Findings Of Fact At all times material to this case, and at the time of the hearing, Charles Joseph Maher ("Respondent") was licensed in Florida as a life and health agent and general lines agent, doing business as "Maher Insurance". Medford On or about December 13, 1989, the Respondent completed an application for insurance and received a check in the amount of $557.00 from Kenneth Medford of North Fort Myers, Florida for automobile insurance to be issued by Atlanta Casualty Company. The check was made payable to the insurer. Although Mr. Medford testified that the Respondent told him the coverage would be bound, the insurance application clearly provides that the coverage was not bound at the time the application was completed. The Respondent mailed the application and check to Atlanta Casualty Company. Neither the application nor the check were received by Atlanta Casualty Company. There is no evidence that the Respondent mishandled the application and check or converted said funds to his own use. The check tendered by Mr. Medford has never been deposited and has never cleared the Medford checking account. Grandpa's Cycle Center On or about October 24, 1990, the Respondent received a check in the amount of $482.50 from Grandpa's Cycle Center of Fort Myers, Florida, constituting the estimated down payment on liability insurance to be issued by Bankers Insurance Company through the Florida Joint Underwriters Association. The actual down payment on the liability insurance was $250.00 which was remitted in the due course of business by the Respondent to Bankers Insurance Company. The policy was subsequently issued. A representative of the Respondent thereafter contacted Grandpa's Cycle Center and informed the insured that a refund of the excess down payment was due to the insured. The insured directed the Respondent's representative to retain the excess pending further direction. In part due to other matters not addressed by the Administrative Complaint filed in this case, the business relationship between the Respondent and the insured became somewhat strained and the insured terminated the relationship. On or about January 3, 1991, the Respondent tendered a check for $355.00 to the insured. The Respondent identified the total amount tendered to include a refund of $232.50 excess down payment and the remainder as "return premium" for a policy which had apparently been cancelled in August, 1990.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Insurance enter a Final Order dismissing the complaint filed against Charles Joseph Maher. DONE and RECOMMENDED this 9th day of February, 1993, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of February, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-0490 The following constitute rulings on proposed findings of facts submitted by the parties. Petitioner The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 3-4, 7. Rejected, not supported by the greater weight of the evidence. Respondent The Respondent's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 3(a)-(k), 5(a)-(m). Rejected as cumulative or unnecessary except as otherwise adopted in this Recommended Order. COPIES FURNISHED: Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil, General Counsel Office of State Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Lisa Santucci, Esq. Division of Legal Services 412 Larson Building Tallahassee, FL 32399-0300 Charles J. Maher Post Office Box 1420 Fort Myers, Florida 33902-1420
The Issue Does Respondent, Ynnor Distribution Group, Inc., owe Petitioner, William E. Gable, Jr., d/b/a Gable Enterprises, $13,430.02 for the sale of four shipments of watermelons?
Findings Of Fact On July 17, 2001, Mr. Gable sold Ynnor 42,330 pounds of watermelon for $3,128.19. (Exhibit 1) On July 17, 2001, Mr. Gable sold Ynnor 42,740 pounds of watermelon for $3,150.70. (Exhibit 2) On July 19, 2001, Mr. Gable sold Ynnor 46,283 pounds of watermelon for $4,165.47. (Exhibit 3) On July 24, 2001, Mr. Gable sold Ynnor 44,540 pounds of watermelon for $2,985.70. (Exhibit 4) The total amount Ynnor owed Mr. Gable was $13,430.02. (Exhibit 4) There was no payment on the account by Ynnor. Mr. Gable called the recipient of the watermelons. They were all received in good shape and payment for the watermelons was made by the recipient to Ynnor. Ynnor did not attend the hearing. No evidence was received on the amount Ynnor alleged as a counterclaim.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Agriculture and Consumer Services enter its final order finding that Respondent, Ynnor Distribution Group, Inc., owes Petitioner, William E. Gable, the amount of $13,430.02. DONE AND ENTERED this 27th day of November, 2002, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN 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 27th day of November, 2002. COPIES FURNISHED: Kathy Alves Fidelity & Deposit Company of Maryland Post Office Box 87 Baltimore, Maryland 21203 Ronald S. Booth, Sr. Ynnor Distribution Group, Inc. Post Office Box 1202 Winter Haven, Florida 33882-1202 William E. Gable, Jr. Gable Enterprises 6511 Bradley Road Marianna, Florida 32448 Brenda D. Hyatt, Bureau Chief Bureau of License and Bond Department of Agriculture and Consumer Services Mayo Building 407 South Calhoun Street, Mail Stop 38 Tallahassee, Florida 32399-0800
The Issue The issue in this case is whether Respondent discriminated against Petitioner based on Petitioner's disability.
Findings Of Fact Mr. McMahon was a member of Suncoast beginning in approximately 1986. In 2008 and 2009, Mr. McMahon had a checking account, a VISA card, a savings account, and a loan with Suncoast. Mr. McMahon claims that he is disabled and that he suffers from personality disorders, post-traumatic stress, passive aggression, and obsessive compulsive disorder. No medical evidence was presented to substantiate his claims. He has been receiving benefits from the Social Security Administration based on a personality disorder since approximately 1996. Suncoast perceived Mr. McMahon as having a disability, based on his repeated assertions that he was disabled. In November 2008, Mr. McMahon filed a complaint with the Better Business Bureau of West Florida, Inc. (BBB), alleging that Suncoast was discriminating against him by not accommodating his communication disability. The BBB investigated and found that Suncoast had blocked access to Mr. McMahon's accounts because he was delinquent on a loan. The BBB contacted Suncoast concerning the complaint, and Suncoast provided Mr. McMahon a three-month payment due date extension on the loan, lowered his monthly payments, and unblocked his account. In January 2009, Mr. McMahon was delinquent on his loan. Again Suncoast tried to help Mr. McMahon with his delinquent account. At some point, Mr. McMahon's loan payments were put on automatic payments in order to reduce his delinquencies. Money would automatically be taken out of his account to make the monthly loan payments. Mr. McMahon had a direct deposit for his Social Security benefits payments. After the loan payments began being deducted automatically, Mr. McMahon canceled his direct deposits into the account from which his payments were automatically being deducted. Thus, there was no money in the account to make the monthly payments on his loan, and Mr. McMahon ceased making payments on the loan and again became delinquent on his loan. When one of Suncoast's members becomes overdrawn with regards to either a checking or savings account or credit card, or is delinquent in making payments on any credit card or loan obligation, that member loses access to his or her services, including use of all internet services, ATM cards, ATM machines, credit cards, and debit cards. The member would also be unable to access his or her account balance or make deposits into overdrawn accounts if the member attempted to make a deposit via ATM, as those services are suspended. These restrictions are typically automatically placed upon the accounts of any member with a delinquent loan account after 60 days of delinquency, and within 30 days of any overdrawn share draft account. Any member with a delinquent or overdrawn account, where services were suspended would be prevented from applying for a mortgage loan. If the member contacted Suncoast staff to apply for a mortgage loan or to utilize any other services, the member would be directed to the loss mitigation section of Suncoast, and loss mitigation would attempt to collect the debt or rectify the delinquency. Because Mr. McMahon again became delinquent on his loan payments after stopping the direct deposits, his accounts were restricted, meaning that he could not access the accounts. Mr. McMahon began a campaign of making repeated calls to Suncoast, screaming and yelling at Suncoast representatives, talking over the representatives, making vulgar statements, and using profanity. Mr. McMahon attributes his behavior to his communication disability and requested on numerous occasions that Suncoast accommodate his disability with "patience and understanding." A note was placed in the loss mitigation's note system and in Suncoast's host system, so that all employees of Suncoast who were working with Mr. McMahon could see and accommodate his request for patience and understanding. Suncoast representatives did provide Mr. McMahon with an abundance of patience and understanding. However, nothing seemed to appease Mr. McMahon, and his repeated calls were unproductive. Because of the repeated nature of Mr. McMahon's calls and his behavior during the telephone calls, there were numerous complaints by Suncoast's representatives to management. Jacqueline Gilbert (Ms. Gilbert), vice president of loss mitigation, determined that in order to protect Suncoast's representatives from Mr. McMahon's harassing behavior that all calls should be directed to her; Linda Fales (Ms. Fales), vice president of risk management, cardholder disputes, and DSA compliance for Suncoast; or Ben Felder (Mr. Felder), Suncoast's general counsel. Suncoast's representatives were advised that Mr. McMahon's calls should be transferred to Ms. Gilbert, Ms. Fales, or Mr. Felder. When the representatives would tell Mr. McMahon that they could not help him and that his call would have to be transferred, Mr. McMahon was verbally abusive to the representatives. Many times, if Mr. McMahon was going to be transferred, he would hang up and call right back to speak with a different representative. Sometimes, Mr. McMahon would call and hang up when a representative answered the call. At different times, Ms. Gilbert, Ms. Fales, and Mr. Felder talked with Mr. McMahon to attempt to discuss the reasons that his account was restricted. However, they had little success in communicating with Mr. McMahon because of his behavior. Although Mr. Felder was not able to service Mr. McMahon's account, he decided to handle all Mr. McMahon's requests and assign any work to be done to the appropriate employee because Mr. McMahon's behavior toward Ms. Gilbert and other Suncoast employees was unacceptable. Mr. McMahon did not make any loan payments between May 2009 and August 2009. During this same time period, Mr. McMahon's VISA credit card was well overdrawn. Carolyn Stepp (Ms. Stepp) had cosigned on Mr. McMahon's loan. On or about September 4, 2009, Suncoast exercised its "right of offset" and used funds in both Mr. McMahon's and Ms. Stepp's accounts to pay off the loan. There was still an outstanding balance of $1,046.86 on his VISA credit card. On September 10 and 14, 2009, Mr. McMahon asked to apply for a mortgage loan by telephone. He was not sure that Suncoast would give him a loan because of his delinquent accounts, but he felt that he should have the opportunity to apply because the loan had been satisfied when Suncoast exercised its right of offset. Although the loan was satisfied, Mr. McMahon still had an outstanding balance on his VISA credit card, which he had not been able to use for several months because his accounts had been restricted. He was advised that he would have to contact Mr. Felder to discuss the status of his account. On September 11, 2009, Mr. Felder and Mr. McMahon discussed his account. Part of the discussion concerned Suncoast's writing off Mr. McMahon's loan and VISA credit card balance, returning the offset amounts to Mr. McMahon's and Ms. Stepp's accounts, disbursing the remaining amounts in Mr. McMahon's account to him, and closing Mr. McMahon's accounts. At the conclusion of the conversation, Mr. Felder understood that Mr. McMahon was in favor of this solution and began to take steps to accomplish the tasks. Mr. Felder advised Mr. McMahon by telephone on September 17, 2009, that the tasks had been completed and that Mr. McMahon's accounts with Suncoast were closed, meaning that services at Suncoast were terminated and that Mr. McMahon's access to information was no longer available. Mr. Felder followed up the telephone conversation with a letter dated September 17, 2009, confirming the telephone conversation. Individuals who are not members of Suncoast are not qualified to apply for a mortgage loan with Suncoast. At the time that Mr. McMahon applied for a mortgage loan on September 14, 2009, his accounts at Suncoast were in the process of being closed. Mr. McMahon's requests to apply for a mortgage with Suncoast were not denied because Mr. McMahon was disabled. They were denied because Mr. McMahon had various account delinquencies.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered finding that Suncoast did not commit an unlawful housing practice and dismissing Mr. McMahon's Petition. DONE AND ENTERED this 27th day of April, 2011, in Tallahassee, Leon County, Florida. S SUSAN B. HARRELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of April, 2011.
The Issue Whether the application to organize Plus International Bank should be approved.
