Interamericas Invest v. Bd of Gov of the FR ( 1997 )

REVISED
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________________________
No. 96-60326
_________________________________
INTERAMERICAS INVESTMENTS, LTD.
and PETER ULRICH,
Petitioners,
versus
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM,
Respondent.
_________________________________________________________________
On Petition For Review
From The Board of Governors Of The
Federal Reserve System
_________________________________________________________________
April 16, 1997
Before HIGGINBOTHAM, DAVIS, and BARKSDALE, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
The starting point for this challenge to petitioners being
found in violation of the Bank Holding Company Act, 12 U.S.C. §
1841 et seq., is whether the bases for that decision, such as
prohibited control of a United States bank, constitute continuing
violations within the five year limitations period of the
applicable statute of limitations, 28 U.S.C. § 2462. The Board of
Governors of the Federal Reserve System (the Board) imposed a cease
and desist order and civil penalties of $1 million and $10,000
against Interamericas Investments, Ltd., and Peter Ulrich,
respectively. We DENY the petition.
I.
The Board concurred in the extremely detailed and extensive
findings of the Administrative Law Judge that, through a series of
surreptitious transactions, Interamericas Investments, Ltd. (IAI),
a Cayman Islands corporation largely owned by Mexican nationals,
acquired and retained control of the National Bank of Conroe (NBC),
of Conroe, Texas. Such conduct clashed with the Bank Holding
Company Act (BHCA), which requires, inter alia, prior approval by
the Board for “any action to be taken that causes any company to
become a bank holding company”. 12 U.S.C. § 1842(a)(1).
A company becomes a bank holding company when it acquires
“control” of a bank, defined as: owning, controlling, or having
the “power to vote 25 per centum or more of any class of voting
securities of the bank”; or “control[ling] in any manner the
election of a majority of the directors or trustees of the bank”;
or exercising a direct or indirect “controlling influence over the
management or policies of the bank”. 12 U.S.C. § 1841(a)(2). In
addition, a bank holding company is prohibited, with certain
exceptions, from acquiring or retaining “direct or indirect
ownership or control of any voting shares of any company which is
not a bank”. 12 U.S.C. § 1843(a). For violation of the Act, civil
money penalties and cease and desist orders may issue. 12 U.S.C.
§§ 1847(b)(1), 1818(b)(3).
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Peter Ulrich, a Mexican national, moved to Conroe in 1982,
and, on behalf of others still residing in Mexico, began dealing
with United States banks. Disappointed with the service he was
receiving from them, Ulrich met with his longtime acquaintance
Helmut Eindorf and with Mack Barnhill; the latter introduced Ulrich
and Eindorf to Robert Rice, a lawyer in Conroe. Rice, according to
Barnhill, was experienced in organizing offshore corporations. The
four men decided prior to early 1985 to acquire an existing bank,
or create a new one, in the United States, to serve themselves and
others in Mexico. Rice informed Ulrich that such an undertaking
would be difficult because the Board would not approve foreign
investor control of a United States bank.
Ulrich, Rice, and Eindorf then set about finding Mexican
national investors for the bank, promising anonymity of investment.
The investment goal was speedy acquisition of a United States bank,
as well as the use of that bank to launch other business ventures
in the United States.
For purposes of acquiring such control, IAI was formed in
March 1985 as a Cayman Islands corporation, with two classes of
stock. The Class A shares held all voting rights, and were
eventually issued to Enrique Pimienta, a Mexican accountant
responsible for recruiting many of the Mexican investors.
Also in early 1985, the group began to pursue the purchase of
NBC, which had $10 to $11 million in deposits. During these
negotiations, Ulrich made clear again that he was not interested in
merely investing in NBC.
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Rice, with Ulrich’s assistance, completed the agreement for
acquisition of NBC, with Rice acting on behalf of IAI, the entity
truly acquiring NBC. In order to fund the acquisition, but retain
the anonymity of the Mexican investors, Conroe residents (United
States nationals) were recruited to hold the NBC shares on behalf
of IAI. The funding for these nominee resident investors was to
come from a Houston bank, Langham Creek.
