STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BANKING AND FINANCE, )

)

Petitioner, )

)

vs. ) Case No. 85-3327

)

THOMAS E. DAVIS, )

)

Respondent. )

)

Pursuant to notice, a formal hearing was held on November 21, 1985, in Fort Lauderdale, Florida, before the Division of Administrative Hearings, by its designated Hearing Officer, Diane

K. Kiesling.

APPEARANCES

For Petitioner: Rodney C. Wade, Esquire

Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301

For Respondent: Thomas E. Davis, Pro se

1775 N. Andrews Avenue, 204W Fort Lauderdale, Florida 33311

The issue is whether Respondent, Thomas E. Davis (Davis), should be removed from his position as director and officer of the Florida Food Industries Credit Union (Credit Union) and should be barred from re-entry into such a position or any official position in a financial institution in Florida for a period of three years.

At hearing, Petitioner presented the testimony of Lawrence Peters, John Salem, David Hamilton, Hilda Walker, and Sharon Whiddon, together with three exhibits that were admitted in evidence. Respondent presented his own testimony.

A transcript of the proceedings was filed on January 7, 1986. The court reporter mailed the original transcript to Petitioner in mid-December, 1985, and Petitioner did not forward it to the Division of Administrative Hearings for filing until

said date. Upon motion of Petitioner, the time for filing Proposed orders was extended to January 17, 1986. Upon the request of Respondent, the time was further extended to January 23, 1986. Petitioner's Proposed Order was filed on January 22, 1986. Respondent sent his Proposed Order by express mail on January 23, 1986, but he addressed it to Petitioner. Petitioner forwarded Respondent's Proposed Order to the Division of Administrative Hearings and same was actually filed on January 31, 1986, eight days late. Petitioner has filed no objection to consideration of Respondent's late-filed proposed order, therefore same will be considered herein. A ruling has been made on each proposed finding of fact in the Appendix attached to and made a part of the Recommended Order.

FINDINGS OF FACT

1. Davis was general manager of the Florida Food Industry Credit Union from May 31, 1980 to May 30, 1985. He was a member of the Board of Directors of the Credit Union from 1980 to May 31, 1985.

   
   

2. Davis resigned as General Manager and Director of the Credit Union effective May 31, 1985.

   
   

3. In his letter of resignation, Davis acknowledged that he had falsely reported delinquent loans in reports to the Board of Directors for the previous eight years (including three years before he became General Manager). These reports understated the status and amount of delinquent loans.

   
   

4. A review of loan records of the Credit Union by the Department of Banking and Finance in June, 1985, confirmed that delinquency reports to the Board of Directors and the Department had been understated over $300,000 for at least six months of 1984. Other source documents of actual loan delinquency and reports thereof could not be located by the Credit Union.

   
   

5. The amount of loans past due two months and over were significantly understated as follows:

   
   

   DATE REPORTED AMOUNT REPORTED ACTUAL AMOUNT AMOUNT UNDERSTATED

   
   

   12/84	$90,117.02	$415,054.48	$324,937.46
   9/84	$107,792.25	$446,224.48	$348,400.50
   6/30/84	$86,378.35	$454,206.15	$367,827.80
   5/31/84	$85,003.54	$492,721.49	$407,717.95
   4/30/84	$80,538.85	$477,767.97	$397,299.12

   
   

   The June 30, 1984, Report of Condition of the Credit Union to the Department understated loans delinquent over sixty days by

   $367,827.

   
   

6. Loans past due two months and over as of April 30, 1985, Report of Examination, totaled $520,600. Of this amount $348,700 were classified by the examiner as loss and $57,400 doubtful of collection.

7. The earned net worth of the Credit Union, as of the date of the examination, was 3.8 percent of total assets. Earned net worth, adjusted for loans classified loss and 50.0 percent of loans classified doubtful of collection, was 1.4 percent of total assets. Essentially, the loans classified loss and doubtful of collection are those that were not reported by Davis.

   
   

8. By his response to Requests for Admissions and by his letter of resignation, Davis has acknowledged that he knowingly reported the false delinquent loan information.

   
   

9. The understatement of delinquent loans as it relates to an inflation of earned net worth could seriously prejudice the interests of the depositors, members or shareholders of the Credit Union in that inflation of earned net worth impacts on future lending policies and declaration of dividends.

   
   

10. The Complaint seeking formal removal of Respondent as a director and officer of Florida Food Industry Credit Union was dated and served on August 29, 1985. At the time the Department of Banking and Finance issued and served the Complaint instituting these proceedings, Respondent was not an officer, director, committee member or employee of Florida Food Industry Credit Union or of any other financial institution in the State of Florida, having resigned on May 31, 1985.

