect the $21,214.36 credit to the cash items account.
At a special meeting of the board of directors on November 23, 1999, Petitioner’s Bureau Chief and counsel presented the September 13, 1999, ROE. The Bureau Chief noted that the condition of First Bank was “very poor” with continuing violations of laws and regulations, deficiencies in internal controls, and other problems. The Bureau Chief stated that the “basic reason” for these problems was Wells,
and he restated an earlier demand, which he had presented to the directors in the summer, that they remove Wells from the board and as general counsel. The Bureau Chief stated that Petitioner would bring an enforcement action, if the directors failed to act. Respondent Minor noted that the other directors could not legally remove Wells, and the Bureau Chief acknowledged the obvious problem posed by directors trying to remove another director who was the majority shareholder.
Petitioner’s counsel added that Petitioner would prove by clear and convincing evidence that Wells is “in complete control of the bank and its operation.”
An FDIC representative attending the meeting noted that First Bank would be upgraded from unsatisfactory, presumably concerning Y2K compliance.
Petitioner’s examination of First Bank ran from September 13 to October 15, 1999. The ROE dated September 13, 1999, contains an composite CAMELS rating of 4 and component ratings of 2 for capital, 2 for assets, 5 for management, 4 for earnings, 3 for liquidity, and 3 for sensitivity.
There can be no dispute concerning the ratings for capital, assets, and earnings. As for earnings, First Bank was experiencing an operating loss in 1999 and a downward trend in earnings. A rating of 4 for earnings indicates “intermittent losses” and “significant negative trends.” The
record likewise permits no challenge to the rating of 3 for sensitivity, as the bank did not maintain an active system for identifying, measuring, and monitoring interest rate risk. A rating of 3 for sensitivity indicates either that the “control of market risk sensitivity needs improvement or that there is significant potential that the hearings performance or capital position will be adversely affected.” First Bank needed to improve its control of market risk and therefore did not merit a rating of 2 for sensitivity.
The liquidity rating of 3 is clearly erroneous, however. The examiner assigned to this component correctly rated First Bank a 2, but the examiner in charge changed the rating to a 3. In doing so, the examiner in charge weighed the loss of nearly three quarters of a million dollars in deposits. The ROE states that public knowledge of First Bank’s Y2K difficulties had resulted in a decline in liquid assets.
Although the ROEs dated December 7, 1998, and March 20, 2000, were not admitted for the truth of their contents, their contents are available to impeach other
evidence. Both the 1998 and 2000 CAMELS ratings for liquidity were 2.
The liquidity ratio in 1998 was substantially the same as the liquidity ratio in 1999; both years, the ratio of
cash and short-term, marketable securities to deposits and short-term liabilities was around 30 percent. Likewise, the 1999 ratio of net loans and leases to total assets--63.69 percent--had not changed significantly from the prior year. The reliability of First Bank on potentially volatile liabilities had actually halved from 1998 to 1999. Another improvement as to liquidity from 1998 to 1999 was that First Bank had increased its credit line with the Independent Bankers’ Bank of Florida by $1 million to $1.713 million.
The 2000 liquidity analysis also undermines the 1999 liquidity rating of 2. The 2000 ROE found that First Bank, misinterpreting a state statute, had reserved an additional 15 percent of a specified amount, resulting in the maintenance of more generous levels of liquidity than required. It is a likely inference that First Bank similarly misinterpreted the statutory requirement in 1999. The 2000 analysis also notes that the deposit base stabilized through the end of 1999, after an earlier runoff. The 2000 analysis states that the bank’s largest depositor is the Welco Investment Trust, which maintains 22 percent of the total deposits and is controlled by Wells. One adverse development arising after the 1999 ROE is that First Bank appears no longer to have its line of credit with Independent Bankers’ Bank of Florida. But the 2000 analysis notes that the loan
portfolio, reflecting the bank’s “extremely conservative collateral-based lending philosophy,” does not leave it particularly vulnerable to economic risk, especially given the strength of the local economy, including real estate, which accounts for 70 percent of the bank’s loans.