Langham Creek, however, did not have the financial resources
for the acquisition. As a result, Ulrich and Pimienta raised all
of the necessary funds, then placed them, in the form of
certificates of deposit (CD’s), with Langham Creek. These CD’s
served to collateralize fully Langham Creek loans to the Conroe
investors. Rice offered Langham Creek not only this full
collateralization, but also the promise that the loans would be
repaid within the first year of their issuance, before any
principal or interest payments came due.
Rice then told the Conroe investors that their notes would be
purchased from them by Mexican investors within the first year, but
did not tell them that the notes were collateralized by the
latters’ CD’s. As a result of this structuring, none of the Conroe
investors paid for their NBC shares, with the exception of Rice and
four others.
Through the Conroe investors, approximately $43 million was
funneled for the purchase of NBC. Rice, however, acquired the
right to vote the shares of each of the Conroe investors through a
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ten year irrevocable voting trust agreement which allowed him to
control NBC.
In May 1985, Rice submitted a Loan Commitment Letter and a
Notice of Change in Bank Control to the Office of the Comptroller
of the Currency (OCC). The notice listed the acquiring parties as
Rice, Barnhill, and the other Conroe investors; did not list the
Mexican nationals; and did not disclose that IAI and the foreign
investors provided the CD’s for the Langham Creek notes, or that
IAI would be the majority owner of NBC. For NBC’s board, the
notice proposed two holdover directors, two holdover managers, and
Rice and four Conroe investors, giving Rice and the four investors
majority control of NBC.
The OCC in June 1985 advised that it was not disapproving the
change in control of NBC. The acquisition closed in July, at which
point Rice and the Conroe investors became owners of approximately
80 percent of the shares in NBC. Rice elected a new board of
directors, making himself chairman.
After the closing, Ulrich, Eindorf and Pimienta began
depositing the Mexican funds in NBC. Most of the accounts opened
by Ulrich named IAI as the depositor, in order to preserve the
anonymity of the actual investors, and now depositors, in NBC. In
addition, NBC began making “back to back” loans for Mexican
nationals (loans secured by a CD at NBC), although those loans were
often hidden through IAI, or an unrelated party, again in order to
maintain the anonymity of the Mexican nationals.
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Rice also formed a one bank holding company, Sun Belt
Bancshares, which would own the NBC shares purchased by the Conroe
investors. Twice in 1985, Rice submitted applications to the
Federal Reserve Board at Dallas, Texas (FRB-Dallas), seeking
approval of Sun Belt as a bank holding company (BHC), under the
BHCA, 12 U.S.C. § 1842(a)(1). Both were returned: the first, for
being substantially incomplete; the second, which did not mention
any relation between Sun Belt and IAI, NBC, or even Rice, for
failing to meet the FRB-Dallas’ equity structure requirements.
That November, Rice again applied to the FRB-Dallas, using an
exchange of two NBC shares for one of Sun Belt. Among other
things, the application stated that it represented the exchange
that would occur between Rice and the Conroe investors, and that
there would be a new voting trust agreement through which Rice
would vote the Conroe investors’ Sun Belt shares. The application
did not mention IAI, Ulrich, or Pimienta as principals of Sun Belt,
even though the application was required to list all principals.
It also did not disclose that IAI’s CD acted as full collateral for
Rice’s Langham Creek loan, and that that loan was non-recourse,
even though the application required the applicant to disclose all
indebtedness and collateral retained in connection with the
acquisition of the shares of the bank. Finally, the application
did not disclose that Sun Belt would issue 95 percent of the equity
to IAI in non-voting shares, even though the application required
full disclosure of any plans to raise capital, long term debt, or
capital notes.
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The BHC was approved in December 1985. The approval letter
stated that the Federal Reserve System was relying on the
representations and commitments of the applicant, and that Rice
should notify the FRB-Dallas of any significant adverse deviations
from the application, in that they could bring about action under
the BHCA.
After BHC status was approved, Ulrich and Eindorf, acting as
“trustee and ministerial agents” for IAI, agreed with Langham Creek
to purchase from it the loans and accompanying collateral of Rice
and the other Conroe investors. Ulrich and another IAI official
also gave gifts of about three percent of the non-voting shares of
Sun Belt to those Conroe investors.