Findings Of Fact On March 24, 2000, the Department received an application (Application) from foreign nationals (Applicants) to organize a new bank, Plus International Bank (New Bank), to be located in Miami-Dade County, Florida. The Department published notice of its receipt of the Application in the April 7, 2000, edition of the Florida Administrative Weekly. The notice complied with the requirements Section 120.80(3)(a)1.a., Florida Statutes, and Rule 3C-105.103(1), Florida Administrative Code.5 By letter dated April 11, 2000, the Department requested the Applicants to supplement their Application with additional information, including information concerning their "promise of successful operation" and the New Bank's "capital structure," its "directors and officers," and its "banking quarters." It was not until November 3, 2000, that the Department received all of the additional information it had requested from the Applicants. The Application identifies four individuals associated with the New Bank who are foreign nationals: Manuel Sacal, Harry Sacal, Alex Sacal, and Roberto Barroso. Manuel Sacal (M. Sacal) is a proposed director of the New Bank and holder of 28% of the bank's outstanding shares of common stock. He is currently the Chief Executive Officer and General Director of Casa De Cambio Plus, S.A. de C.V. (Cambio Plus), a foreign exchange house based in Mexico City, Mexico, and the Chief Executive Officer and General Director of Plusder, S.A. de C.V., a futures brokerage house located in Mexico City, Mexico. As the Chief Executive Officer and General Director of Cambio Plus, a position he has held since 1987, M. Sacal has helped Cambio Plus become one of the largest exchange houses in Mexico. Harry Sacal (H. Sacal), like M. Sacal, is a proposed holder of 28% of the New Bank's outstanding shares of common stock. Alex Sacal (A. Sacal) is a proposed holder of 14% of the New Bank's outstanding shares of common stock. M. Sacal, H. Sacal, and A. Sacal are brothers. They each are citizens of Mexico. Roberto Barroso is a proposed director of the New Bank and holder of 0.1% of the New Bank's outstanding shares of common stock. He is a citizen of Brazil. Mr. Barroso has 30 years of banking experience, primarily in the area of international banking. He has, among other things, managed financial institutions and been involved in making trade financing arrangements. From approximately 1998, until his retirement in June of 2000, he was a Vice-President of Citibank. The other proposed directors of the New Bank identified in the Application -- Enrique Cabanilla, Barry Deutsch, Jaime Medina, Ira Weindruch, Deborah Jacobson, and Patrick Fournie -- are all United States citizens. These individuals, along with Mr. Barroso, have sufficient business experience, ability, standing, and reputation to enable them to perform their duties as the New Bank's directors in a manner that can reasonably be expected to result in the successful operation of the bank. Mr. Cabanilla, who is also identified as the proposed chief executive officer of the New Bank, has had over 30 years of banking experience, with particular emphasis in the areas of international banking and trade finance. He has held banking positions which have required him to be directly involved in credit analysis and approval, bank and personnel administration, direction and control of operations, and the application of routine control and audit functions. In addition, he has been responsible for the management of multi- branch banking operations and all phases of commercial lending. Although Mr. Cabanilla has not had at least one year of direct experience as an executive officer, director, or regulator of a financial institution within the last three years, it appears that he possesses sufficient financial institution experience, ability, standing, and reputation to enable him to perform his duties as the New Bank's chief executive officer in a manner that can reasonably be expected to result in the successful operation of the bank. Mr. Deutsch has had over 30 years of banking/bank consulting experience. He has been an employee of, and consultant to, a number of large United States financial institutions, such as Mellon National Bank, Bank One, and Bank of America. In addition, as a consultant, he has assisted a number of community banks in the South Florida area with strategic planning, marketing, and investor relations. He has also served as a consultant to several Latin American financial institutions, including Banco Popular de Puerto Rico and Grupo Financiero BAC, and to Bank Polska Kasa Opieki in Warsaw, Poland. While Mr. Deutsch has had at least one year of direct experience as an executive officer or director of a financial institution, he last served in such a capacity in 1988. Mr. Medina has had almost 20 years of banking experience, primarily in the area of international banking, and has had a least one year of direct experience as an executive officer of a financial institution within three years of the date the Application was filed with the Department. Mr. Weindruch was an owner and director of RockIsland Bank, an Illinois-state chartered bank, from 1985 until 1991. In addition, he served on the bank's loan, facilities, and personnel committees. He has not served as an executive officer or director of a financial institution since his departure from RockIsland Bank. Ms. Jacobson has extensive experience in the exporting and importing business. She has never been an executive officer or director of a financial institution. Mr. Fournie is the Chief Financial Officer for Surfin, Ltd., the Latin American arm of Direct TV. Prior to assuming his current position, he was employed by Citibank, where he gained considerable experience in international banking. Mr. Fournie has never been an executive officer or director of a financial institution. None of the proposed officers, directors, or major shareholders6 of the New Bank has been convicted of, or pled guilty or nolo contendere to, any violation of Section 655.50, Florida Statutes (which is known as the "Florida Control of Money Laundering in Financial Institutions Act"), any offense described Chapter 896, Florida Statutes, or any other crime. At present, the New Bank does not have a proposed president. The New Bank's business plan reflects that the bank will offer trade financing and commercial loans to small and medium-sized United States exporters and importers located primarily in Florida; commercial loans and small business loans to small and medium-sized businesses in the Miami-Dade County community; and private banking services to high net worth individuals, particularly those who are foreign nationals and permanent or part-time residents of the United States. The Application indicates that, at the time of the opening of the New Bank, 5,000,000 shares of common stock will have been sold at $2.00 per share, producing $10,000,000.00 in start-up capital. (According to the Application, the total number of shares of common stock that the New Bank will be authorized to issue is 7,500,000.) Of the $10,000,000.00 in start-up capital that the New Bank will have at opening, $7,000,000.00 will have been contributed by the Sacal brothers (M. Sacal, H. Sacal, and A. Sacal). Approximately $2,500,000.00 of the remaining $3,000,000.00 in start-up capital has already been raised. The Sacal brothers have committed to increasing their investment in the New Bank after its opening, as circumstances warrant. The Application estimates that net organizational expenses will be $446,642.00. Of the amount ($9,553,358.00) of capital remaining following payment of these expenses, $5,000,000 will be allocated as paid-in capital (5,000,000 shares at $1.00 par value). The New Bank's proposed capital structure will also have paid-in surplus in an amount greater than 20 percent of paid-in capital and a fund designated as undivided profits in an amount greater than five percent of paid-in capital. The initial capitalization of the New Bank appears to be adequate in relation to its proposed business activities. Local conditions in Miami-Dade County indicate reasonable promise of successful operation of the New Bank. The bank's financial plan appears to be reasonable and attainable. The parties have stipulated that the corporate name, "Plus International," is not, and cannot, be reserved with the Department of State inasmuch as the Department of State no longer reserves corporate names. The New Bank, which will be located at 200 South Biscayne Boulevard, Miami, Florida, will have suitable quarters. The Applicants have applied to have the New Bank insured by the Bank Insurance Fund (BIF) of the Federal Deposit Insurance Corporation (FDIC). The application was received by the FDIC on July 11, 2000. DONE AND ENTERED this 9th day of February, 2001, in Tallahassee, Leon County, Florida. ___________________________________ STUART M. LERNER 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 9th day of February, 2001.
The Issue An Administrative Complaint dated June 20, 1997, alleges that the Respondents, Dessie B. Castell and A. Plus Service Network Realty, Inc., violated certain provisions of Chapter 475, Florida Statutes, and Rule 61J2-10.032(1), Florida Administrative Code, by failing to notify the Florida Real Estate Commission within 15 business days of a good faith doubt as to appropriate disbursement of trust funds in an escrow account, and by failing to maintain those trust funds until disbursement was properly authorized. The issues for determination are whether those violations occurred and, if so, what discipline should be imposed upon the licensees.
Findings Of Fact Respondent Dessie B. Castell is, and was at all material times, a licensed real estate broker in Florida, having been issued license number 0342283 in accordance with Chapter 475, Florida Statutes. Ms. Castell is owner, president and qualifying broker of A. Plus Service Network Realty, Inc., which corporation is registered and licensed in accordance with Chapter 475, Florida Statutes, at 901 Mock Avenue, Orlando, Florida. Ms. Castell negotiated a contract for sale and purchase of a home at 638 18th Street in Orlando, Florida. Rosemary Jackson was the proposed buyer and Valerie Crane, trustee, was the seller. At the time of the contract dated June 26, 1996, Ms. Castell had already been working with Rosemary Jackson and held a $500.00 escrow deposit from Ms. Jackson in her broker’s escrow account. Also, at the time of the contract on June 26, 1996, Ms. Jackson had been pre-qualified for an FHA loan through ESD Lending Corporation, Inc. The contract for sale and purchase between Ms. Jackson and Ms. Crane established July 2, 1996, as the closing date. Ms. Jackson liked the house and needed to move in quickly. The contract failed to close on July 2, 1996. Both Ms. Jackson and Ms. Castell understood that the ESD lending Corporation did not have an approved appraisal required by FHA for the loan. There was an appraisal done on the property for a previous prospective buyer and Ms. Crane furnished that appraisal to ESD before July 2, 1996. Ms. Crane’s own testimony was confused and conflicting as to whether the appraisal she furnished was approved. Ms. Jackson’s and Ms Castell’s testimony was clear and credible that they were never informed that the appraisal was approved, and Ms. Castell did not receive the HUD settlement papers required for closing. Soon after July 2, 1996, someone came to Ms. Jackson’s workplace identifying himself as a representative of Ms. Crane and offering to extend the closing and to provide a refrigerator and some other items. Ms. Jackson was suspicious of this person as she felt that he was trying to circumvent the mortgage company staff with whom she had been dealing. Ms. Jackson had looked at another house earlier that she did not like as well as the house offered by Ms. Crane; but since she needed to move quickly, Ms. Jackson told Ms. Castell to transfer her escrow deposit to a contract on this prior house. Ms. Castell did that on July 5, 1996, and that contract closed shortly thereafter. On July 6, 1996, Ms. Crane faxed to Ms. Castell a letter offering to add the refrigerator and to extend closing to the next Friday. The letter asked that the offer be accepted by 5:00 p.m. on that same day, the 6th or if not accepted, that the $500.00 deposit be released to Ms. Crane. When she received no response, Ms. Crane sent another letter to Ms. Castell on July 13, 1996, demanding the $500.00 escrow deposit, reiterating that Ms. Jackson forfeited her deposit when she did not close on the property after qualifying for the loan and reminding Ms. Castell of her obligation as escrow agent pursuant to Section 475.25, Florida Statutes, in the event of a dispute over the deposit. Ms. Crane sent a copy of her letter to the Florida Real Estate Commission. Ms. Castell and her company did not notify the Florida Real Estate Commission regarding a dispute over the $500.00 escrow deposit. She felt that it was Ms. Crane’s failure to provide an approved appraisal that caused the contract to expire on July 2, 1996, and thereafter, that she and the buyer were entitled to transfer the funds to another contract.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED: That the Department of Business and Professional Regulation enter a final order dismissing the administrative complaint in this case. RECOMMENDED this 16th day of February, 1998, in Tallahassee, Leon County, Florida. MARY CLARK 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 Filed with the Clerk of the Division of Administrative Hearings this 16th day of February, 1998. COPIES FURNISHED: Laura McCarthy, Esquire Department of Business and Professional Regulation Post Office Box 1900 Orlando, Florida 32802-1900 Dean F. Mosley, Esquire McCrary & Mosley Suite 211 47 East Robinson Street Orlando, Florida 32801 Henry M. Solares, Division Director Department of Business and Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802-1900 Lynda L. Goodgame, General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
The Issue Whether the application of Lexington for registration as an investment adviser and the application for registration of John B. Waymire should be approved?
Findings Of Fact The Department's Division of Securities and Investor Protection is charged with the administration and enforcement of Chapter 517, Florida Statutes, the Florida Securities and Investor Protection Act. Lexington filed an application for registration as an investment adviser in the State of Florida. The application was filed on May 30, 1985. At the time the application was filed Lexington was known as Amvest Capital Management, Inc. The application was accompanied by an application for registration of John B. Waymire, as principal. By letter dated June 7, 1985, the Department notified Lexington that its application was deficient in 3 ways: The application did not indicate that Lexington was a Foreign Corporation or include a legal opinion stating why such registration was not required under Florida law; The application did not include financial reports as required by Rule 3E-300.02(2)(d), Florida Administrative Code; and Lexington did not meet the net capital/net worth requirements of Rule 3E-600.16, Florida Administrative Code. By letter dated June 17, 1985, Lexington corrected the first 2 deficiencies and requested that the Department waive the net capital requirements of Rule 3E-600.016(3)(b), Florida Administrative Code (hereinafter referred to as the "Net Capital Requirement"). By letter dated August 23, 1985, the Department denied Lexington's request for a waiver of the Net Capital Requirement. By letter dated November 11, 1985, Lexington requested that the Department reconsider its request for a waiver of the Net Capital Requirement. In the letter of November 11, 1985, Lexington also informed the Department that its name had been changed from Amvest Capital Management, Inc., to Lexington Capital Management, Inc. By letter dated February 7, 1986, the Department informed Lexington that it would reconsider its request for a waiver of the Net Capital Requirement and requested audited financial statements of Lexington and Piedmont Management Company, Inc., and information concerning the acquisition of a surety bond by Lexington. On May 7, 1986, Lexington provided the Department with documentation, including an audited financial statement for Lexington as of December 31, 1985, which indicated that Lexington had a negative net worth of $1,248,595.00, a general undertaking from Safeco Insurance Company to issue a surety bond for $100,000.00, and a proposed "Continuing Guaranty" agreement from Piedmont Management Company, Inc., guaranteeing all debt of Lexington. The Financial Administrator of the Department was requested to review the Continuing Guaranty agreement submitted by Lexington. She raised questions which led the Department to conclude that it had no authority to waive the Net Capital Requirement as requested by Lexington. The Financial Administrator of the Department orally informed Lexington of its position and indicated that a Declaratory Statement on the issue could be requested. In September of 1986, Lexington filed a Petition for Declaratory Statement on the issue of whether the Department had the authority to waive the Net Capital Requirement. The request was withdrawn by Lexington by letter on March 13, 1987. On April 29, 1987, the Department issued a letter denying Lexington's application for registration as an investment adviser in the State of Florida for failure to meet the Net Capital Requirement. The Department also denied the application of Mr. Waymire for registration as the principal of Lexington because Lexington's application had been denied. The Department's denial was based upon its determination that it did not have the authority to waive the Net Capital Requirement. The information that the Department had requested that Lexington provide was not considered or analyzed by the Department. The following facts concerning the following investment advisers currently licensed in the State of Florida were proved: FSC Advisory Corporation has filed financial statements with the Department for 1978, 1979, 1980 and 1981 which indicate that the Corporation had a negative net capital of $46,278.00, $79,127.00, $101,024.00 and $90,141.00, respectively, in each of those years. FSC Advisory Corporation has been licensed as an investment adviser in the State of Florida since at least 1977. [The Department has taken no action against FSC Advisory Corporation for failing to maintain the net capital required of licensed investment