Referring to the FDIC Examination Manual definitions of ratings for liquidity, the 3 assigned in the 1999 ROE is clearly erroneous, probably reflecting undue weight assigned to a few months during which the Y2K runoff was at its height and apprehension that the deposit runoff might continue. A rating of 3 means that the bank’s liquidity levels or funds management practices are in need of improvement--facts not present in this record. A rating of 2 indicates satisfactory liquidity levels and funds management practices, even though “[m]odest weaknesses” may accompany funds management practices--facts clearly supported by this record.
Of course, the key component is management, for which the 1999 ROE assigns First Bank a 5. As defined in the FDIC examination manual, this rating is reserved for management and directors that have not “demonstrated the ability to correct problems and implement appropriate risk management practices.” These uncorrected problems “now threaten the continued viability of the institution.” The
rating of 4 accommodates “deficient management or board performance” in which the “level of problems and risk exposure is excessive.” Under a rating of 4, uncorrected problems “require immediate action by the board and management to preserve the soundness of the institution.” As distinguished from a rating of 5, for which replacing or strengthening management or the board is “necessary,” a rating of 4 means that replacing or strengthening management or the board “may be necessary.”
A rating of 4 for management, thus, hardly represents a regulatory endorsement. To the contrary, a rating of 4 accommodates significant management deficiencies. Although not as severe as the irredeemable and comprehensive incompetence reflected by a rating of 5, these management deficiencies may nonetheless eventually impact the soundness of the institution and may only be correctable by the replacement of the incompetent parties. The present record supports a management rating of 4, not 5, in the 1999 ROE.
The most difficult rating to examine is the composite rating. Under the FDIC Examination Manual, a bank with a 5 for any component generally cannot qualify for a composite rating of 3. Therefore, with a 5 in management, First Bank properly should have received no better than a composite rating of 4, which First Bank received in the 1999
ROE. However, raising the management component to a 4 and the liquidity component to a 2 increases the likelihood that the correct component rating would be 3. The distinction between the composite rating of 3 and 4 is the distinction between an institution that requires only “some degree of supervisory concern” and one that is engaging in “unsafe and unsound practices.” This is the basic question posed by these cases.
In 1998 and 1999, First Bank accomplished much, including the two main tasks confronting Tosh: cleaning up the books and records and attaining Y2K compliance. Later in 1999, First Bank implemented greater internal controls, obtained an independent audit of its financial position, and implemented improved accounting, data processing, and security procedures.
Even in management, First Bank showed some improvement in late 1998 and 1999, as reflected in part by the gains in the areas identified in the preceding paragraph. Capable persons filled key managerial roles during this time. From the time of Wells’ resignation as president to the present, Giddens has ably served as cashier, although not, as nominally titled, as president. For nearly the same period, Ferguson has served well as senior loan officer; for the reason noted in the Conclusions of Law, his post-hearing departure--probably not a positive development--is not
properly included in this record. For the first part of this period, Tosh served ably as president.
Petitioner claims that Wells effectively served as president during Tosh’s tenure. However, despite Tosh’s letter somewhat to the contrary, Tosh’s assurances to the board were consistent. Frankly, the best inferential proof that Wells was not serving, in effect, as president during Tosh’s tenure was the success enjoyed by Tosh, Giddens, and Jufer and, thus, First Bank. When Wells was in charge, the operations of First Bank suffered; after Wells resigned as president, the operations of First Bank improved substantially. The other board members made an honest effort to ensure compliance with the Consent Order, and they were successful.
Petitioner claims that Wells effectively served as president after Tosh’s departure. As already found, Giddens was not really the president. However, he performed some tasks that might be associated with a chief executive officer, and the directors and Ferguson performed the remainder. Wells did not rise above the rest of the directors and seize executive control of First Bank after Tosh left. Gradually, the other directors, especially Respondents Gunti and Minor, acquired more experience with banking operations and were better able to discharge these tasks.