    CONCLUSIONS OF LAW

    
    

11. The Division of Administrative Hearings has jurisdiction of the parties to and the subject matter of these proceedings. Section 120.57(1), Florida Statutes.

    
    

12. Initially, Respondent argues that the Division of Administrative Hearings has no jurisdiction over this proceeding because the Respondent was not an officer, director of employee of the Credit Union or any financial institution at the time the Administrative Complaint was filed. This argument is rejected. Any person subject to regulation by an agency charged with said regulation may not be permitted to violate the law with impunity merely by resigning from a regulated position prior to discovery of the violation.

    
    

13. By the Administrative Complaint, Respondent is charged with misconduct which constitutes grounds for his removal as an officer and director of the Credit Union, as follows:

    
    

    1. Pursuant to Section 655.037(1)(a), Florida Statutes, in that he has engaged in unsafe or unsound practices, as defined in Section 655.055(1)(d), Florida Statutes;

    2. Pursuant to Section 655.037(1)(b), Florida Statutes, in that he has committed a willful violation of a felony statute relating to a financial institutions by causing a false entry to be made in a book, report or record of a financial institution or bank with the intent to deceive and defraud in violations of Sections 657.77(2)

       (d) and 658.78, Florida Statutes.

       
       

       (c) Pursuant to Section 655.037(1)(g), Florida Statutes, in that he has committed acts or omissions which are in breach of the trust and fiduciary duty owed to the Credit Union he serves and to his depositors and members.

       
       

14. It appears that reference in (b) above to Section 657.77(2)(d) is a typographical error in that no such section exists. It must be presumed that the citation should be to Section 658.77(2)(d).

    
    

15. Section 655.037(1)(a), (b) and (g), states:

    
    

    1. The department may issue and serve upon any officer, director, committee member, or employee of a financial institution, . . . a complaint stating charges whenever the department has reason to believe that the officer, director, committee member, or employee is engaging or has engaged in conduct that is:

       1. An unsafe or unsound practice,

          
          

       2. A willful violation of any law relating to financial institutions: however, if such violation constitutes a misdemeanor, no complaint shall be served as provided in this section until the officer, director, committee member, or employee is notified in writing of such violation and has been afforded a reasonable period of time, as set forth in the notice, to correct such violation and has failed to do so,

       * * *

       
       

       (g) An act of commission or omission or a

       practice which is a breach of trust or a breach of fiduciary duty.

16. As used in Chapter 655, the term "unsafe or unusual practice" is defined in Section 655.055(1)(d). It means:

    
    

    . . . any practice or conduct contrary to generally accepted standards applicable to the specific financial institution, which practice or conduct creates the likelihood of abnormal risk, or loss, insolvency, or dissipation of assets or otherwise seriously prejudices the interest of the specific financial institution or its depositors or members.

    
    

17. Respondent was also charged with violating Section 655.037(1)(b) by violating Sections 658.77(2)(d) and 658.78. Section 658.77(2)(d) states:

    
    

    1. It is unlawful for any officer, director, agency, or employee of a state bank or trust company to:

    
    

    * * *

    
    

    (d) Make any false entry in any book, report, or statement of such bank or trust company with intent to deceive or defraud such bank or trust company or other person, firm, or corporation, or with intent to deceive the department or any authorized representative appointed to examine the affairs of such bank or trust company. Section 658.78 makes the violation of Section

    658.77 a misdemeanor, or if the act or omission was intended to defraud, the violation is a felony.

    
    

18. Based upon the evidence, it is concluded that the practice of understating delinquent loans is a unsafe and unsound practice which seriously prejudices the interest of the Credit Union and its depositors or members. Therefore, Respondent has violated Section 655.037(1)(a) as charged in the Administrative Complaint.

    
    

19. As both an officer and a director, Respondent owed a fiduciary duty to the Credit Union. This includes the duty to act in good faith with regard to the Credit Union's interests as opposed to his personal interests. Flight Equipment and Engineering Corp. v. Sheldon, 103 So. 2d 615, 626 (Fla. 1958).

    By his own admission of responsibility for preparing false reports of loan delinquency and based on the resulting impairment

    of the earned equity of the Credit Union, it is concluded that Respondent has breached the fiduciary duty owed to the Credit Union and its members. He has therefore violated Section 655.037(1)(g).