advisers.] Richard W. Whitehead, Inc., was licensed as an investment adviser on February 5, 1981. Its application included a December, 1980, financial statement which indicated that the company had a negative capital of $589.00. The evidence did not prove that the Department "waived" the Net Capital Requirement. Subsequently filed financial statements for 1981, 1983, 1984, 1985 and 1986 indicate that the company had a negative net capital of $1,071.00, $3,838.00, $4,978.00, $46,582.00 and $33,989.00, respectively, in each of those years. FCA Corporation filed financial statements with the Department for 1984 and 1985 indicating a negative net capital of $115,325.00 for 1984 and $40,136.00 for 1985. The 1985 financial statement was filed in response to a letter of August 13, 1986 from the Department notifying FCA Corporation that it had failed to file a financial statement. Coordinated Financial Services Advisors, Inc., filed a financial statement indicating that it had a negative net capital of $9,019.00 as of March 31, 1987. This statement was filed in response to a letter from the Department dated April 29, 1987, notifying the company that it had failed to file a financial statement. Stratfield Investment Management, Inc., filed a financial statement with the Department indicating that it had a negative net capital of $12,149.00 as of December 31, 1986. Consortium Group, Inc., filed a financial with the Department indicating a negative net capital of $19,947.00 as of October 31, 1986. TFG Consulting, Inc., was registered as an investment adviser by the Department on February 24, 1987. Its application included a July 31, 1986, financial statement indicating a negative net capital of $281.72. The Department informed TFG Consulting, Inc., of this deficiency by letter dated June 13, 1986. Market Metrics, Inc., filed a financial statement with the Department indicating it had a negative net capital of $38,357.00 as of June 30, 1984. Investment Management included a document with its application for registration which indicated that it had a negative net capital of $94,979.00. The Department, however, notified Investment Management of its failure to meet the Net Capital Requirement. By letter dated September 16, 1981, Investment Management notified the Department that it complied with the Net Capital Requirement; it had a net capital of $36,132.00. Generally, the Department took no action against the companies discussed in paragraphs 13a through 13i for failing to maintain the net capital required of licensed investment advisers except to the extent specifically noted in those paragraphs. The evidence did not, however, prove that the Department had waived the Net Capital Requirement for any entity filing an initial application for registration as an investment adviser. The Division of Securities and Investor Protection of the Department has a total staff of approximately 74 persons. The Division's Bureau which processes registrations consists of only 8 professional employees and several clerical positions. The 8 professional employees of the Bureau processed approximately 500 new broker-dealer and investment adviser applications which were approved during the past fiscal year. They also processed applications which were not approved and approximately 3,200 renewals. There are approximately 3,200 broker-dealers and investment advisers, 1,500 branch offices and 120,000 associated persons registered with the Department. Except for bank holding companies, which are discussed, infra, companies which received and/or retained registrations with the Department despite their failure to meet the Net Capital Requirement did so because of Department employee error. From March 6, 1979 until March 20, 1986, the Department issued thirty- three letters in response to requests for waivers of the net capital requirements. In each case the Department indicated that it interpreted Rule 3E-300.02(7)(a), Florida Administrative Code, to allow the Department to waive the Net Capital Requirement if the waiver would not be contrary to the interest of the investing public. Of the thirty-three cases where a waiver was granted, thirty of those cases involved bank holding companies. It is a common practice in bank mergers or reorganizations for a bank to form a bank holding company. Stock of the existing bank is then exchanged for stock of the bank holding company. The bank holding company is required to register as an issuer-dealer and must meet a $5,000.00 net capital requirement. Often, the bank holding company does not meet this requirement until after the transaction has occurred. Therefore, bank holding companies request a conditional waiver from the net capital requirement. Each request is reviewed on a case-by-case basis to be sure the public is adequately protected. The waivers that have been granted were conditioned on the bank holding company complying with the Net Capital Requirement after the exchange of stock occurs. Of the thirty-three waivers proved in this proceeding, thirty were bank holding companies. The evidence failed to prove what type of transaction was involved in the other three cases. The Department's position with regard to waiving the Net Capital Requirement of bank holding companies applied to investment advisers as well as broker-dealers or issuer-dealers. The Department's interpretation of Rule 3E-300.02(7)(a), Florida Administrative Code, with regard to its authority to waive the Net Capital Requirement for bank holding companies set out in the letter to the thirty-three companies referred to above was the same as set out in the Department's letter of February 7, 1986, indicating that the Department would reconsider Lexington's request for a waiver. The Department has stopped granting waivers from the Net Capital Requirement to bank holding companies based upon its present interpretation of the law. The $2,500.00 Net Capital Requirement for investment advisers does not guarantee that customers will not sustain losses or that the adviser will remain solvent. Lexington is an investment adviser doing business in 46 states. The State of Arkansas has taken action to revoke the registration of Lexington in that State. This action is based, in part, on the refusal of the State of Florida to approve Lexington's application. As of the date of its application Lexington had a negative net capital of $1,248,955.00. The negative net capital is due in part to $1,650,000.00 in long-term debt owed to Piedmont Management Company, Inc., and Lexington Management Corporation of New Jersey. Piedmont Management Company, Inc., owns 100 percent of the stock of Lexington Management Corporation of New Jersey, which in turn owns 50 percent of the stock of Lexington. The other 50 percent of the stock of Lexington is owned by "senior management" in Lexington. Lexington's $1,650,000.00 of long-term debt to Piedmont Management Company, Inc., and Lexington Management Corporation of New Jersey is subordinated; all other debts of Lexington would have priority over the long- term dept. Piedmont Management Company, Inc., had net capital of $78,394,000.00 as of December 31, 1985. Lexington does not take physical possession of its clients' assets. Clients' assets are kept with a broker-dealer. Lexington only has the authority to trade a client's account; it does not authority to transfer assets in or out of a client's account. The Continuing Guaranty agreement submitted to the Department by Lexington is not effective indefinitely. The agreement does place the asset and net worth of Piedmont Management Company, Inc., behind the liabilities of Lexington, except subordinated debt. The surety bond commitment was to be in a form specified by the Department. The parties stipulated that Lexington has never met the Net Capital Requirement. If the Net Capital Requirement were waived the investing public would be adequately protected if the actions which the Department and Lexington have discussed are taken. This protection will only be for the effective period of the Continuing Guaranty agreement, however.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the requested waiver of the Net Capital Requirement be DENIED. It is further, RECOMMENDED that the application of Lexington for registration as an investment adviser in the State of Florida and the application of John B. Waymire as principal be DENIED. DONE and ENTERED this 16th day of February, 1988, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of February, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-2289 The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The Petitioner's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact of Acceptance or Reason for Rejection 1 2. 2 7. 3 3. 4-5 4. 6 5. 7 6. 8 8. 9 9. The "unconditional guarantee" is for a limited period of time, however. 10 30. 11 31. 12-13 12. 14 23. 15 18. 19. The evidence failed to prove that there was a "substantial minority" or that the 3 applicants which were not bank holding companies were broker- dealers or investment advisers. The evidence failed to prove that there is such a "policy." See 21. 18 22. 19-20 12. The evidence failed to prove that the Department's discontinuance of its treatment of waiver request was "abrupt" or a discontinuance of a policy applicable to the Petitioners. 21 Hereby accepted. 22 24. 23 25. 24 29. The first sentence is irrelevant. The last sentence was not proved by the weight of the evidence. 26. The evidence failed to prove that Lexington has a "parent" company. 27 27. 20 Not a proposed finding of fact. 21 18-20. 22 19. 23 14. 24 15 and 16. 25 17. 26 12 and 23. 27 25. 28 32. The last sentence is a statement of law and not a proposed finding of fact. Not supported by the weight of the evidence. 29 26. 30 28. 31 See 33. 32 13a and 13j. 33 13b and 13j. 34 Not supported by the weight of evidence. 35 13c and 13j. 36 13d and 13j. 37 13e and 13j. 38 13f and 13j. 39 13g. 40 13h and 13j. 41 13i. 42 Not supported by the weight of the evidence. One Department employee testified that he believed that the rationale for waiving the Net Capital Requirement for bank holding companies (that the investing public was adequately protected) would apply to investment advisers also. This testimony does not prove, however, that the Department has implemented a policy with regard to permanent waivers of the Net Capital Requirement for initial applications of investment advisers. 43 Not supported by the weight of the evidence. The Department's Proposed Findings of Fact 1 1. 2 2. 3 3. 4 4. 5 5. 6 6 and 7. 7 8. 8 9. 9 10 and 11. 10 12. 11 13a and 13j. 12 13b and 13j. 13 13c and 13j. 14 13d and 13j. 15 13e. 16 13f. 17 13g. 18 13h. 19 13i. COPIES FURNISHED: Edward W. Dougherty, Esquire and Charles T. Collette, Esquire Mang, Rett & Collettee Post Office Box 11127 Tallahassee, Florida 32302-3127 Walter W. Wood Deputy General Counsel and Margaret S. Karniewicz Assistant General Counsel and Charles E. Scarlett Office of the Comptroller Suite 1302, The Capitol Tallahassee, Florida 32399-0350 Honorable Gerald Lewis Comptroller, State of Florida Banking & Finance Department The Capitol Tallahassee, Florida 32399-0350
The Issue The issue for determination in this proceeding is the fair market value as of October 15, 1998, of common stock of Citizens Bank of Wakulla held by Petitioners, dissenting minority shareholders.
Findings Of Fact Petitioners are stockholders of approximately 36% of the outstanding 150,000 shares of stock of Citizens Bank of Wakulla (CBW). Danny Ray Metcalf, Sr. is president of Metcalf Crab Company, Inc., a seafood processing plant in Wakulla County. Marshall Spears is owner and president of RMS Marine Supply in Wakulla County. Donald L. Tucker is a practicing attorney and former legislator in Tallahassee, Florida. CBW was chartered in 1987 largely through the efforts of Tommy Rowell, prior chairman of the board of the only other bank in the county, Wakulla Bank. With the exception of Mr. Rowell and another banker, CBW's first board was "very green," comprised primarily of businessmen in the community, including Mr. Metcalf. The bank lost money for the first few years. By 1991 when Mr. Rowell resigned as president, the bank's book value had decreased from its initial price of $10 a share to $8 a share. After CBW hired another president it prospered and grew to approximately $18 million. In spite of some financial success the bank's board felt its president's involvement in the community did not adequately enhance the bank's image so that individual left. Skip Young, owner and operator of Harvey Young Funeral Home in Crawfordville, Wakulla County, Florida, became president and chief executive officer of CBW in mid-1994. Mr. Young had been an active director of the bank since its inception. At Mr. Young's insistence the bank hired an experienced financial person, Jack Davis, as executive vice-president and chief financial officer. Both Mr. Young and Mr. Davis remain in their positions. The bank's assets have grown to approximately $35 million and the bank has been profitable since 1993 or 1994. CBW has only paid a single $.15 dividend to its shareholders. In 1997, CBW's board voted in favor of forming a holding company and the bank retained a law firm to set up the company. After the necessary documents were prepared and the issue was presented to the stockholders, Petitioners were concerned that the increased number of authorized shares and broad grant of authority to the board of directors would dilute the stockholders' control. Petitioners therefore dissented from the majority decision to form the holding company. After necessary regulatory approval Citizens Bankshares, Inc., became the holding company of CBW by trading one share of holding company stock for one share of bank stock. Because they did not want shares in the holding company the dissenting shareholders were offered $18 a share, slightly over the October 15, 1998, book value of $17.54, and an amount the board anticipated the stock could bring in the local market. The dissenters declined, and when the parties were unable to agree on a value, it became necessary to select individual appraisers pursuant to Section 658.44, Florida Statutes. CBW's appraiser, Dr. Douglas Austin, issued a report appraising the stock for $19.78; the dissenting shareholders' appraiser, Richard Knight, established the value at $39.60 a share. When the two appraisers could not agree on a third to resolve the disparity, the Florida Department of Banking and Finance (DBF) as required, selected the third independent appraiser, the firm of Sheldrick, McGehee, and Kohler, Inc. (SMK). On June 23, 1999, SMK issued its appraisal establishing a value of $18.55 per share for CBW common stock, effective the date of the merger: October 15, 1998. CBW's offer of that price was rejected by the dissenters and the Petitioners filed a timely request for a formal evidentiary hearing. Their petition resulted in this proceeding. As distilled from the testimony of the several experts in this proceeding and from scant available case law, the valuation or appraisal process requires the a combination of standard formulaic procedures and the appraisers' professional judgement. It is not an entirely mechanical process, and to assess the validity of the process requires scrutiny of the individual experts' background and experience. The individual appraisers who testified were candid and credible professionals. In no instance did it appear that any one appraiser was bent on deriving a pre-determined value. Nonetheless, the values were widely disparate. The task therefore is to probe the methodologies utilized, weigh the experts' evidence, and determine the appropriate value. Richard A. Knight's Opinion Richard Knight was qualified as an expert in the valuation of stock in this case over the objection of CBW. Mr. Knight has extensive background and experience in banking and finance and little experience in actual appraisals. Mr. Knight considered population growth of Wakulla County of 66.58% from 1990 (11,202) to 1997 (18,660). He also considered the growth rate of the bank which was substantially higher than the state average (275.48% compared to 171.3% from 1989-1996; and 16% versus 5% for the 12-month period ending June 30, 1998). Mr. Knight considered recent stock transfers of $18 per share to be unreliable as a measure of value since the bank is a non-publicly traded, stockholder-owned community bank. Mr. Knight looked at reported return on asset and net operating income per share. Mr. Knight selected a multiple of 18 times net operating income per share applied for the year ending 1997, ($2.20) for a value per share of $39.60. Mr. Knight also opined that a fair value of the bank's shares would be 2.25 times book value, translated to $39.04 at the end of August 1998. Although the two methods yielded similar results, Mr. Knight felt the multiple of book method was preferable as with a bank the size of CBW earnings are "somewhat variable." The valuation figures proposed by Mr. Knight did not include marketability or minority shareholders discounts. In cross-examination Mr. Knight agreed that 8-10% would be a fairly reasonable range for CBW's capitalization rate. Capitalization rate is the inverse of the price to earnings (P/E) ratio. A capitalization rate of 10 results in a P/E ratio of 10 times earnings; a capitalization rate of 8 $ results in a P/E ratio of 12.5 times earnings. In either case the multiple of 18 times earnings used by Mr. Knight is inconsistent. The rate of 10 or 12.5 times earnings would yield a lower value than the $39.60 suggested by Mr. Knight. Mr. Knight's opinion that 2.25 was a reasonable multiple of book value was basically an educated guess based partially on his experience that no healthy bank in Florida has sold for under two times book. This opinion did not determine the likelihood of a sale of CBW nor was Mr. Knight able to compile a peer group list of banks sold with which he could compare CBW. Dr. Charles Donald Wiggins' Opinion Dr. Wiggins was retained by Petitioners and produced a thorough detailed report dated March 16, 2000. Dr. Wiggins has a doctorate in business administration and is a licensed CPA in the State of Florida, although he is not practicing as a CPA. He is employed by the firm, Business Valuation, Inc., in Jacksonville, Florida. Dr. Wiggins has extensive experience conducting business appraisals, including dissenters' rights appraisals in other types of businesses and in two bank cases, including the present case. Dr. Wiggins described three primary stock appraisal methods: the income or going concern appraisal based on earnings, cash flow, or some other economic measure of return; a market comparable method based on examination of similar businesses sold; and a liquidation method, in the case of a bank, an adjusted book value approach where the appraiser looks at underlying assets and liabilities and adjusts those from book value to market value. Dr. Wiggins considered the various methods and selected the market comparable method, primarily because he had information on comparable sales from S and L Securities, a well- known organization that provides data on bank sales, by region, asset size, and other specific information on the value multiples (such as P/E), the buyer and the seller. The result of Dr. Wiggins' appraisal was a fair market value of 100 $ equity interest in CBW of $38.13 per share, or a minority equity interest of $28.61 per share. Dr. Wiggins obtained information from appraisal reports prepared for CBW by its experts; he also obtained historical financial and economic information from various banking publications and economic reports; he looked up CBW and similar banks on the FDIC web site and used information already in his office on comparable bank sales. He did not use comparable sales of Florida banks because there was only one reported in the relevant asset range for the prior two years. Instead Dr. Wiggins established a criteria of banks in the $30 to $50 million range in the Southeast that sold in the prior two years. This yielded a sample of 9 banks from West Virginia to Mississippi. In his sample he looked at the average and median market-to-book ratio and found them very close: 2.17, and 2.03, or 2.07. This comparison is based on the reported value the bank sold for versus the reported book value. 