Later that December, Rice amended Sun Belt’s articles of
incorporation, creating two classes of shares. The class A shares
had all voting rights (despite the fact that the BHC application
made no mention of non-voting stock). After Sun Belt took over the
control of NBC, the Conroe investors executed a new voting trust
agreement which gave Rice all power to vote Sun Belt shares,
similar to the earlier agreement for the NBC shares.
In the Spring of 1986, IAI purchased 108,991 shares of Sun
Belt class B stock, for approximately $545,000 in cash, plus the
delivery of the Langham Creek notes for the Conroe resident
investors other than Rice. Rice issued two voting trust
certificates to IAI for those shares.
The original acquisition agreement between Rice and the
original NBC shareholders stated that such NBC shareholders who did
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not want to sell their shares immediately would be offered $15 per
share. In February 1986, IAI purchased 34,150 NBC voting shares at
that price. These NBC shares were then exchanged for 102,450 Sun
Belt non-voting class B shares which were issued to IAI.
And, in February 1986, IAI authorized the investment of
$300,000 to purchase 60,000 Sun Belt class B shares. Part of these
funds helped offset costs of the NBC growth incurred due to the
increased use of NBC by IAI.
Sun Belt extinguished the Langham Creek debt of each of the
Conroe investors, except two: Rice; and one investor on whom Sun
Belt had foreclosed. Rice’s note was purchased later by IAI, and
Rice was named primary counsel for IAI.
With these structures in place, the parties turned to actual
control of NBC. Rice appointed Eindorf, then Ulrich, Pimienta, and
finally Barnhill as successor trustees of IAI. Also, Ulrich became
Rice’s successor for the NBC voting trust agreement. (Earlier,
Rice had warned Ulrich that, should Ulrich not do what Rice wanted
him to do, Ulrich might be imprisoned.) In June 1986, Rice named
a new successor trustee under the Sun Belt voting trust agreement,
with Ulrich named secondary successor.
When actual operation of NBC by IAI began, tension increased
between Rice on the one hand and Ulrich and Hugo Pimienta, Enrique
Pimienta’s son, who was working with Ulrich as an accountant, on
the other. In 1988, Rice agreed to sell his Sun Belt voting shares
and end his relationship with IAI, Sun Belt, and NBC.
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Ulrich then submitted a Notice of Change in Bank Control to
the FRB-Dallas, proposing that he take over Rice’s shares of Sun
Belt. This was not approved because it would give IAI a
significant ownership interest in Sun Belt. Furthermore, the FRB-
Dallas determined that it appeared that IAI was already a BHC, in
violation of the BHCA. The FRB-Dallas required IAI to either submit
for approval as a BHC, or divest of Sun Belt.
At this point, the FRB-Dallas investigated IAI and discovered
that it had funded and secured the Langham Creek notes. Ulrich
then re-applied for a Change in Bank Control, and proposed that IAI
divest ownership of Sun Belt by transferring its Sun Belt shares to
IAI’s other three shareholders. At a subsequent meeting with the
FRB-Dallas, Ulrich stated that he learned from Rice that, if the
identity of the Mexican investors were known, the IAI takeover of
NBC would not be approved, and that he did not know how Rice
accomplished the IAI takeover of NBC. This second notice was also
rejected.
Next, Ulrich proposed that he acquire Sun Belt’s voting stock,
and the IAI shareholders acquire almost all of Sun Belt’s non-
voting shares; that, after the change in control, all Sun Belt
shares would be converted into voting shares; and that IAI would
divest of Sun Belt, creating Holdcon, a corporation which would be
majority owned by the minority owners of IAI, and IAI’s majority
owners would own only a minority interest in Holdcon. Ulrich would
be the only person common to management of Sun Belt, NBC and
Holdcon. The FRB-Dallas agreed that Ulrich should separate himself
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from Holdcon entirely, although Ulrich again misled the FRB-Dallas
by not disclosing, inter alia, that he would retain ownership of
IAI through other means in Mexico.
In late 1989, the FRB-Dallas discovered Ulrich’s interest in
a Mexican currency exchange firm and that that firm had significant
relations with NBC, and that Holdcon was actually wholly owned by
Yan & Yan Overseas Trading, B.V. In response to inquiries from the
FRB-Dallas, Ulrich stated that IAI owned Zandradale, N.V.