The directors held numerous meetings, sometimes only days apart, from 1997 through 1999. Some of the directors visited the bank almost daily. Although they did not oppose Wells often, they did on at least two occasions.
In addition to the handling of the already-discussed Evergreen offer, Respondents Gunti and Minor, evidently as part of a majority of the board, wisely prevailed upon Wells to sign the Settlement Stipulation.
Undoubtedly, the directors have been influenced by Wells, at times strongly. However, this influence does not, as Petitioner contends, mean that Wells has reasserted his previous duties as president. It is more likely that this influence is due to Wells’ status as the majority shareholder, largest depositor, and, despite his shortcomings, only board member with legal and banking experience. By permitting Wells to serve as a director, consultant, and general counsel, the Consent Order necessarily permitted Wells to occupy a significant role in guiding the affairs of First Bank, especially when, as here, the directors have assumed greater management responsibilities.
Undoubtedly, the directors, other than Wells, still offer more in enthusiasm and dedication than they do in experience in banking operations. But they, perhaps including Wells, have demonstrated the capacity to learn from past
mistakes. At present, there is a reasonable chance that the other directors will continue to develop and exercise independent judgment, so as not to follow Wells’ occasional invitation to preoccupy themselves with unimportant details rather than larger issues. At the same time, the other directors will have the benefit of the example of Wells’ conservative banking philosophy, tight-fisted control of costs, and overall commitment to the bank.
At times, Wells’ leadership has been wrongheaded, as evidenced by his preoccupation with trying to complete the Y2K business resumption contingency plan despite his clear lack of qualifications. At times, Wells’ leadership has been indiscriminate, as evidenced by his preoccupation with controlling costs at the expense of missed opportunities for innovation and growth. At times, Wells’ leadership has been absent, as evidenced by his bizarre denunciation of the job market when he and the other directors badly needed to make some tough decisions to stop excessive employee turnover and retain qualified management.
It is unclear whether Wells will respond to this regulatory intervention by maturing as a director and allowing the other directors and bank management also to develop, perhaps in different directions. If Wells is unable to do so, this regulatory intervention notifies him that future material
deficiencies in his performance will become increasingly costly for him personally and also, eventually, for the bank to which he has devoted himself.
As discussed in the Conclusions of Law, for the extraordinary relief of removal or restriction of a director, Petitioner must first prove a willful violation of the Consent Order or Settlement Stipulation. These documents incorporate the Cease and Desist Order, but not, for the reasons explained in the Conclusions of Law, the Safety and Soundness Order.
The considerable and reasonably successful efforts, during late 1998 and 1999, of all of the directors, including Wells, to overcome the considerable problems facing First Bank preclude a finding, by clear and convincing evidence, of a willful violation of the Consent Order or Settlement Stipulation.
Even if Petitioner had proved a willful violation of the Consent Order or Settlement Stipulation, it would have to prove, by clear and convincing evidence, that, as a result of the violation, First Bank will likely suffer loss or other damage, that the interests of the depositors or shareholders could be seriously prejudiced, or that Wells has received financial gain and, as to the financial-gain criterion, the violation involves personal dishonesty or a continuing disregard for the safety and soundness of First Bank.
Petitioner has failed to prove that any violation will likely cause First Bank to suffer loss or damage or could cause serious prejudice to depositors or shareholders. It is unnecessary to consider at length the financial-gain criterion because, even if Petitioner had proved financial gain to Wells, Petitioner has not proved any dishonesty or disregard for the bank’s safety and soundness in Wells’ compensation.
For these reasons, Petitioner is not entitled to an order removing or restricting Wells. This finding would be unchanged by the application of the preponderance standard of proof.
However, as noted in the Conclusions of Law, for the more modest relief of an administrative fine, Petitioner is required to prove, again by clear and convincing evidence, a mere violation of the Settlement Stipulation. As noted in the Conclusions of Law, the fine is up to $2500 daily for any such violation, up to $10,000 daily for a reckless violation, and at least up to $50,000 daily for a knowing violation.