2.17 means the bank sold for 2.17 times book value. Although he has published numerous articles on discounted cash flow analysis in appraisals and likes that type of appraisal, Dr. Wiggins did not do that analysis in this case as he did not have the necessary information or time. Nor did Dr. Wiggins examine information with respect to his comparables' net income, equity, market size, market share, and competition. He did not talk with management, and for that and other reasons he designated his appraisal as a "limited scope appraisal." Dr. Wiggins' report discusses the factors listed in U.S. Internal Revenue Services' Rule 59-60 provided by the IRS for guidance to appraisers of closely held businesses. Dr. Wiggins' approach favored a larger over a smaller sample of "comparable" banks but the basic problem of his approach is that it is not possible to determine how valid it is to compare his bank sample to CBW without considering the other factors he felt would limit the sample size. In other words, a single close comparable would have been more valid than the disparate multiple comparables utilized by Dr. Wiggins. The two of the banks in Dr. Wiggins' sample that were closest to CBW in value of deposits, rural market location, and market competition, sold in their entirety for an average of P/B of 1.6 and P/E of 14.43. Those two banks also had substantially better earnings than CBW for the first 3 quarters of 1998. Richard Kohler's Opinion Richard Kohler is principal in the firm, Sheldrick, McGhee, and Kohler (SMK) in Jacksonville, Florida. The firm conducts business appraisals primarily throughout the southeast and has been in operation since 1946. Mr. Kohler's training and experience amply justified his qualification without objection as an expert in valuation of bank stock. In performing his appraisal at the request of the DBF Mr. Kohler and SMK's senior appraiser, Jess Wright, gathered information from CBW and other relevant sources, including a letter from counsel for the dissenter shareholders. Of the three basic methodologies (income, market, and cost or asset approach) they determined the best methodology would be the income or earnings approach, which is most appropriate in any appraisal where the company is making money. Mr. Kohler built a model based on return expectations at different levels of risk in the markets and derived a P/E multiple of 10.7; to that he applied the average of CBW's prior five years earnings, which with ups and downs came close to the anticipated earnings in 1998. The average was $260,000. Multiplying the average earnings times the P/E multiple of 10.7 resulted in a finding of $2,782,000, or $18.55 per share as of October 15, 1998. After that exercise, Mr. Kohler and his colleague applied various reasonableness tests to determine whether their core finding was appropriate. They looked at public companies and using guideline models discounted from their values. They also looked at actual stock transfers at each bank and found they had all been at basically book value. In developing his P/E multiple and capitalization rate the 10% growth selected by Mr. Kohler was very conservative. That is, he erred, if at all, to the benefit of the Petitioners. When he conducted his reasonableness test Mr. Kohler took a 50 $ discount from the value of public companies. Companies that were publicly traded were at approximately 19 or 20 times earnings and about 2 to 2.3 times book value. These companies were much larger than CBW and further, CBW had only paid a one-time token dividend. Mr. Kohler did not apply a minority discount to his valuation. The value he derived from his methodology is a per share value of the entire bank; it is neither a majority nor minority value. If a 51$ interest or other controlling block were to be valued it might have a slight premium. Dr. Douglas V. Austin's Opinion Dr. Douglas V. Austin is a professor Emeritus Finance, at the University of Toledo, Ohio. Prior experience after graduate school included teaching at the College of Business at the University of Michigan and working on mergers and acquisitions for the Federal Reserve Bank of Cleveland. When he began to lose his eyesight in 1967, Dr. Austin returned to academia and at the time of his retirement in 1989 had been a full professor and department chairman for approximately 20 years. Since 1989 Dr. Austin teaches one semester a year and runs his own consulting firm full-time. He is also an attorney licensed to practice in Michigan and Ohio. Dr. Austin has written numerous books and articles on banking-related topics, including bank stock valuation and dissenters' stock appraisals. Without objection Dr. Austin was qualified as an expert in bank stock valuation. In the words of another witness, if bank valuations were rock and roll, Dr. Austin would be Elvis Presley. Dr. Austin is now fully blind and the work done by his firm is under his supervision. Steve Byers, the firm's vice- president, physically prepared the appraisal report in this case. Dr. Austin is fully familiar with the report and directed and reviewed the work. Assured that it was his work product, Dr. Austin signed the report. Dr. Austin's report was by far the most in-depth analysis that was conducted of the bank. He attempted all three methods of business valuation. Dr. Austin appraised the value of 100% of CBW at $23.76 per share and the minority interest held by the dissenters at $19.78 per share. As a result of a computer data entry error, these values were overstated by about $.50, but this is not material. The first action Dr. Austin took in preparing his valuation was to send CBW a 17-page information request for financial statements and information like non-accrual and substandard and doubtful loans, yields on loans, yields on deposits, quality of the loans, and securities. He always looks at the bank. In valuing small financial institutions which are not publicly traded and which have a small number of shareholders, there are no public data to compare it with so you must look at the financial institution itself. Dr. Austin familiarized himself with the balance sheet, the income statement, all the historic bank ratios of this particular bank for five years; he did a peer group analysis, and compared this bank to other banks in the industry. He also gathered data concerning the economy, national, state and local, because growth in deposits and growth in population are figured into economic projections. CBW underperformed in terms of a rate of return on assets. Four out of the previous five years, it was below the 1% rate of return on assets which was standard for the industry. Only in 1997 was the rate above 1%. From a peer group standpoint, CBW had not performed equal to the average of the previous five years of banking history of banks of its size. The bank had a lower return on equity than did other banks. It had a lower capital to asset ratio than did other banks of the same size. It was marginally capitalized in that it had less than 8% capital. Its loan-to-deposit and loan-to-asset ratios were higher than other banks that were competing in the county and other peer group banks in Florida. CBW was suffering some losses which were higher than peer group banks. A discount rate was applied by Dr. Austin from the capital asset pricing model. This is an accepted financial model for determining discount rates and capitalization rates indirectly. Cash flows are a combination of earnings plus available capital minus capital expenditures plus depreciation for each year. Dr. Austin utilized different growth rates in different stages of his valuation. For the first five years, he utilized the growth rate of 8.25%. This was slightly lower than the 9% growth rate of the bank for the past three years. The growth of earnings was predicted to be 2% after the fifth year into the future. In the previous five years, the bank's earnings had fluctuated wildly and it had only one good year of earnings -- 1997. The earnings for 1998 were going to be less than 1997. Looking five years into the future, Wakulla County was going to mature and so was the bank. Therefore, Dr. Austin thought five years into the future the earnings growth of 2% was a logical growth. In the long term, economic growth will remain at approximately 2.0% to 2.4%, barring any exogenous shocks to the economy such as oil embargoes, military conflicts, or political upheavals. Analysts expect annual compound population growth rates of approximately 5.9% for 1997-2000, and approximately 2.0% to 2.5% thereafter. The second valuation method that was used by Dr. Austin was adjusted book value. It was used as a confirmation and as an alternative technique. This technique marks all of the assets and liabilities of the bank's institution from cost to market for a picture of what the bank is worth in terms of market at a point in time. Dr. Austin did not use market comparables because he could not come up with a database which allowed him to identify comparables that traded in the same size level as Citizens Bank. Nor did he do bank sales comparables. It is only appropriate to use bank sales comparables if the dissenters were dissenting from a merger or a holding company acquisition and did not like the price that the acquirers were giving to the sellers and the whole bank was going to disappear. Dr. Austin has done that kind of dissenters' appraisal and used bank sales comparables. In determining the adjusted book value, the first thing that Dr. Austin did was to determine the market value of the CBW's securities portfolio. He then took the yields on various loans and compared them to the Uniform Bank Performance Report for September 30, 1998. He next modified the value of the loans up or down, based on the yield differentials. The loan portfolio was then further adjusted based upon an analysis of the quality of the portfolio. The next thing Dr. Austin did was determine a core deposit value. Because they are perceived as "hot money" (moved from bank to bank based on small changes in interest rates) Dr. Austin disregarded all certificates of deposit (CDs), both above and below $100,000, from core deposits. Dr. Austin's discounted cash flow analysis produced a value of $22.76. The net adjusted asset value came to $23.45. Dr. Austin averaged those two numbers and adjusted the average by adding 11% for control premiums (enterprise value or value ascribed to control of the enterprise) and reduced that number by 25% for a minority discount (considering the dissenters' minority share of the total holdings). Dr. Austin's formula resulted in a value of $19.78 per share. Establishing the Fair Value Certain issues emerged in this proceeding as central to analysis and application of the experts' methodologies. These issues include how to characterize and whether to consider discussions and correspondence with FirsTrust regarding purchase of CBW. The issues also include whether to consider CDs among core assets and whether marketability or minority discounts are appropriate. FirsTrust FirsTrust is a banking business; it owns controlling interest in two banks in Louisiana, has a company that provides automated technology machines (ATMs) all over the country, and owns an insurance company and real estate development business. FirsTrust's assets range between $300 and $600 million. Joseph Canizaro is chairman of the board. From 1996 through mid-1998, Randy Lovitt was employed by FirsTrust as executive vice-president and chief operating officer. He was Mr. Canzaro's right-hand person, managing the banks and operations of all the companies. Sometime around early 1997, FirsTrust was looking to expand into several states in the Southeast. It was looking for potential candidates for merger or purchase rather than starting new banks. Someone told Mr. Lovitt about CBW. Throughout 1997, Mr. Lovitt corresponded with and, on two occasions, visited with Skip Young, Mr. Metcalf, and other CBW board members. The parties executed an exclusivity and confidentiality agreement. On July 23, 1997, Joseph Canizaro sent a non-binding letter of intent to Danny Metcalf as chairman of the board of CBW. The letter included the proposal that FirsTrust would infuse extra capital into CBW in an amount of 50% of its approximate $2,260,000. Then FirsTrust would acquire enough additional stock to give it 80% ownership, paying 2.25 times the adjusted book value. The infusion of capital would have required authorization of additional stock (75,000 shares -- 50% more than the already authorized and issued 150,000 shares) which FirsTrust would purchase at book value. As explained in Randy Lovitt's clarification letter of August 6, 1997, to Danny Metcalf, the intent of the proposal was to reduce FirsTrust's overall costs and provide needed capital for future growth. The letter of intent stated on its face that it was non-binding and was further subject to a satisfactory due diligence analysis being conducted by the purchaser. The letter of intent was never executed as acceptable to CBW. There is some evidence that there were discussions that CBW's board wanted 3 times, rather than 2.25 times adjusted book value. On September 2, 1997, Randy Lovitt sent a letter to "Mr. Metcalf and Board Members" confirming the understanding that the proposal to purchase 70% of outstanding shares at 2.25 times book and plan for additional capital did not meet the CBW's approval and any higher price would make the transaction too expensive for FirsTrust. By May 1998, Danny Metcalf was no longer on the board but continued to pursue a sale of his and other CBW stockholders' shares to FirsTrust for 51% control. Viewing this as a hostile effort, Mr. Young told him to stop. Mr. Young also wrote to FirsTrust's Randy Lovitt on May 5, 1998, explaining that CBW wished to remain independent and . . . to be the best little bank in town, which provides outstanding service and products to small and medium-size business within our community. (Petitioner's Exhibit 47) From the evidence it is apparent that FirsTrust's communications were serious "feelers," rather more significant than earlier casual buy/sell conversations between various Tallahassee bankers and CBW board members over a mullet lunch in Wakulla County. Still, the exercise never reached fruition and if the FirsTrust correspondence could be considered a firm "offer," the proposal remained speculative. The negotiations are worthy of some consideration, but little weight in fixing the value of Petitioners' stock on October 15, 1998, more than a year after the written proposal by FirsTrust, and a substantially smaller percentage of the stock. Discounts Petitioners argue that a minority discount is inappropriate because it would result in a "windfall" to the purchasers, either a majority shareholder or the corporation itself. There is evidence and argument on both sides of this issue, but the most reasonable approach is that of Dr. Austin who applied both a premium and a discount in his valuation process in order to convert the mere numerical calculations into a comparable market price for thinly traded shares. The studies cited in his valuation report suggest that Dr. Austin's methodology was conservative and fair. Certificates of Deposit The third significant issue is whether CD's should be considered among the core deposits of the bank. The current trend among valuation experts is to exclude those CD's as "hot money." Because people are less willing to tie up their assets in a longer term deposit, the period of CD's has decreased in recent years. Those CD's are moved from bank-to-bank as competitive interest rates change from bank-to-bank. While Petitioners suggest that CD depositors in small community banks such as CBW tend to leave their money in their community bank, they presented no evidence of that practice at CBW. Intuitively as valid as Petitioners' argument is the notion that such depositors could be quickly seduced by more advantageous rates offered in the competitive banking environment in Tallahassee, where numerous and larger banks are found. No single shareholder of CBW is a majority shareholder. In order to purchase the dissenting shareholders' stock the holding company has to borrow to replenish its capital. It intends to pay off the loan by offering the stock on a pro rata basis to existing shareholders before offering it in the community. Current book value of CBW stock is between $20 and $21. The limited number of stock sales since CBW's inception have been around book value and Skip Young does not anticipate being able to sell the dissenters' stock for more than book value. Dr. Austin's approach yielded a fair value per share at 112.8% of CBW's book value as of October 15, 1998. Dr. Austin's approach was most thorough, reasonable and consistent with prevailing valuation practices, including Revenue Ruling 59-60 and the guidance of the U.S. Comptroller of the Currency. In summary, it is found that $19.78 is the fair value per share of the dissenters' shares of CBW.