(Netherlands Antilles), which owned Yan & Yan, which owned Holdcon,
and that Holdcon owned a non-banking subsidiary, Ameristates Title
Co. Needless to say, the Notice of Change in Bank Control was not
approved. Moreover, IAI Inc., owned by IAI, also had at least 50
percent ownership of a number of non-banking ventures in the United
States.
In August 1994, seeking a cease and desist order under 12
U.S.C. § 1818(b), and civil money penalties under 12 U.S.C. §
1847(b), against IAI and Ulrich, the FRB-Dallas charged that IAI
became a BHC without prior approval and had engaged in non-banking
activities, some of which are not allowable, and others of which,
at a minimum, required prior Board approval. (The Notice also
charged Rice. He entered into a consent order of prohibition and
a consent order for assessment of civil money penalties with the
OCC.) IAI and Ulrich divested themselves of NBC at a profit to IAI
of $6.6 million, and to Ulrich of $42,000.
The ALJ recommended the penalties, but recommended against the
cease and desist order. Both sides filed exceptions. The Board
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adopted the ALJ’s recommendation, except that it imposed the
requested general cease and desist order.
II.
There are four issues at hand. First, was this BHCA
proceeding timely under the applicable statute of limitations, 28
U.S.C. § 2462? Second, was there sufficient “control” of NBC and
Sun Belt to trigger the requirements of the BHCA? Third, is
scienter required to sustain liability under the Act? And fourth,
were the penalties and cease and desist order allowable?
A.
The Board’s August 1994 Notice of Charges, which stated that
it had reasonable cause to believe that IAI, Ulrich, and Rice had
violated both the BHCA, 12 U.S.C. § 1841 et seq., and the Board’s
Regulation Y, 12 C.F.R. § 225.11(a), came more than five years
after the IAI takeover of Sun Belt and NBC. The BHCA does not
provide a limitations period for the actions brought by the Board.
At issue is whether the Notice was timely under a general federal
statute of limitations, which provides in pertinent part:
Except as otherwise provided by Act of
Congress, an action, suit or proceeding for
the enforcement of any civil fine, penalty or
forfeiture, pecuniary or otherwise, shall not
be entertained unless commenced within five
years from the date when the claim first
accrued....
28 U.S.C. § 2462.
Because the initial violations -- such as in July 1985, when
Rice and the Conroe investors acquired NBC, and in January 1986,
when Sun Belt became a BHC -- occurred more than five years prior
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to commencement of the Board’s action, we must determine if IAI’s
and Ulrich’s actions qualify as “continuing violations”. In short,
under a continuing violation theory, a new claim accrues each day
the violation is extant. Hanover Shoe, Inc. v. United Shoe
Machinery Corp., 392 U.S. 481, 502 n.15 (1967).
Petitioners do not dispute that § 2462 applies. Therefore, we
must determine whether it and the BHCA allow a continuing
violation; and, if they do, whether petitioners’ actions
constituted one.
1.
A continuing violation applies where the conduct is ongoing,
rather than a single event. See Toussie v. United States, 397 U.S.
112, 136 (1970)(continuing violations “set on foot by a single
impulse and operated by an unintermittent force”). Along that
line, statutes of limitations in the civil context are to be
strictly construed in favor of the Government against repose.
Badaracco v. Commissioner of Internal Revenue, 464 U.S. 386 (1984);
E.I. DuPont Nemours & Co. v. Davis, 264 U.S. 456, 462 (1924).
The court should defer to the agency interpretation whether
a continuing violation theory is available under a certain statute
if the statute of limitations is entrusted to the agency’s
interpretation, Capital Telephone v. Federal Communications
Commission, 777 F.2d 868 (2d Cir. 1985). On the other hand, the
interpretation of the general statute, § 2462, may not be
influenced by the governmental agency bringing the action. 3M v.
Browner, 17 F.3d 1453, 1461 (D.C. Cir. 1994). With this in mind,
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we turn to the BHCA, the substantive statute underlying the Board’s
claim, to determine whether it contemplates a continuing violation
theory.
For reporting statutes such as the BHCA, so long as the
reporting need not occur within a certain time span, a failure to
report certain conditions will generally constitute a continuing
violation for so long as the failure to report persists. Hanover
Shoe, Inc., 392 U.S. at 502 n.15. In addition, the BHCA requires,
inter alia, that any company becoming a BHC register with the Board
within 180 days of doing so, and that, except under limited
circumstances, a BHC not acquire companies performing non-banking
functions. 12 U.S.C., 1843(a), 1844(a).