    
    

20. In the Administrative Complaint, Respondent was charged with violating Section 655.037(1)(b) by violating Section 658.77(2)(d) and 658.78. However, in its Proposed Order, Petitioner argues that Respondent violated Section 655.037(1)(b) by violating Section 657.028(6)(d) and (e). No reference is made to the sections charged in the Administrative Complaint. Section 657.028(6)(d) and (e) states:

    
    

    (6) It is unlawful for any official, director, agent, or employee of a credit union to:

    
    

    * * *

    
    

    (d) Make any false entry in any book, report, or statement of such credit union with intent to deceive or defraud such credit union or any other person, with intent to deceive any members or officials of such credit union, or with intent to deceive the department or any authorized representative appointed to examine the affairs of such credit union, or

    
    

    (d) Deliver or disclose to the department or any of its employees any examination report, report of condition, report of income and dividends. internal audit, account, statement, or document known by him to be fraudulent or false as to any material matter.

    
    

21. Section 657.028(6)(d) is virtually identical to Section 658.77(2)(d) except that Chapter 657 relates to credit unions and Chapter 658 relates to banks and trust companies. Because this proceeding is penal in nature, the charges must be "particularly and specifically stated." Bowling v. Department of Insurance,

    394 So. 2d 165, 171 (Fla. 1st DCA 1981). "Although a complaint filed by an administrative agency is not required to fulfill the technical niceties of a legal pleading, it must be specific enough to inform the accused with reasonable certainty of the nature of the charges." Hunter v Department of Professional Regulation, 458 So. 2d 842, 844 (Fla. 2nd DCA 1984). Additionally, the complaint must state with specificity the acts complained of, to allow the accused a chance to prepare a

    defense. Hunter, supra at 844. Even if the facts support a finding of a certain violation of statute, such a finding cannot support the disciplinary action sought if the complaint does not charge the licensee with that particular violation. Davis v.

    Department of Professional Regulation, 457 So. 2d 1074 (Fla. 1st DCA 1984).

22. In the present case, the facts established indicate a violation of Section 657.028(6)(d) and (e). However, the complaint failed to charge Respondent with that violation. Instead the administrative complaint charged Respondent with certain violations of Chapter 658. Chapter 658 does not apply to this case in that it relates to banks and trust companies. The Respondent was an officer and director of a credit union (covered by Chapter 657) and not a bank or trust company. Therefore, it must be concluded that Respondent is not guilty of the violations of Chapter 658 as charged in the Administrative Complaint.

    
    

23. Respondent has violated Sections 655.037(1)(a) and (g) as charged and it has been found that the violations seriously prejudiced the interests of the depositors, members or shareholders of the Credit Union. Section 655.037(3) provides that Respondent may be removed from his position or that he may be restricted or prohibited from participation in the affairs of any financial institution in this state for a period not exceeding three years. Respondent has already removed himself from his position with the Credit Union effective May 31, 1985.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that the Department of Banking and Finance enter a Final Order finding Respondent, Thomas E. Davis, guilty of violating Sections 655.037(1)(a) and (g), Florida Statutes, and prohibiting his participation in the affairs of any financial institution for a period of three years from May 31, 1985.

DONE and ENTERED this 19th day of February, 1986, in Tallahassee, Florida.

DIANE K. KIESLING

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 19th day of February, 1986.

COPIES FURNISHED:

Rodney C. Wade, Esquire Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301

Thomas E. Davis

1775 N. Andrews Avenue, 204W Fort Lauderdale, Florida 33311

Honorable Gerald Lewis Comptroller

The Capitol

Tallahassee, Florida 32301

Charles Stutts General Counsel

Office of the Comptroller Plaza Level, The Capitol Tallahassee, Florida 32301

APPENDIX

The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the proposed. findings of fact submitted by the parties to this case.

Rulings on Proposed Findings of Fact of Petitioner

1. Adopted in substance in Finding of Fact 3.

2. Adopted in substance in Findings of Fact 2 and 3.

3. Adopted in substance in Finding of Fact 4.

4. Adopted in substance in Finding of Fact 5.

5. Adopted in substance in Finding of Fact 6.

6. Adopted in substance in Finding of Fact 7. Rulings on Proposed Findings of Fact of Respondent

1. Adopted in substance in Finding of Fact 1.

2. Adopted in substance in Finding of Fact 1.

3. Adopted in substance in Finding of Fact 2.

4. Adopted in substance in Finding of Fact 10.

5. Adopted in substance in Finding of Fact 10.

6. Adopted in substance in Finding of Fact 3.

7. Adopted in substance in Finding of Fact 3.

Docket for Case No: 85-003327

Orders for Case No: 85-003327