Recommendation Based on the foregoing, it is hereby RECOMMENDED: That the Office of the Florida Comptroller enter its final order setting the October 15, 1998, fair market value of Petitioners' stock at $19.78 per share. DONE AND ENTERED this 19th day of September, 2000, in Tallahassee, Leon County, Florida. MARY CLARK 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 19th day of September, 2000.
Findings Of Fact At the time of this hearing, and at all times pertinent to the allegations of the administrative complaint, Concannon was registered with FREC as a real estate broker holding license certificate No. 0016471. On March 31, 1978, a contract for sale and purchase of certain realty was executed by Mark and Barbara Casto as sellers and Samuel and Louise Theriault as buyers. The contract provided that Concannon was to hold deposit monies in escrow. The deposit was to be made in three (3) installments of $100.00 on March 31, 1978 $400.00 by April 30, 1978, and $500.00 by May 30, 1978, for a total cash deposit of $1,000.00. Further cash payment on closing was to be made in the approximate amount of $8,700.00. The buyers made the first two payments in accordance with the contract for sale and purchase and Concannon retained the sum of the two payments, $500.00, in his escrow account until the transaction ultimately closed. The $500.00 payment due by May 30, 1978, was never made. On May 10 1978, buyers and sellers executed an addendum to the original contract which addendum provided that the buyers would convey two real estate lets to the sellers in part payment for the real estate covered in the original contract, at a value of $2,500.00. At the time the addendum to contract was executed, the interests of the sellers were being represented by Mr. John H. Cumiskey, who was on associate of New Century Realty, the listing broker for the subject property. Concannon, through the offices of Century 21 realty, was the selling broker participating in a multiple listing opportunity. At about this time, the buyers appeared to be having difficulty in securing sufficient cash to close the transaction as originally written. To help alleviate the situation, the addendum was made and in addition, 95 percent financing was obtained so that cash requirements were further reduced. Prior to closing, the lots which were the subject of the addendum were actually sold to another party and the proceeds from that sale were placed in Cumiskey's escrow account. Because of the financial problems which were being encountered, there was some concern on the part of the seller, the listing broker, and the selling broker, that the transaction might not close. Cumiskey offered to take over the transaction in order to smooth it out and to ensure that all want as planned. Concannon agreed to this arrangement, but no change was made in the contract for sale and purchase or its addendum reflecting a change of responsibility for escrow deposits. Subsequently, May 30, 1978, came and went without the final deposit payment of $500.00 being made by the buyers. Cumiskey erroneously assumed that the final deposit had been made with Concannon. Meanwhile, Concannon having been assured by Cumiskey that all necessary funds for closing had been secured, erroneously assumed that the final $500.00 had been paid to Cumiskey. At no time did Concannon seek to verify whether the final payment was made nor did he inform the sellers of the status of that payment. Rather, the nonpayment of the final deposit was not brought to the sellers' attention until the day scheduled for closing, June 15, 1978. On that date, the buyers were presented with a statement reflecting the amount of cash they would be required to produce at the closing. The statement includes a notation that an additional deposit of $500.00 is required. On learning of this, the buyers claimed not to have the additional $500.00 and refused to close unless the price for the property was reduced by a like amount. Cumiskey advised the sellers of the buyers' position and the sellers agreed to reduce their selling price by $500.00. On this basis the transaction subsequently closed. There was no evidence upon which to base a finding that Concannon was guilty of intentional wrong doing.
Findings Of Fact Caribank, N.A. ("Caribank"), was acquired by J. J. Gonzalez Gorrondona, Jr. ("Gorrondona Jr.") and George Childs, Jr. ("Childs") in May, 1977, and Dania Bank was acquired by these individuals through a tender offer in April, 1978. Caribank Corporation, the Applicant herein, is a bank holding company that now owns more than 99 percent of the stock of Caribank. Gorrondona Jr. owns 90 percent of Caribank Corporation and Childs owns 10 percent. Caribank Corporation was originally named Banconac Shares, Inc. when it was established in November, 1977. Its name was changed to Caribank Corporation on June 5, 1979. Banconac is a name used by many subsidiaries of the Banco National de Descuento ("BND"), a Venezuelan private commercial bank, a majority of the stock of which was formerly owned by Gorrondona Jr. and his father, J. J. Gonzalez Gorrondona, Sr. ("Gorrondona Sr."). It is derived from the name Banco National de Descuento and is used in Venezuela to signify business owned by the BND directly or indirectly. The use of the name Banconac in the Applicant's former name was not explained by the Applicant although Gorrondona Jr.'s testimony established that BND funds were not used to purchase Caribank. Gorrondona Jr. owns approximately 90 percent of Dania Bank and Childs owns approximately 10 percent of the Dania Bank, a state chartered bank. Approximately .3 percent is owned by shareholders who did not surrender their shares. Martin L. Wyneken ("Wyneken") is President and chief executive officer of both the Dania Bank in Broward County and of the Caribank in Coral Gables, Dade County. Childs is Chairman of the Board of the Dania Bank and Caribank, and President, Treasurer and a Director of Caribank Corporation. Policies of Caribank and Dania Bank are established through frequent conferences between Childs and Wyneken. Wyneken has a very close working relationship with Childs. Gorrondona, Jr. has the power to remove Wyneken and Childs. Childs comes to Florida about three times per month to confer with Wyneken. In these above-mentioned discussions, Childs is the spokesman for the "capital." Owning 90 percent of the stock of the Dania Bank provides Gorrondona, Jr. with authority concerning the management and policies of the bank. Directors of the Dania Bank are selected by the shareholders. Gorrondona, Jr. and Childs have not taken any dividends as shareholders of Dania Bank or Caribank, despite the substantial earnings of these banks. Dania Bank and Caribank centralize their operations as much as possible with two separate corporations. Dania Bank and Caribank trade employees back and forth and bill each other through an elaborate accounting system. Thad R. Chamberlain, a director of Caribank Corporation, is executive director of the Banco Suramericano de Desarollo, a Panamanian bank in which Gorrondona, Jr. owns a controlling interest. This is an application pursuant to the Florida Banking Code, Section 658.28, Florida Statutes, for permission to acquire control of Dania Bank by Caribank Corporation. This change in control is sought in order to facilitate a merger of Caribank and Dania Bank. The merger is desired to facilitate the expansion of branch banking, the development of an international department and the development of subsidiaries in such areas as leasing, mortgage financing, and small business investment (S.B.I.C.). The combined capital of Caribank, of approximately $4 million, and the Dania Bank, of $16 million, is expected to facilitate the establishment of subsidiaries. Dania and Caribank are, according to their Chief Executive Officer, Wyneken, "aggressive" banks and there exists a policy of increasing total assets from $265 million at the end of June, 1982, to $500 million by the end of 1985; there is also an aggressive program for subsidiaries. The merged bank plans to spend more on advertising in Dade County. Caribank at its present size cannot justify an increase in advertising expenditures. If this application is approved and a merger subsequently occurs, management expects that there will be benefit on the deposit side since assertedly better use will be able to be made of the money deposited. The Caribank/Dania Bank management has an ambitious program of branch banking. Gorrondona, Jr. and Childs have asked that Dania and Caribank branch into the counties as quickly as possible. Management would like to concentrate branching efforts in Dade County, but their capital at Caribank is so much smaller that it must rely on the Dania Bank for all kinds of assistance. Denial of this application and the failure to merge would restrict expansion in Dade County. The Caribank/Dania Bank management hope that the merged bank will become a large chain bank. The Chief Executive Officer of the two banks testified that to become a large chain bank "[W]e need every bit of help we can get, and that is why we need this consolidation." According to Childs, merger is expected to allow a "substantial increase in the capital base of all the subsidiaries which we have established or intend in the future to establish." A merger is expected to follow immediately upon the granting of the application. If the application were approved and for some reason the merger did not occur, Applicant would seek to change the name of the Dania Bank to Caribank to get the maximum effect out of their advertising dollars. It is further expected that if the application for change in control is granted, the two banks could file a consolidated tax return with an annual tax saving of approximately $64,000. From the above findings, it can reasonably be inferred that this application is made to facilitate a program of rapid expansion and establishment of subsidiaries, and if the application is granted, it can be expected that rapid expansion and development of subsidiaries will be more likely to occur. George Childs, Jr., started Banac Management, Inc. ("Banac") for Gorrondona, Jr. seven and a half years ago and was president of the corporation at the time of the intervention of the BND (discussed below). Banca is a BND subsidiary located in New York City. At the time of the intervention it was acting as a representative of the BND and its subsidiaries to obtain credit lines. Prior to the intervention, Gorrondona, Jr. was involved in the affairs of Banac. He visited Banac in New York six to seven times per year. He was a member of the Banac Board of Directors from 1975 to 1979. The BND was founded in 1954 by Dr. Jose Joaquin Gonzalez Gorrondona, Sr., who is the father of Gonzalez Gorrondona, Jr., the ninety percent (90 percent) owner of the Petitioner, Caribank Corporation, and the subject bank, The Dania Bank. Dr. Gonzalez Gorrondona, Sr. does not now, nor has he ever had any interest in, nor involvement with, Caribank Corporation, The Dania Bank or Caribank, N.A. Since its beginning, the BND had a steady growth until, at the time of the intervention of the bank by the government on December 7, 1978, it was the largest privately owned (nongovernmental) bank in Venezuela with the largest amount of private deposits, 6.3 billion Bolivars (1 Bolivar equals about 0.25 in U.S currency). Gorrondona, Jr. began working at the bank in 1958, worked throughout his early years, and continued to work full-time for the bank after receiving his doctoral degree in economics from the Catholic University in Venezuela with a doctoral thesis in economic planning. During his education, Gorrondona, Jr. studied such subjects as Monetary Theory, History of Financial Institutions, Operation of Financial Institutions, and Public Finance. His interest in economics began early in his life because Dr. Gonzalez Gorrondona, Sr. was the founder of the School of Economics in Venezuela, having been the founder of the Venezuelan Economic Council and the representative of Venezuela at the Bretton Woods meeting in 1943 at which the International Monetary Fund was founded. After graduation, Gorrondona, Jr. continued to study, taking courses in management such as Management by Objective, Computer Science, Systems Analysis, and other courses which would enable him to perform as a manager of a financial institution. Gorrondona, Jr. worked in many phases of the management of the bank, until in 1974, he became president in charge, which means that he was the chief executive officer in the absence of his father. He never drew a salary. By the time of the BND intervention, the stock interest of Gorrondona, Jr. was worth between $350 and $700 million dollars. As an outcome of the intervention, Gorrondona, Jr. lost between $150 and $200 million dollars in the worth of the BND stock which was owned by him. By the time of the intervention, the BND had grown to a bank which included approximately 60 branches, primarily in urban areas of Venezuela. The BND also owned several profitable subsidiaries, including Crenca, a financial society which was able to engage in financial transactions forbidden for commercial banks; Credimatico, which was the owner of a Master Charge franchise in Venezuela which had a market share of twenty-five percent of the credit card sales in the country; Arrendarca, a leasing and factoring company; and Almacendadora Caracas, a bonded warehouse company owning bonded warehouses in several cities in Venezuela. The BND also owned Servimatico, which dealt mainly with consumer credit and financed appliance and other small consumer purchases. Each of these subsidiaries was profitable to the bank and assisted the bank in paying dividends which had been declared each year, since 1973. Beginning prior to 1977, the BND was required to send its minutes of Board meetings to the Superintendent of Banks because there had been detected, as a result of special inspection, a tendency toward concentration of credit. In 1978, BND was the only bank required to send minutes of Board meetings to the Superintendent. At a majority of the meetings of the Board of the Central Bank of Venezuela ("CBV") during the last six months of 1978, there was an agenda item entitled "BND." During this time, employees of the Superintendent and the CBV were at the BND carrying out studies to see in what way or ways the BND's financial soundness could be improved. In August of 1978, the Superintendent of Banks wrote to the Minister of Finance about the situation of the BND. The letter notes that credits of Bs. 2,553.8 million were concentrated in 130 companies, that directors of these companies were in turn, directors of the bank, that there was a disproportion between the amount of these credits and the net worth of the borrower, that renewals were made even after delay in payment and that the credits were extended without analysis of the balance sheet. In September, 1973, the BND was prohibited from distributing dividends by the Superintendent of Banks because it would have adversely affected the liquidity of the BND. In November of 1978, the BND asked the Venezuelan Government for special financial aid in the amount of Bs. 600 million. The BND proposed that it be made the subject of a "private intervention" during the period of time such advance was outstanding. On December 6, 1978, the CBV excluded the BND from the Clearing House effective December 7, 1978, by vote of its Board. The CBV, the equivalent of the U.S. Federal Reserve, is a public institution of the Republic of Venezuela, but is considered independent. Eight members of its Board of Directors and its President are appointed by the government. Six members are appointed on recommendation of the private sector. The CBV, through its credit functions, provides credit assistance to banks and credit institutions in Venezuela. Through its operations, it seeks to safeguard the solvency and liquidity of Venezuela's banking system. A Clearing House to settle accounts between banks is operated by the CBV. When bank customers draw and deposit checks, credits and debits between banks are created that have to be reconciled on a daily basis. Venezuelan banks are required by law to maintain a deposit account at the CBV in order to settle such accounts. If after reconciliation, a bank owes money to other banks, its CBV account is debited to cover the debt. If after reconciliation, a bank is owed money, its account is credited. If a bank does not have enough on deposit to cover its debts, it can present to the CBV cash or checks or payment orders against other banks in sufficient amount. It can also present funds obtained outside the country. Finally, it can obtain funds by rediscounting commercial paper at the CBV. Rediscount consists of endorsing eligible commercial paper to the CBV in return for payment. Eligible paper, for example, must mature within 360 days and be adequately secured so that there is assurance as to its liquidity or self-liquidating