And, even more to the point, the BHCA states also that
[a]ny company which violates, and any
individual who participates in a violation of,
any provision of this chapter, or any
regulation or order issued pursuant thereto,
shall forfeit and pay a civil penalty of not
more than $25,000 for each day during which
such violation continues.
12 U.S.C. § 1847(b)(1)(emphasis added). Where the civil penalty
provision at hand contemplates per diem penalties for violations,
then continuing violations are cognizable under the general statute
of limitations. United States v. Marine Shale Processors, 81 F.3d
1329, 1357 (5th Cir. 1996).
Here, the BHCA has more than per diem penalties; as emphasized
above, it refers to “continuing violations”. Furthermore, the BHCA
uses the present tense in describing the offenses, making
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reasonable reading it as contemplating continuing violations.
Abercrombie v. OCC, 833 F.2d 672, 676 (7th Cir. 1987).
And, unlike § 2462, the interpretation of the BHCA is
entrusted to the Board; therefore, that interpretation is due the
deference demanded by Chevron USA v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984). To hold other than that a
continuing violation is allowed in this instance would be contrary
not only to our precedent, but also to the plain language of the
BHCA and the Board’s interpretation of it.
2.
As for whether a continuing violation of the BHCA occurred,
the Act prohibits the unapproved acquisition and retention of a
United States bank. As discussed, such acquisition is based on the
notion of “control”, defined as, inter alia, owning, controlling,
or having the power to vote 25 percent of the voting shares of a
bank. 12 U.S.C. § 1841(a)(1), (a)(2)(A). So long as the approval
has not been received, such control is in violation of the Act. As
discussed infra, the Board found sufficient control of NBC by both
IAI and Ulrich to trigger the reporting requirements of the BHCA,
and neither relinquished control until after the proceeding
commenced. Among other violations, this continued control
constituted a continuing violation actionable under the BHCA for a
period of five years after, among other proscribed actions, IAI and
Ulrich last had the power to vote 25 percent of NBC’s shares. The
Notice of Charges, well within that period, was timely. Along that
line, the penalties imposed were well under the maximum for the
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total number of days that fell within five years of the date of the
Notice.
In sum, the BHCA -- and, indeed, common sense -- preclude
control of a bank, in violation of the BHCA, simply because such
continuing control began more than five years before the Board
initiated action.
B.
Petitioners assert that the requisite control was not shown.
We disagree.
As noted, control exists under the BHCA when, inter alia, a
“company directly or indirectly or acting through one or more other
persons owns, controls, or has the power to vote 25 per centrum or
more of any class of voting securities of the bank or company.” 12
U.S.C. § 1841(a)(2)(A). In short, the BHCA may be triggered by,
inter alia, the mere potential for manipulation of a bank.
IAI and Ulrich contend that the Board’s findings fail to meet
a different standard for “control” promulgated with the 1970
revision to the BHCA. That standard triggers the reporting
requirements when a “company directly or indirectly exercises a
controlling influence over the management or policies of the bank
or company”. 12 U.S.C. § 1841(a)(2)(C). Because of other discussed
violations, we need not look to whether that standard was violated.
As for whether IAI and Ulrich had the power to vote the
requisite number of shares during the five year period prior to the
Notice of Charges, petitioners contend there could be no control
over those shares, because in 1988 Rice and Ulrich entered into an
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agreement placing Rice’s Sun Belt shares in escrow, for delivery to
Ulrich upon approval of the transaction by the Board. Until Board
approval, the agreement stated that neither party had the power to
vote those shares.
But, IAI and Ulrich maintained control over NBC despite the
escrow agreement. Substantial evidence supports the Board’s
finding that, at the time he signed the shares over to Ulrich, Rice
could act only with Ulrich’s approval. Furthermore, the agreement
granted Ulrich the power, unilaterally, to invoke specific
performance by Rice and to waive the regulatory approval
requirement.
Furthermore, as the Board found, any power not expressly
vested in Ulrich could be exercised by Ulrich and Rice acting in
concert. The contention that the tension between them precluded
the possibility that they would cooperate to control NBC pays
little heed to the statutory language concerning the “power to
vote” the NBC shares, a power which Ulrich and IAI maintained
throughout the period in question.