Petitioner has proved that Wells violated the Settlement Stipulation by failing to cause First Bank to employ a president after the departure of Tosh and a senior loan officer before the arrival of Ferguson. The record does not suggest that various committees of directors can take the place of qualified persons in these key managerial positions.
Although insufficient to establish a reassertion of presidential duties, Wells' position of leadership on the board, as well as the focus of the Consent Order in removing Wells as president, fairly impose upon Wells personally the monetary responsibility for these failures. The record amply supports the inference that, if Wells had wanted to fill these two key managerial positions at all times, the board would have done so. It did not because Wells did not. As Petitioner must live by the deal that it struck, so must Wells.
It is unnecessary to determine Wells’ state of mind in connection with these violations of the Settlement Stipulation. The periods of noncompliance as to the positions of president and senior loan officier lasted far longer than four days, so the $2500 daily fine, which does not require a reckless or knowing violation, justifies considerably more than the $10,000 fine that Petitioner seeks to impose at this time. This is a personal fine for which Wells shall neither seek nor accept reimbursement, directly or indirectly, from First Bank.
As discussed in the Conclusions of Law, Petitioner is entitled to the costs of examination and supervision only if it proves, by a preponderance of the evidence, that First Bank has engaged in an unsafe or unsound practice. Petitioner
has failed to prove such a practice. In particular, Petitioner has failed to prove that any violation of an order from Petitioner or the FDIC creates the likelihood of loss, insolvency, or dissipation of assets or otherwise prejudices the interest of the specific financial institution or its depositors. Even if Petitioner had proved such a practice, it would be precluded from recovering any costs, at this time, due to the recent pressure upon First Bank's earnings and the extraordinary expenditures that it made during 1999 in improving its operations and responding to regulatory interventions. Obviously, though, this finding is not an exemption from the responsibility to pay such costs in the future, under appropriate circumstances.
The final issue is whether Respondent Alters waived his right to demand a hearing. The Administrative Law Judge gave Respondent Alters the time between the two sets of hearing dates to obtain from an old computer a print-out of a letter in which he claimed to have requested a hearing. Petitioner’s representatives disclaimed any knowledge of such a letter. Producing a dated letter at the latter portion of the hearing, Respondent Alters was required to admit that, although he had not earlier disclosed this substantial addition, he had typed in the date shown on the letter between the dates of the two hearings.
Respondent Alters did not timely request a hearing, and he waived his right to request a hearing. Petitioner is thus entitled to any and all relief that it seeks against him.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter. Sections 120.57(1) and 655.031(2), Florida Statutes. (All references to Sections are to Florida Statutes. All references to Rules are to the Florida Administrative Code.)
Section 655.037(4) provides for a default order of removal if a “financial institution-affiliated party” fails to respond to the complaint within the time allowed. The evidence establishes that Respondent Alters failed to timely respond to the charging pleading, so the Division of Administrative Hearings has no jurisdiction over him, and Petitioner may enter a final order against him for the relief sought. See also Section 120.569(2)(c).
The request of Petitioner to reopen the record is denied. Cf. Bank of Dixie v. FDIC, 766 F.2d 175 (5th Cir. 1985)(bank not entitled to introduce evidence of its subsequent remedial actions). In a case of this factual complexity, the closing of the record necessarily precludes consideration of much evidence that would otherwise be relevant. If Wells and the directors resist finding the
meaning of this removal case--which, as relevant to Ferguson's departure, is that they must find and retain key management employees to manage First Bank and help it attain and sustain a healthy rate of growth--then Petitioner or the FDIC will bring another enforcement proceeding to underscore this lesson more emphatically.
The amended administrative complaint alleges that the respondent directors, as financial institution-affiliated parties, violated Section 655.037(1)(g) and (h). These provisions authorize Petitioner to bring a proceeding against any financial institution-affiliated parties or financial institution if the financial institution-affiliated parties is engaging or has engaged in conduct that is a “willful violation of any order of the department” or a “willful breach of any written agreement with the department,” respectively.