nature. Thus, medium or long-term loans do not normally give rise to eligible paper. The decision to exclude the BND from the Clearing House was reached on December 5 and 6, 1978. Prior to this time, BND had had repeated difficulties converting its debts at the Clearing House. On December 5, the CBV Board authorized the exclusion of the BND in principle subject to discussion with the Venezuelan Government. At the time, the BND did not have commercial paper considered eligible by the CBV to receive credit assistance from the CBV. The situation was examined again on December 6 by the CBV to see if there were new elements or new alternatives. On December 6, 1978, the BND was overdrawn at the Clearing House to the extent of being unable to make good in its negative balance of approximately Bs. 100 million. It was decided there were no new elements or alternatives, and accordingly, the President of the CBV wrote to the Venezuelan Minister of Finance to let him know (1) that the BND had a deficit in its legal reserve requirement (see below); and (2) that the CBV Board had decided to exclude the BND from the Clearing House effective December 7, 1978. Prior to the exclusion of the BND from the Clearing House, the CBV Board considered the possibility of extending extraordinary credit assistance to the BND. The Board concluded that such assistance would be in violation of Article 45 of the law governing the CBV. That article provides: "Article 45. - In exceptional cases and with the favorable vote of the six members of its Board of Directors, the Banco Central de Venezuela may, in order to insure the due liquidity of a bank or credit institution in transitory difficulties, provide it with funds for a period not to exceed ninety days, which may be extended for an equal term at the Bank's discretion, secured by other assets of said bank or credit institution, different from those listed in the previous article. "Loans may in no event be made to a bank or credit institution if the trans- itory difficulties it faces are due, in the Board's opinion, after having consulted with the Bank Regulatory Commission, to the poor management or inadequate investment of its resources." In the case of the BND, the CBV Board concluded extraordinary credit assistance would be illegal because BND's liquidity problems were not "transitory" but rather structural, permanent and progressive, because the liquidity problems of the BND were due to improper investment of its resources, and because its funds were invested in operations that were insecure or lacking in guarantees, which reflected bad banking management. Under the rules and regulations of the Clearing House, the exclusion of the BND was mandatory. On the evening of December 6, 1978, a meeting was held at the Presidential Palace attended by the President of Venezuela, the Minister of Finance, other ministers involved in the financial sector, some of the board members of the CBV and the Superintendent of Banks. The stated purpose of the meeting was to inform the President of the Republic about the BND situation. The meeting lasted three hours. There was a discussion as to whether there was any alternative to the one proposed by the CBV. It was concluded that there was no alternative. The President of the Republic instructed the Minister of Finance and the President of CBV to hold a meeting the following morning to inform the banking community that the BND had been excluded from the Clearing House and that the government had decided to intervene the BND. The decision to intervene was unanimous. Two major events which contributed to the liquidity crisis which allowed the government to intervene the BND, were the result of actions by the government itself. The first of these actions was the substantial withdrawal of public funds from the BND. Between November 30 and December 6, over 100 million dollars was withdrawn by the government agencies from the BND. Withdrawals averaged 20 million dollars per day with a high of 30 million dollars on December 6. These daily balances were reported by the Comptroller of the bank to Gorrondona, Jr. on a twice daily basis during these days. No testimony, either from a witness or in the form of an exhibit, was ever introduced to contradict Gorrondona, Jr.'s testimony concerning these substantial withdrawals during the week prior to the intervention. The second action which was taken by the government injurious to the BND was the refusal to accept commercial paper for rediscount. Gorrondona, Jr.'s unrebutted testimony established that the same paper which was denied rediscount by the Central Bank on December 6 was granted rediscount on December 30 and during the period of time after the intervention. Gorrondona, Jr.'s testimony established that it would have been impossible to change the loan portfolio within such a short period of time and therefore of necessity it was the same loan portfolio which was granted rediscount after the intervention which had been denied rediscount during the week prior to the intervention. Gorrondona, Jr. further testified that the December 7, 1978, hand- written balance sheet, contained in Petitioner's Exhibit 70, the Intervenor's January 12, 1979, report, was a consolidated balance sheet including all 60 of the BND's branches. Therefore, the balance sheet was prepared by employees of the intervenor during the period between December 7, 1978 and January 12, 1979. On the issue of loans eligible for rediscount on December 7, Mr. Gabledone, Respondent's witness, using Respondent's Exhibit 70, stated that if the figures in Exhibit 70 were correct, the BND had 3.663 billion Bolivars eligible for rediscount on December 7, and that "the BND would have been able to obtain a large amount of rediscounts, or large amounts that would be eligible for rediscounts." In part, a result of the withdrawal of government funds, the failure of the government to repay its loans and overdrafts, and the denial of rediscount by the Central Bank of BND commercial paper, the BND had a deficit at the Central Clearing House on December 6 of 100 million Bolivars. Article 166 of the General Banking Law of Venezuela provides: "Whenever a bank or credit institute, subject to the Provisions of this Act, faces a preca- rious situation which might entail an eventual detriment to its depositors or creditors, or endanger the banking system in general, or when infringing repeatedly (the provisions of) this Act, or those of the Central Bank of Venezuela Statute or the Regulations of either or both, or any Resolution adopted by the Executive Branch, the Superintendent of Banks or of the Central Bank of Venezuela, then the Executive Branch shall empower the Superintendent of Banks or any other individual it may deem com- petent to place the Bank or Credit Institute in Receivership. The Receiver may agree with the Central Bank of Venezuela on the course of action to be taken for the respective bank's or credit institute's redress, its eventual reorganization or liquidation, which shall become mandatory for the respective financial house. But he shall, without exception, pre- pare, within a period not exceeding thirty days as from the date or resolution decreeing the receivership, a complete and itemized report concerning the legitimacy of the respective intervention and submit it to the Executive Branch. By Resolution 2296 issued December 7, 1978, the Minister of Finance of Venezuela intervened the BND. Intervention is an uncommon occurrence and the law contemplates it will occur only when a financial institution is in danger. The decision to intervene the BND could have been appealed to the Supreme Court of Venezuela. No appeal was taken. Neither Gorrondona, Sr. or Jr. or any other shareholder filed suit to block or overturn the intervention, although they had lawyers in Venezuela and Gorrondona, Sr. was in Venezuela. The BND is still under intervention. On march 31, 1979, the Superintendent of Banks of Venezuela issued its Annual Report for the year 1978 ("Superintendent's Report"). The Report contains an extensive discussion of the BND and the reasons for its intervention. The Superintendent's Report states the following: In 1977 and 1978, a decrease in the rate of growth of the Venezuelan economy together with unbalanced financial management at the BND whose key feature was credit over- expansion, especially as regarded credits to companies connected to the bank, placed the BND in a non-liquidity crisis to be- come increasingly notorious. The BND was the object of special attention by the Bank Regulatory Commission because over the 5 years preceding the intervention several violations of the General Law on Banks and other Credit Institutions had been detected. The BND had repeated insufficiency of the reserve requirement, a problem from which the bank chronically suffered. The BND was twice fined the maximum amount for illegal credits extended (1) to the Banco Suramericano de Desarollo ("BSD"), a Panamanian bank in which Gorrondona Jr. owns 80 percent of the shares, and (2) Crenca, a BND subsidiary, in violation of Article 153 of the Banking Law. Certain credits regarded by the BND as agricultural were not properly classified as agricultural. As of March 31, 1978, Bs. 2,553.8 million of bank loans were concentrated in 130 customers (the "Specially Classified Companies"). Directors of these companies were also bank directors. Credits were granted to these companies easily, then were renewed frequently and even when over- due, balance sheets for some of these credits did not exist and most of the credits were unsecured. The minutes provided by the BND to the Superintendent of Banks were not identical to those recorded in the BND's minute book, including that innumerable credit operations with subsidiaries had been omitted from the provided minutes. BND employees failed to cooperate with the Superintendency in providing requested in- formation. An official memorandum was sent to the BND president about this matter, ordering him to rectify this situation. Irregularities in the BND's legal reserve led to numerous notices to the BND president as well as to the levying of several fines. Until December 12, 1978, the BND received 224 memoranda concerning shortages in the legal reserve requirement and was fined 32 times for such legal reserve requirement deficiencies. The average weekly shortage in the legal reserve requirement through- out 1978 was Bs. 124 million. An audit conducted as of September 30, 1978, showed that the estimated loss on the loans to the Specially Classified Companies was Bs. 632.9 million. The estimated loss on other credits in the bank Portfolio was 35.7 million. The reserve for Portfolio Contin- gencies was Bs. 12 million. On January 12, 1979, the BND Intervenor, Tinco, made a report 1/ to the Minister of Finance pursuant to Article 166 of the General Banking Law of Venezuela. The Report describes the reasons for intervention. The Intervenor's Report states the following: During the first eleven months of 1978 the BND increased its Invested Assets by Bs. 1.0789 billion while in that same period deposits increased only Bs. 183 million. The imbalance was partially covered by rediscounts. By November 30, 1978, the BND had rediscounts of Bs. 485.4 million, which is 32.7 percent of all commercial bank re- discounts for that period. Many of the documents submitted to the Central Bank for rediscounts were rejected by it since they did not comply with the requirements for eligible paper. Credit restrictions were imposed on the BND by other banks. The BND's failure to make timely remittance of funds to correspondents resulted in their not honoring checks and refusing to open let- ters of credit. In 1975-78 the BND had a chronic shortage in its legal reserve requirement. The BND had a shortage in the legal reserve in 38 of 48 weeks during the first 11 months of 1978. The BND's reserve shortage stabilized during the months of September 1978 through November 1978 at over Bs. 100 million and reached Bs. 169 million in the last week of November. Prior to the intervention the BND was twice fined Bs. 30,000 for having granted illegal credits to the BSD, the Panamanian bank owned by Gorrondona Jr., and to Crenca. Even after the fines, the illegality was not corrected. In the case of the BSD the credit at the time of the fine through a time deposit was Bs. 657 million. At the time the BND was inter- vened, this deposit had not been reduced at all. In late November and early December of 1978 the situation grew more serious as the BND's negative balances at the Clearing House in- creased, and the BND had difficulty sub- mitting documents eligible for rediscount by the CBV. Questions from abroad about the BND's situation became more insistent. When the BND was unable to make good on its negative balance at the Clearing House on December 6, the BND was expelled as of December 7 in compliance with Article 11 of the pertinent Rules and Regulations. Thereupon the BND was intervened pursuant to Article 166. There were large withdrawals after the intervention and instructions were given that teller windows would not close as long as there were clients present. As of December 7, 1978 loans placed with affiliates (companies owned totally or partially by the BND) totaled more than Bs. 1.302 billion. Loans placed in 93 companies with which important shareholders, directors or executive officers of either the BND or its affiliates were directly or indirectly associated totaled Bs. 1.739 billion. Other credits were as of the date of the Intervenor's Report are still under study. On October 14, 1976, five vice-presidents of the BND, including the vice-president of Credit, the First Vice- President-Treasurer, the Vice- President-Comptroller, the Vice- President of Branches and Agencies, and Jaime Benitez ("Benitez") Vice-President for Banking Services, wrote a confidential memorandum to Gorrondona, Sr. and Gorrondona, Jr. in order to emphasize deficiencies and problems within the BND and to present recommendations. As summarized by Benitez, who testified at the hearing in this matter on July 16, 1982, the principal problem was a high concentration of credits in a group of businesses. These credits were not paid as they matured. This created a deficiency in cash flow and caused liquidity problems. There were also deficits in the legal reserve requirement. Accounting procedures were not being correctly applied and there was a problem of overdrafts. The memorandum recommended: (1) a change in credit policy even though this would limit the expansion program; (2) affiliated and related companies should start paying their debts; (3) concentration of credit should be eliminated; and (4) internal controls aid internal procedures should be improved. Benitez' testimony established that as a whole, recommedations were not carried out and deficiencies were not eliminated. The Memorandum of October 14, 1976, stated that: "The Office of the First Vice-President for the Treasury has repeatedly voiced to the highest authorities in the institution its opinion regarding the excessive placements with Group Companies and has gone as far as to file a written report with the President and the Acting President. In spite of the fact that, on account of its position, it must authorize almost all of the overdrafts and/or charges to the accounts of Group companies, it acknowledges the need to put an end to this practice. This question has been the subject of repeated discussions with the President and the Acting President, who are the only authorities empowered to put an end to this situation. The Memorandum of October 14, 1976, identified a number of problems then existing at the BND. It stated that there existed problems of: "1. High credit concentration (approximately 60 percent of the entire credit portfolio is placed with 1.4 percent of the total number of clients) in Group companies or companies directly or in- directly tied and/or related to it. We mean by this those companies or natural persons in the organization created by the highest ex- ecutive level or under instructions from it, who are organized with high Group officials, Bank officers or trusted persons, both as regards the holding and representation of their shares and their administrative or Director offices. These companies were expedited by said high levels or under orders from them, given through high Bank officers." "2. Non-payment by said companies due to con- stant renewals, without partial [the translation of "abonos parciales" should be "partial pay- ment" in the sense of "amortization"] or in- terest payments." "3. Credits to Group companies, above the legal limits, which are authorized or ordered by the highest officials." "4. Interest documented as promissory notes that accumulates above and beyond the credits originally granted." "5. Excessive number of permanent overdrafts with the National Government, governmental de- pendencies and especially and in an increasing fashion, with Group companies or companies directly tied or