The contention also runs contrary to the Board’s decision in
1976 at 12 C.F.R. § 225.134 (“Escrow arrangements involving bank
stock resulting in a violation of the Bank Holding Company Act”)
that acquiring and placing in escrow, with an unaffiliated escrow
agent, bank shares sufficient for control did vest control in the
recipient company where the escrow agreement also stated that the
recipient company was not to have power to vote the shares until
they were released from escrow, after the Board’s approval of the
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transaction. The decision rested on the fact that, although the
shares remained in escrow, title to them had passed to the
recipient, and the escrow agreement did not require the return of
the shares to the original seller in the case of board refusal, but
rather to the recipient company’s shareholders. Id.
This proceeding represents only negligible deviation from the
scenario for the foregoing decision by the Board in 1976. Here,
the escrow agent was not unaffiliated, but rather acted as the
agent of IAI. If anything, this distinction bolsters the Board’s
finding that IAI and Ulrich maintained control over the shares,
despite their placement in escrow.
Also, as found by the Board, there is substantial evidence
that IAI and Ulrich both exercised indirect control over NBC. For
the takeover of NBC by Rice, and ultimately by IAI, Rice was acting
as IAI’s agent. The Board found that the Conroe investors were
nominal; that they were used by Rice and Ulrich to screen the true
identity of the purchaser of NBC.
C.
First National Bank of Gordon v. OCC, 911 F.2d 57, 63-64 (8th
Cir. 1990), held that 12 U.S.C. § 161(a), requiring, inter alia,
that banks make true condition reports, allowed a cease and desist
order for banks which erroneously, but reasonably, believe their
reports are correct, absent the statute explicitly imposing such a
standard; but, in dicta, it questioned whether civil penalties
could be imposed. Petitioners rely on this to maintain that civil
penalty provisions which do not state a scienter requirement, such
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as in the BHCA, 12 U.S.C. § 1847(b)(1), require scienter.
Concomitantly, they maintain that we must bear in mind a claimed
atmosphere of trust pervading the Mexican economy, so that Ulrich
must have implicitly trusted Rice’s word that the transactions were
legal.
Obviously, the foregoing Eighth Circuit decision is
distinguishable. And, the contention that nationality can act as
the predicate for differing standards for BHCA liability is beyond
frivolous. In sum, this contention is meritless.
The BHCA defines a “violation” of its provisions as “any
action ... for or toward causing, bringing about, participating in,
counseling, or aiding or abetting a violation”. 12 U.S.C. §
1847(b)(5). There is no mention of scienter: the action alone
constitutes the violation. Indeed, the very mental state which
petitioners contend bars a civil penalty, “good faith”, is listed
instead in the Act as a mitigating factor for the penalty. 12
U.S.C. § 1818(i)(2)(G). Needless to say, a statute should be read
to give effect to all of its language. See Fitzpatrick v. FDIC,
765 F.2d 569, 578 (6th Cir. 1985)(“good faith goes only to the
amount of the penalty” in construction of 12 U.S.C. §
1818(i)(2)(I)(identical to current § 1818(i)(2)(G))).
D.
Finally, petitioners challenge the civil penalties and general
cease and desist order.
1.
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An agency’s penalty determination is reviewed with significant
deference. See Butz v. Glover Livestock Comm’n, 411 U.S. 182, 185
(1973). Accordingly, petitioners concede that the Board’s decision
not to mitigate the penalties imposed under 12 U.S.C. § 1847(b)(1)
is reviewed only under the “arbitrary and capricious” standard.
They maintain, however, that there are clearly defined factors
which the Board must consider in making that decision: harm, vel
non, to the institution or public confidence; willfulness;
frequency or recurrence of the alleged violations; cooperation by
respondents; concealment or voluntary disclosure; restitution to
the institution; previous criticism; compliance by respondents;
unsafe or unsound practices; and preventive measures.
Although many of these factors may seem proper for the Board
to consider in determining the penalty, they are by no means
mandatory. An assessment under 12 U.S.C. § 1847 (b)(1) is “subject
to” subparagraphs (E),(F),(G), and (I) of 12 U.S.C. §
1818(i)(2)(Federal Deposit Insurance Corporation Act violations).