The amended administrative complaint alleges that these alleged violations of Section 655.037(1)(g) and (h) justify an order removing the directors, pursuant to Section 655.037(3). Section 655.037(3) authorizes Petitioner to remove a financial institution-affiliated parties or restrict his participation in the affairs of a particular financial institution if certain conditions are met. The conditions are:
The alleged violations of Section
655.037(1) are “true”; and
The “state financial institution has suffered or will likely suffer loss or other damage” or
The “interests of the depositors . .
. or shareholders could be seriously prejudiced by reason of such violation or practice or breach of fiduciary duty” or
2.C.i. The “financial institution- affiliated party” has received financial gain by reason of such violation, practice, or breach of fiduciary duty” and
“Such violation, practice, or breach of fiduciary duty is one involving personal dishonesty on the part of such financial institution-affiliated party” or
Such violation, practice, or breach of fiduciary duty is one involving a “continuing disregard for the safety or soundness of the state financial institution ”
Clearly, Wells, as a director of First Bank, is a “financial institution-affiliated party,” as defined by Section 655.005(1)(i).
The amended administrative complaint seeks the removal of Wells for violations of the Consent Order and Settlement Stipulation. The Consent Order incorporates the Cease and Desist Order, but not the Safety and Soundness Order.
Based on the allegations of a violation of an order of Petitioner or a written agreement with Petitioner, noncompliance with the Safety and Soundness Order is not
available as a basis for removal. Neither the Consent Order nor the Settlement Stipulation incorporates the Safety and Soundness Order, which was issued one year after the Consent Order, so a violation of the Safety and Soundness Order is not a violation of the Consent Order. Additionally, the FDIC has terminated the Safety and Soundness Order. In fact, Petitioner did not allege a violation of the Safety and Soundness Order until it moved to amend the administrative complaint by a motion filed on June 1, 2000, by which time the Safety and Soundness Order was no longer in effect.
Following the complicated structure of Section 655.037(3), Petitioner may issue a final order removing Wells or restricting his participation with First Bank if Petitioner proves: (1) a violation of the Consent Order or a breach of the Settlement Stipulation and 2) one of the following three conditions: (a) First Bank has suffered or will likely suffer loss or other damage; (b) the interests of First Bank’s depositors or shareholders could be seriously prejudiced by the violation or breach; or (c)(i) the director has received financial gain by the violation or breach and either (ii)(A) the violation or breach involves personal dishonesty by the director, or (B) the violation or breach involves a continuing disregard for the safety or soundness of First Bank.
Alternatively, Petitioner seeks in the amended administrative complaint to impose a $10,000 administrative fine against Wells. Section 655.041(1) authorizes the imposition of an administrative fine against any person found to have violated a provision of the financial institutions codes, a cease and desist order of the department, or any written agreement with the department. The only additional requirement for a fine is that Petitioner provide the respondent with notice and a reasonable opportunity to correct the violation. Section 655.041(2) provides that the fine shall be up to $2500 daily for each violation, except that the fine for a reckless violation shall be up to $10,000 daily and a knowing violation shall be up to at least $50,000 daily.
As for the case against First Bank for the reimbursement of the costs of the examination, Section 655.045(1)(b) authorizes Petitioner to recover the costs of examination and supervision of a state financial institution “that is determined by the department to be engaged in an unsafe or unsound practices.” Section 655.045(1)(c) defines “costs” to include salary and travel expenses directly attributable to the field staff examining the state financial institution and the travel expenses of any supervisory staff required as a result of the examination findings.
Rule 3C-100.0451(2)(a) defines an unsafe and unsound practice, in conjunction with the reimbursement of examination costs, as: “any practice or conduct found by the Department to be contrary to generally accepted standards applicable to the specific financial institution . . . or a violation of any prior order of a state or federal regulatory agency,” provided that the “practice, conduct, or violation creates the likelihood of loss, insolvency, or dissipation of assets or otherwise prejudices the interest of the specific financial institution or its depositors . . .”