related thereto." "6. Overdrafts and collateral obligations in overseas banks due to the financing com- mitment and ever increasing requirements of Group companies or companies directly or indirectly tied or related thereto, which render the institution vulnerable to possible changes in the financial market." "7. Constant use of the Bank's own credit resources for the financing of Group companies directly or indirectly tied or associated there- to, whether they be already in existence or some of the ones that are constantly being created for expanionist purposes and whose activities represent a medium or long-term investment, at loggerheads with the soundness of commercial banking (Treasury Commission: see the material submitted at the meetings and on the minutes)" "8. Exclusion from the List ratified by the Board of Directors of certain operations of Group's companies and of companies directly or indirectly tied or related thereto, following longstanding instructions from high officers, who, in turn, received them from the highest levels." "9. Credits to companies whose balance sheets do not justify the amounts of said loans, mainly Group companies, and which credits are authorized or ordered by the highest levels." "10. Accounting omission of operations-especially guarantees and bonds-conducted from the Group com- panies under order from the highest levels." "11. Excessive financial burden due to the payment of surtaxes and commissions on deposits." "12. Increase in expenses through outlays that are not compatible with the normal management of the Bank." "13. Insufficient income generation, In relation to portfolio volume, which causes the interest account to be affected by amounts equal to the yield said portfolio should generate. Therefore, an insufficient amount in the account Interest Collected in Advance due to the drain it has been withstanding." "14. Inconsistency in the Reserve Requirements position due to a weak treasury and the continuous negative balances at the Clearing House." "15. Unbridled personnel growth at all levels, which has brought about an evident bueaucratization of Bank functions." "16. Ignorance of normal communication channels and of approved bonus norms and procedures." One of the signers of the memorandum of October 14, 1976, Santiago Rodriquez Marcano, was made an Assistant to the President of BND after the memorandum was sent, but he left after a few months saying that he did not receive the necessary cooperation in his new position. Gorrondona, Jr. testified that in 1978, BND was facing a "serious . . . liquidity crisis" and "had very little liquidity." Gorrondona, Jr.'s testimony established that he made his fortune in real estate. Gonzalez' testimony indicated that in 1978 the BND faced liquidity problems, a "liquidity crisis" which even with government assistance would have continued until the end of 1979. Benitez' testimony indicated that the BND was in serious trouble at the time of intervention and that the primary cause was credit concentration and the lack of payment upon maturity. Romero's testimony indicated that at the time of intervention the BND had the following problems in the area of credits or loans: A substantial part was concentrated in real estate activities. A lot of the business that had received credits from the bank was related indirectly with directors and executives of the bank. Some businesses received credits for amounts that went over what the law allows. The credits were not sufficiently col- lateralized or guaranteed. Some of these credits had a maturity of more than one year which is illegal for a commercial bank. Gabaldon's testimony established that while he has been President of the BND many adjustments had to be made to correct the accounts of the BND as they existed at the time of intervention; that the BND Board had decided to make an appropriate footnote reservation in the BND financial statements calling attention to the possibility of future adjustments which might result from investigations and analyses of the BND's accounts prior to the intervention. Gabaldon's testimony, based on his study of BND records, established that at the time of intervention is some cases the loans to subsidiary companies were paying interest but in a majority of the cases they were not doing so but rather the BND would increase the amount of the debt to cover the amount of the interest due. At the time of intervention, approximately 12 to 15 percent of the BND loan portfolio consisted of loans to these subsidiary companies. Alejandro Guevara Chacin's ("Guevara Chacin") testimony established that the minutes of the BND sent to the Superintendent compared with the minute books of the bank revealed that many operations were omitted. Guevara Chacin supervised the comparison. Juan Ramirez' ("Ramirez"), the present Superintendent of Banks of Venezuela, testimony indicated that there were many reasons for the intervention of the BND and any one of them, if put together with or alongside the others, was enough to support the decision. Benitez' testimony indicated that the basic principle of the banking business is diversification; in other words, to place loans with diverse or different customers. Childs' testimony indicated that renewal of loans without payment of interest is bad banking practice. Childs' testimony indicated that loans to corporations in which directors have an equity interest should be secured and at arms length. Wyneken's testimony indicated that there are reserve requirements in the United States and violation is not a trivial matter. The testimony of Guevara Chacin, Eenitez, Lopez-Romero and Ramirez established that one of the BND's major problems under Gorrondona, Jr. was repeated deficiencies in the BND's legal reserve. After the intervention, there was a run on the BND. Between June 30, 1978, and December 31, 1978, deposits from the public decreased by Bs. 2.1 billion and most of this decrease occurred between December 7, 1978, and December 31, 1978. In the six months following the intervention government deposits at the BND went from Bs. .6 to Bs. 2.7 billion. These deposits permitted the BND to cover withdrawals. Gorrondona, Jr. left Venezuela for a two week period on November 17, 1978, and a detention order was issued on November 24 which would have resulted in arrest had he had been in the country. In Venezuela, the subject of a detention order is immediately arrested and is held without any opportunity for posting bail until the detention order is resolved. The detention order was based upon an allegation that Gorrondona, Jr. had been involved in a company which had committed a security violation more than five years prior to the detention order. Petitioner contends that the charges against him, which resulted in the detention order, were politically motivated. This order kept Gorrondona, Jr. out of the country during the intervention, and was eventually dismissed. The Court, in dismissing the charges, stated: It then follows from the aforesaid, that it would -- clearly result in an injustice to assign any criminal liability to persons who are not even members of the Board when the presumed irregularities may have been committed. The period leading up to the intervention of the BND was also the period immediately prior to the national election which was held on December 3, 1978. In the elections in 1974, Gorrondona, Jr. had contributed 9 million dollars to the unsuccessful opponent of President Perez. In the election of 1978, Gorrondona, Jr. had contributed over 1 million dollars to the opponent of President Perez's party, the Accion Demicratico (AD) party. Venezuelan laws do not restrict the size of campaign contributions. Gorrondona, Jr. returned to Venezuela in June, 1979. At that time Gonzalez recommended to Gorrondona, Jr. that he go to court to prove his innocence. In June, 1979, Gorrondona, Jr. and Sr. initiated a noticia criminis proceeding in a Venezuelan Penal Court of First Instance. There are three ways to initiate a criminal proceeding in Venezuela: denunciation (a person makes a charge that a crime may have been committed), accusation (a person makes a charge that a particular person may have committed a crime), and noticia criminis (the court takes notice that a crime may have been committed). In Venezuela, the courts may call witnesses and thereby take investigative initiative. The noticia criminis proceeding is based on the obligation of a Venezuelan court to investigate a possible crime of which it has notice from whatever source. In the case of the noticia criminis proceeding initiated by Gorrondona, Jr. and Sr., the court was called on to determine if the BND administrators had participated in the commission of any crime while they were serving as such. In other words, the purpose of the noticia criminis proceeding initiated by Gorrondona, Jr. and Sr. was to determine if during the period of time in which they were administering the bank they committed an act that would or could be considered criminal in Venezuela. The word used by Gonzalez in describing the noticia criminis determination was "delito," which the interpreter testified means crime. The decision of the Court of First Instance in the noticia criminis proceeding was to terminate the summary investigation pursuant to Article 206 of the criminal code for criminal trials. The court found there was no evidence of crime. In other words, the determination of the judge in the noticia criminis proceeding was to end the criminal investigation because the facts presented were not of a criminal nature. With regard to the violation of banking laws described in the Superintendent's Report and the Intervenor's Report, the Court said "[a]s is clearly appreciated from these provisions, none establishes penal sanctions and although they constitute a violation of juridical regulations and comprise sanctions, same have no other character than an administrative one. The appellate court said, "this Superior Court considers that lack of maintenance of reserves in such proportion and manner as established in Articles 20, 21, and 163 of the General Act governing Banks and other Credit Institutes, is object of a sanction under Article 170 of the said law consisting of a fine to be applied by the Superintendent of Banks. Efforts to collect the loans made by the BND prior to intervention: On February 28, 1980, the BND entered into an agreement with Gorrondona, Sr. and Gonzalez regarding the loans to certain debtors of the BND ("February 28, 1980 Agreement"). All these loans were made prior to the intervention. The February 28, 1980 Agreement fixed the amount of the debt to the BND of the ap- proximately 180 companies specified therein at Bs. 4.038 billion. It specified that the BND would accept in payment of this debt the amount of Bs. 3.388 billion. It specified that payment would be made within one year. It specified that during that year no actions would be commenced to compel payment of this debt. Gorrondona, Sr. and Gonzalez signed the February 28, 1980 Agreement either as business brokers for the companies specified therein or as representatives of such companies. According to Gorrondona, Jr. all the debtor companies obligated themselves jointly, and any collateral posted by one could be used to satisfy the debts of the other. Paragraph 15 of the February 28, 1980 Agree- ment specifies certain responsibilities assumed by Gorrondona, Sr. and Gonzalez. "We, JOSE JOAQUIN GONZALES GORRONDONA, a Venezuelan citizen, of legal age, of this domicile, the bearer of identity card number 30.580; and DIOGENES Jr. GONZALES HURTADO, a Venezuelan citizen, of legal age, of this domicile, the bearer of identity card number 1.193.753, state that acting as business brokers for THE DEBTORS by virtue of the already noted common interests, personally and jointly and severally in behalf of all of THE DEBTORS undertake to accept and comply with the present agreement in all of its parts. Therefore, and to preserve the fullness of its effects, we undertake to have those debtor companies whose Articles of Incorporation or By-Laws forbid or limit the granting or posting of guarantees or securities, amend them as needed in order to allow for the profferred guarantees; we likewise undertake to have them grant their consent lawfully and execute the present in- strument within the term of thirty (30) days, and to execute any other documents, as re- quired, that may be necessary for the per- formance thereof. As of the present, the loans of the com- panies specified in the February 28, 1980 Agreement have not been paid in full. The amount remaining to be paid, exclusive of interest, is either approximately 2.8 bil- lion B's or 2.1 billion B's depending on whether the loans compromised in the February 28, 1980 Agreement (the difference between Bs. 4.038 billion and Bs. 3.388 billion) are treated as paid. Such unpaid loans as of this time are neither principal nor interest. At this time the BND's total loan portfolio is approximately Bs. 6.2 billion. Whether the figure of Bs. 2.1 or Bs. 2.8 billion is used for the amount of these unpaid loans, these frozen loans from prior to the intervention represent a substantial portion of the BND loan port- folio. These loans to related or Specially Classified Companies are in addition to the approximately Bs. 900 million in loans to subsidiary or affiliated companies that are not paying interest or amortizing principal. There is no evidence that Gorrondona, Sr. or Gonzalez were coerced into signing the February 28, 1980 Agreement. The Agreement was negotiated over an extended period of time. Gonzalez has testified that he signed the February 28, 1980 Agreement in order to assist the rehabilitation of BND and that Gorrondona, Sr. signed in the same spirit. Both men initialed each page when they signed it. Gorrondona, Jr. has testified that it is his position that the agreement is invalid in parts because he did not sign it. The BND has negotiated with Gorrondona, Jr. concerning the performance of the February 28, 1980 Agreement and the debts owed by the Specially Classified Companies. Such negotiations have not been successful. Under the February 28, 1980 Agreement, suits could not be filed for one year. When the agree- ment was not performed, the administration of Borjas pursued negotiations with Gorrondona, Jr. and, when Gabaldon became President of BND in August, 1981, he continued negotiations with Gorrondona, Jr. No suits have been filed against Gorrondona, Sr. or Gonzalez personally on account of the February 28, 1980 Agreement. The BND has very recently started to file suits against some of the debtors. Gorrondona, Sr.'s signing of the Agreement of February 28, 1980, Gorrondona, Jr.'s partici- pation in negotiations with respect to the performance thereof, together with the state- ments made in Memorandum of October 14, 1976 and described above concerning loans made prior to intervention to companies owned directly or indirectly by owners of the BND, corroborates the finding of the Intervenor that prior to intervention a substantial amount of loans were made to companies in which officers and directors of the BND had an interest. The inability to collect these loans corroborates the conclusion of the Superintendent and Intervenor that these loans were not adequately collateralized and were made in amounts in excess of what prudent credit practices would dictate based on the companies' balance sheets. Transfer of ownership of the BND: In the days following the intervention, members of the national government of Venezuela, including the Minister of Finance, met with Gorrondona, Sr. The possible liquidation of the BND and the possible transfer of ownership were discussed. On February 8, 1979, agreements were signed providing for the sale of 65 percent of the BND's shares to the Corporation Venezolana de Fomento ("CVF") . Sixteen shareholders, including Gorrondona, Sr., signed these agreements. They covered the shares owned by both Gorrondona, Sr. and Jr. The February 8, 1979 Agreement set a minimum price of Bs. 1 per share. The Agreement provided that the actual price would be set by the Superintendent of Banks prior to July 31, 1979. The price was to be fixed based on the book value of the BND and its subsidiaries as of December 31, 1978 less the uncollect- ible loans in its portfolio. At the time of intervention the losses on the BND loan portfolio exceeded the capital and reserve of the bank. Under Venezuelan law, when a bank has lost more than 25 per- cent of its capital, the stockholders are required to replace it. Accordingly, had they not sold their shares, the former owners of the BND would have had to make a capital contribution to the BND. As it is, the new owners of the shares have replaced the lost capital of the BND. Gorrondona, Jr., Borjas, the then President of the BND, and the Planning Minister of Venezuela met between June and November, 1979, to discuss the price for the BND shares and repayment of debts owed by the Specially Classified