Subsection (G) of § 1818(i)(2) requires only that, for possible
mitigation of penalties, the Board consider:
(1) the size of the financial resources and
good faith of the insured depository
institution or other person charged;
(2) the gravity of the violation;
(3) the history of previous violations; and
(4) such other matters as justice may
require.
12 U.S.C. § 1818(i)(2)(G). These factors were considered, as
hereinafter discussed.
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The financial resources of IAI and Ulrich do not militate for
mitigation. They stipulated that they had the resources to satisfy
the penalties sought by the Board. Furthermore, in the sale of NBC
and Sun Belt, IAI and Ulrich made profits of approximately $6.6
million and $42,000 respectively. The penalties imposed, $1
million and $10,000 respectively, were therefore well within their
financial resources, even if the analysis were limited only to the
resources available as a result of the financial transactions at
issue.
The petitioners were found to have not acted in good faith;
far from it. As discussed, they desired, and contrived to acquire,
secret control of a United States bank; and the lengths to which
they went in their effort to do so evinced bad faith.
The “gravity of the violation[s]” at issue was correctly
considered not to mitigate the penalties. The BHCA was enacted to
protect, inter alia, against precisely this sort of control of a
United States bank, with little or no accountability among the true
owners. Also, the owners used their anonymous ownership of the NBC
to launch into other non-banking businesses in the United States,
again with little or no accountability.
Finally, the history of previous violations was tacitly
addressed by finding that IAI retained control of NBC for years
after it knew that the Board considered that control to be
violative of the BHCA. The Board found further that no other
factors justified mitigation of the penalty.
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The factors listed by petitioners as mandatory, but that are
not specifically listed in § 1818(i)(2)(G), come from “Relevant
considerations for assessment of civil penalty”, 12 C.F.R. §
263.62, and In re Rapp, 1992 WL 560907. In short, these two
sources are not binding on the Board.
Furthermore, the penalties imposed are more than reasonable
under the circumstances. The Board did not seek the full amount of
penalties for the entire period during which IAI and Ulrich were in
violation of the BHCA; and, again, the penalties imposed were far
less than the profits from the sale of the bank.
2.
Petitioners assert that the cease and desist order was
improper for two reasons: that the Notice of Charges did not seek
a general, prospective cease and desist order, only divestiture
from Sun Belt and NBC; and that there was no evidence of a
likelihood that they would continue to violate the BHCA, as
required by the BHCA before such a general order may issue.
Despite some unsupported references to a due process violation for
inadequate notice, IAI and Ulrich assert specially only that the
Notice violated the Board’s regulations. We therefore address only
those requirements.
The Notice must contain, inter alia, “[a] statement of the
matters of fact or law showing that the Board is entitled to
relief” and “[a] proposed order or prayer for an order granting the
requested relief”. 12 C.F.R. § 263.18(b)(2), (3). Although the
Notice did not refer to a general cease and desist order, it did
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reference a specific cease and desist order, and “other affirmative
action” that may be required by petitioners’ prior acts. It stated
further that the affirmative action “may include divestiture of all
of IAI’s, Ulrich’s and Rice’s interests in Sun Belt and NBC”.
This language satisfies the regulation because the words
“other affirmative action” were not limited to specific acts
relating to NBC. And, that the Notice said the cease and desist
order may include some subjects cannot limit the order to those
subjects, where the factual and legal predicate for wider scope is
so clear from the charges in the Notice. Moreover, the Board may
impose a general cease and desist order based on prior violations
of the BHCA. The only logical conclusion from these facts is that
the other affirmative action which IAI and Ulrich were notified
they may be required to undertake included a prospective general
cease and desist order.
Petitioners contend that the reference to “other affirmative
action” references instead to 12 U.S.C. § 1818 (b)(6), which
implies a more limited remedy for “other affirmative action”. The
section appears to equate “[a]ffirmative action” with action “to
correct conditions resulting from violations”, such as restitution.
12 U.S.C. § 1818(b)(6). A reference to § 1818(b)(6), however, is
not explicit in the Notice, and therefore the remedies available to
the Board are not so limited.
III.
For the foregoing reasons, the petition for review is
DENIED.
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