However, Section 655.031(1) warns that the imposition of any administrative remedy or penalty authorized by the financial institution codes requires Petitioner to “take into account the appropriateness of the penalty with respect to the size of the financial resources and good faith of the person charged, the gravity of the violation, the history of previous violations, and such other matters as justice may require.”
Rule 3C-100.0451(1)(c) warns that the assessment of examination costs requires Petitioner to “consider the size and condition of the financial institution, the gravity of the violation, the prior conduct of the person(s) and institution involved, the time elapsed between the last state
examinations, and the extent to which a material improvement has occurred in the condition of the financial institution
. . ..”
Petitioner must prove the material allegations against the directors, which seek fines and the extraordinary relief of removal, by clear and convincing evidence. Department of Banking and Finance v. Osborne Stern and Company, Inc., 670 So. 2d 932 (Fla. 1996). However, Petitioner must prove the material allegations against First Bank for examination costs by only a preponderance of the evidence.
Rule 3C-100.045(2)(b) incorporates by reference the FDIC Examination Manual into the body of material used by Petitioner in conducting examinations of financial institutions.
For the reasons set forth in the Findings of Fact, Petitioner has failed to prove by clear and convincing evidence (or even a preponderance of the evidence) the elements necessary to remove Wells, although Petitioner has proved by clear and convincing evidence the elements necessary to impose against Wells a $10,000 administrative fine.
For the reasons set forth in the Findings of Fact, Petitioner has failed to prove by a preponderance of the
evidence the elements necessary to obtain from First Bank reimbursement for the costs of examination and supervision.
It is
RECOMMENDED that the Department of Banking and Finance enter a final order:
Dismissing Respondent Alters’ request for a hearing as untimely filed under circumstances showing that he waived his right to request a hearing and imposing such penalties as the department deems fit, consistent with law.
Dismissing the department’s claim for reimbursement of examination and supervision costs from First Bank for the 1999 examination.
Imposing a $10,000 fine against Respondent Wells, with a condition that he pay the fine personally and neither seek nor accept reimbursement, directly or indirectly, from First Bank.
Dismissing all other claims for relief against Respondent Wells and all claims for relief against the remaining respondents, other than Respondent Alters.
DONE AND ENTERED this 8th day of March, 2001, in Tallahassee, Leon County, Florida.
___________________________________ ROBERT E. MEALE
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 8th day of March, 2001.
COPIES FURNISHED:
Honorable Robert F. Milligan Department of Banking and Finance Office of the Comptroller
The Capitol, Plaza Level 09 Tallahassee, Florida 32399-0350
Robert Beitler, Acting General Counsel Department of banking and finance Fletcher Building, Suite 526
101 East Gaines Street Tallahassee, Florida 32399-0350
Richard T. Donelan, Jr. Chief Banking Counsel Robert Alan Fox
Assistant General Counsel Department of Banking and Finance Suite 526, The Fletcher Building
101 East Gaines Street Tallahassee, Florida 32399
William G. Cooper
Cooper, Ridge & Beale, P.A.
200 West Forsythe Street, Suite 1200 Jacksonville, Florida 32202
Jeffrey C. Regan
Hendrick, Dewberry & Regan, P.A.
50 North Laura Street, Suite 2225 Jacksonville, Florida 32202
Timothy D. Alters, pro se 2020 Vela Norte Circle
Atlantic Beach, Florida 32233
Arthur G. Sartorius, III 1919 Atlantic Boulevard
Jacksonville, Florida 32207
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within
15 days from the date of this recommended order. Any exceptions to this recommended order must be filed with the agency that will issue the final order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Mar. 08, 2001 | Recommended Order | Petitioner proved director guilty of failing to comply with consent order and settlement stipulation regarding employment of key managers at bank; director must pay $10,000. Evidence insufficient to remove director or require bank to pay for examination. |