Companies. As a result of this meeting, an agreement was signed on December 21, 1979, regarding the fixing of the price of the stock and the negotiation of the re- payment of loans made to the Specially Clas- sified Companies. In February, 1980, two agreements were signed finalizing the sale of the BND shares to the CVF. One of these agreements (Respondent's Exhibit 82) was with the parties that had signed the February 8, 1979 Agreement. Re- spondent's Exhibit 82 was signed by Gorrondona Sr. and Gonzalez among others. In paragraph First it recites that: "In execution of the agreement reached in the Third clause of the sales contracts for Banco National de Descuento, C.A. shares, sub- scribed between C.V.F. and THE SELLERS and dated February 8, 1979, the Bank Examiner through Official Notices Nos. HSE-200- 3860 and HSE-200-3992, dated July 31 and August 7, 1979, respectively, ad- dressed to the Banco National de Descuento, C.A., determined losses in the Credit Portfolio of said Institution reaching an amount of ONE THOUSAND ONE HUNDRED AND EIGHTY SIX MILLION AND SEVEN [TOS (hundred) omitted in translation] THOUSAND BOLIVARS (Bs. 1,186,700,000.00) and therefore ordered the pertinent adjustments to the BANCO NACIONAL DE DESCUENTO C.A.'s Balance Sheet as of December 31, 1978." In paragraph Second it recites: "Due to the adjustments referred to in the previous Clause, and pursuant to the agree- ment between the parties listed in the con- tracts entered into on February 8, 1979, the Book value of the sold shares resulted in an amount less than One Bolivar (Bs. 1.00) per share, wherefore 'THE SELLERS' have, pursuant to the provisions of the Third Clause of the aforementioned contracts, agreed to accept the amount of One Bolivar (Bs. 1.00) per share, as the sale price for the shares sold." In paragraph Third it recites: "Lastly, 'THE SELLERS' state for the record that what they declare herein completely invalidates any statement or claim made by them, their agents, attorneys or represent- ative regarding any questions on the validity of the agreements executed on February 8, 1979, whose contents they are aware of, and which they execute in a final and definite manner through this document." There is no claim made in the record that the signers of Respondent's Exhibit 82 were coerced in their decision to execute that agreement. The other agreement of February 1980 regard- ing the transfer of shares of the BND (Respon- dent's Exhibit 81) was with shareholders who had not signed the February 8, 1979 Agreement. That agreement also fixed the sales price at 1 B per share. As recited therein, it used as the amount of the losses the Bs. 649 million figure established by the Minister of Finance pursuant to the appeal taken November 30, 1979, rather than the Bs. 1.186 billion figure established by the Superinten- dent of Banks prior to the appeal. This established that whether the Bs. 1.186 bil- lion or the Bs. 649 million figure is used for the amount of the losses, the shares of the BND had at most a nominal value of 1 B on December 31, 1978. Property in Venezuela cannot lawfully be taken by the Government without compensation. If it is taken for less than a fair price, the aggrieved person can go to court to seek a fair price. The judiciary in Venezuela is independent. No lawsuit has yet been filed to obtain ad- ditional compensation for the shares of the BND transferred to the new owners. Recently an "administrative letter" was sent regarding additional compensation for the shares. Nothing in Venezuelan law precluded its being sent earlier. The evidence in the record does not support a finding that the government of Venezuela coerced the owners of the BND to sell their shares or that such shares were sold at less than a fair price. As alleged by Petitioner. SUMMARY FINDINGS The decision to intervene the BND was, in part, politically motivated as evidenced by the timing of the intervention, the withdrawal of substantial government deposits immediately prior to intervention and the decision to refuse recognition of previously accepted commercial paper for rediscount. This is not to conclude, however, that the continuing liquidity problems of the BND were caused by the government. The reasons for the liquidity crisis experienced by the BND in 1978 had existed since at least 1976, and were identified in internal memoranda as well as Superintendent of Banks' and Intervenor's reports. The liquidity crisis experienced by the BND in 1978 and the intervention of the BND by the Venezuelan Government have at the present time a somewhat adverse effect on the reputation of Gorrondona, Jr. with respect to his qualifications as a banker. There is no evidence of any deficiency in his character or integrity. The education and business experience of Gorrondona, Jr. tend to establish his qualifications. However, his role as President-in-Charge of the BND during the liquidity crisis and intervention reflects adversely on those qualifications. No witness was called by the Banking Department or the Applicant on the question whether the practices that gave rise to the intervention constitute unsound banking practices. Those practices have been identified in the findings herein and include concentration of credit in the loans to the Specially Classified Companies, the renewal of loans to subsidiary companies though those loans were not paying interest, repeated violation of legal reserve requirements, failure to comply with the laws relating to agricultural loans, and failure to disclose to regulatory authorities that the minutes submitted for review by those authorities were not the same as the minutes in the books of the bank. LEGAL CONCLUSIONS AND RULINGS Subsection 120.57(1)(b) 12, Florida Statutes, provides: In applications for a license or mergers pursuant to title XXXVIII which are referred by the agency to the division for hearing pursuant to this section, the hearing officer shall complete and submit to the agency and to all parties a written report consisting of findings of fact and rulings on evidentiary matters. The agency shall allow each party at least 10 days in which to submit written exceptions to the report. Subsection 120.52(7), Florida Statutes, defines "license" as [a] franchise, permit, certificate, registration, charter, or similar form of authorization required by law, but it does not include a license required pri- marily for revenue purposes when issuance of the license is merely a ministerial act. Subsection 658.28(1), Florida Statutes, provides in part: (1) In any case in which a person or a group of persons, proposes to purchase or acquire a controlling interest in any state bank or state trust company and thereby to change the control of that bank or trust company, each person shall first make ap- plication to the department for a certificate of approval of such proposed change of control of the bank or trust company. . . The above provisions of Chapter 120 establish the Hearing Officer's report procedure for license applications under Florida banking laws. This is an application for a certificate of approval which is a form of license application within the meaning of that term as used and defined in Chapter 120. Therefore, no recommended order will be issued. Subsection 658.28(1), Florida Statutes, provides in part: [T]he department shall issue a certificate of approval only after it has made an investi- gation and determined that the proposed new owner or owners of the interest are qualified by character, experience, and financial responsibility to control and operate the bank and trust company in a legal and proper manner and that the interests of the other stockholders, if any, and the depositors and creditors of the bank or trust company and the interests of the public generally will not be jeopardized by the proposed change in ownership, controlling interest, or management. The above provision necessitates Respondent's investigation of Gorrondona, Jr.'s banking experience. Thus, the history of the BND and his role in the management of that institution are relevant to Respondent's investigation and to this proceeding. Petitioner's objection to such evidence is hereby overruled. FILED this 28th day of December, 1982, in Tallahassee, Florida. R. T. CARPENTER, 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 28th day of December, 1982.
The Issue The issue is whether Respondents' real estate licenses should be disciplined on the ground that Respondents allegedly violated a rule and various provisions within Chapter 475, Florida Statutes, as charged in the Administrative Complaint.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: When the events herein occurred, Respondents, Edward D. Armbruster and Colleen Michele Armbruster, were licensed real estate brokers having been issued license numbers 0002159 and 0362890, respectively, by Petitioner, Department of Business and Professional Regulation, Division of Real Estate (Division). Respondents served as qualifying brokers and officers of Respondent, Armbruster Realty, Inc., a corporation registered as a real estate broker and located at 1031 West Nelson Avenue, DeFuniak Springs, Florida. The corporation holds license number 0211855, also issued by the Division. On July 10, 1996, Gerald and Joyce Singleton, who had just relocated to California, entered into a contract with James B. and Joyce Patten to sell their single-family residence located on Madison Street in the City of Freeport, Florida, for a price of $78,000.00. The contract called for the Pattens to pay $1,000.00 as an earnest money deposit, to be held in escrow by Respondents. The contract further provided that "[c]losing shall be within 30 days (more or less) after acceptance of this contract," and that "[i]n the event that buyer defaults and deposit is forfeited, it is agreed said deposit shall be divided equally between seller and broker." The transaction was handled by Geraldine Dillon (Dillon), a salesperson in Respondents' office, who is now retired. Because the Pattens had recently moved to Walton County from Washington State, and they were temporarily living with a relative in a mobile home, the time for closing was of the essence. Accordingly, the Pattens inserted into the contract a provision requiring that a closing be held within "30 days (more or less)." This meant that a closing should be held on or about August 10, 1996, give or take a few days. The parties acknowledge that property boundary problems were somewhat common in certain areas of Freeport, including the area where the subject property was located. To satisfy the bank and title company, a surveyor was engaged to prepare a survey of the property. However, the parties agree that the surveyor noted problems with the boundaries of the lot. When a second surveyor would not undertake the survey because of similar boundary problems, Joyce Patten, who was the principal negotiator for the couple, notified Dillon that they did not wish to close because of potential title problems and wanted a refund of their deposit. Notwithstanding this concern, Dillon advised Joyce Patten that a third surveyor would be hired, at the seller's expense, and he could "certify" the property. Although Joyce Patten expressed concern that the bank might not accept a third survey after two earlier ones had failed, and she did not want to pay for another survey, she did not instruct Dillon to stop the process. Accordingly, Dillon engaged the services of Tommy Jenkins, a local surveyor, to perform another survey. After a certified survey was obtained by Jenkins on August 12, 1996, which Respondents represent without contradiction satisfied the lender and title company, a closing was scheduled within the next few days. This closing date generally conformed to the requirement that a closing be held by August 10, 1996, "more or less." The seller, who by now had relocated to California, flew to Florida for the closing, and the title company prepared a closing statement and package. Just before the closing, however, Respondents learned through a representative of the title company that the Pattens were "cancelling the closing," apparently in violation of the contract. Shortly after the aborted closing, Joyce Patten requested that Dillon return their deposit. By this time, the Pattens had already entered into a second contract to buy another home in the same area and closed on that property before the end of August. Respondents were never informed of this fact by the Pattens. On August 21, 1996, Colleen Armbruster prepared a rather lengthy letter to the Pattens (with a copy to the sellers) in which she acknowledged that they had orally requested from Dillon that their escrow deposit be returned. The letter has been received in evidence as Petitioner's Exhibit 4. Armbruster stated that she was "perplexed" that they were demanding a refund of their earnest money deposit, given the fact that the seller had "met the terms and conditions of the sale." Armbruster outlined the three reasons in the contract which would allow the Pattens to withdraw without forfeiting their deposit, but noted that none were applicable here. Accordingly, she advised them that the seller would be consulted as to his wishes regarding the deposit, and that the Pattens should contact her if they had any questions. Through oversight, however, she did not include a notice to the Pattens that they must respond to her letter within a stated period of time reaffirming their demand for the trust funds, or the deposit thereafter would be disbursed pursuant to the contract. By failing to include this specific language, and sending the letter by regular rather than certified mail, return receipt requested, Respondents committed a technical, albeit minor, violation of an agency rule. Even so, the Pattens acknowledged receiving the letter, and there is no reason to believe that they did not understand its import, especially the requirement that they contact the broker if they disagreed with the proposed disbursement of the money. It can be reasonably inferred that the Pattens did not respond because they "figured [they weren't] going to be able to get [their] money back" due to their failure to perform. On September 13, 1996, the seller's attorney advised the Pattens by letter that the seller considered the deposit forfeited pursuant to paragraph 15(a) of the contract, which pertains to the "Default" provisions. The Pattens never responded to either letter, and they also failed to respond to telephone calls made by Respondents or their agents regarding this matter. In view of the Pattens' lack of response or reaffirmance of their demand, and the fact that they had already closed on another property, Respondents logically and fairly assumed that the Pattens were in agreement with the disbursement procedures outlined in Coleen Armbruster's letter of August 21. Accordingly, on September 17, 1996, Edward Armbruster, who had not been involved in this transaction to date, in good faith signed two disbursement checks giving $697.50 to the seller and retaining the balance for his firm. This division was consistent with the terms of the contract. In making this disbursement, there was no intent on the part of Respondents to trick, deceive, breach their trust, or in any way unlawfully deprive the Pattens of their deposit. Respondents did not notify the Florida Real Estate Commission (Commission) that they had received conflicting demands for a deposit, nor institute any other procedures regarding the deposit, since they no longer had any good faith doubt as to whom was entitled to their trust funds. This was because the Pattens had failed to respond to letters and telephone calls regarding the sellers' claim to the deposit. There is no evidence that Respondents have ever been the subject of prior disciplinary action during their lengthy tenure as licensees. At the same time, it is noted that Respondents acted in good faith throughout the process and genuinely believed that there was no dispute. It should also be recognized that, for at least part of the time, the Pattens were working two contracts simultaneously without advising the realtors.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Real Estate Commission enter a Final Order finding Respondents guilty of a technical violation of Rule 61J2-10.032(1), Florida Administrative Code, and Section 475.25(1)(e), Florida Statutes, and that they be given a reprimand. All other charges should be dismissed. DONE AND ENTERED this 28th day of July, 1998, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 Filed with the Clerk of the Division of Administrative Hearings this 28th day of July, 1998. COPIES FURNISHED: Henry M. Solares, Director Division of Real Estate Post Office Box 1900 Orlando, Florida 32802-1900 Christine M. Ryall, Esquire 400 West Robinson Street Suite N-308 Orlando, Florida 32801-1772 Edward D. Armbruster Colleen M. Armbruster Post Office Box 635 DeFuniak Springs, Florida 32433 Lynda L. Goodgame, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
