Pharaon, Ghaith R. v. FRS

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 8, 1997 Decided February 10, 1998
No. 97-1114
Ghaith R. Pharaon,
Petitioner
v.
Board of Governors of the Federal Reserve System,
Respondent
On Petition for Review of an Order of the
Federal Reserve System
Richard F. Lawler argued the cause for petitioner. With
him on the briefs were Philip M. Smith and John C. Canoni.
Stephen H. Meyer, Senior Attorney, Board of Governors of
the Federal Reserve System, argued the cause for respon-
dent. With him on the brief were James V. Mattingly, Jr.,
General Counsel, Richard M. Ashton, Associate General
Counsel, and Katherine H. Wheatley, Assistant General
Counsel. Douglas B. Jordan, Senior Counsel, entered an
appearance.
Before: Ginsburg, Henderson and Tatel, Circuit Judges.
Opinion for the Court by Circuit Judge Tatel.
Tatel, Circuit Judge: Petitioner challenges the Board of
Governors' conclusion that he participated in violations of the
Bank Holding Company Act by the Bank of Credit and
Commerce International. He also challenges the Board's
decision to fine him thirty-seven million dollars and bar him
permanently from the U.S. banking industry. Because sub-
stantial evidence supports the Board's findings of fact and
because petitioner's challenges to the Board's procedures,
conclusions of law, and choice of sanctions lack merit, we
affirm.
I
Section 3(a) of the Bank Holding Company Act makes it
unlawful for a company to become a bank holding company
without approval of the Board of Governors of the Federal
Reserve System. 12 U.S.C. s 1842(a)(1) (1994). In a Sep-
tember 1991 Notice of Assessment, the Board charged peti-
tioner Ghaith R. Pharaon, a prominent Saudi Arabian busi-
nessman and major shareholder in the Bank of Credit and
Commerce International ("BCCI"), with participating in a
scheme through which BCCI, using Pharaon as an undis-
closed "nominee" or front, secretly acquired control of Inde-
pendence Bank, a medium-sized California lender, in violation
of section 3(a) of the Act. According to the Board, the
scheme was intended to solve two problems BCCI faced in
the mid-1980's: accumulated losses of over a billion dollars
and pressure from Luxembourg, BCCI's nominal home coun-
try, to find a new country capable of regulating an institution
operating in nearly seventy nations. Ownership of Indepen-
dence would solve the first problem by generating profits for
BCCI and the second by laying the groundwork for transfer-
ring BCCI's oversight to U.S. banking agencies. Pharaon's
participation in the scheme, the Board asserted, allowed
BCCI to mask its control of Independence from federal
regulators, preventing them from obtaining an accurate view
of Independence's true management and resources. The
Board charged that from 1985, when BCCI secretly pur-
chased Independence, until 1991, when bank regulators from
several countries seized BCCI, BCCI controlled Indepen-
dence, infusing capital into the bank, approving selection of
its directors, and actively participating in its management.
In addition to charging Pharaon with participating in
BCCI's section 3(a) violation, the Notice of Assessment
charged that during the period BCCI secretly controlled
Independence the annual reports (known as Y-7s) that BCCI
was required to submit to the Board as a foreign bank with
U.S. branches, see id. s 3106(a), concealed its control of the
bank in violation of section 5(c) of the Act, id. s 1844(c), and
its implementing regulation, Regulation Y, 12 C.F.R. s 225.5
(1997). The Notice held Pharaon responsible for BCCI's
violations under the Act's individual liability provision, section
8(b), 12 U.S.C. s 1847(b), and proposed a thirty-seven million
dollar civil penalty. Considering Pharaon "institutional[ly]-
affiliated" with BCCI under 12 U.S.C. s 1813(u), the Notice
also sought an order of prohibition pursuant to section 8(e) of
the Federal Deposit Insurance Act, id. s 1818(e)(1), perma-
nently barring him from participating in the affairs of any
federally insured depository.
Shortly after the Board issued its Notice, a federal grand
jury sitting in Washington, D.C., indicted Pharaon for crimi-
nal offenses relating to BCCI's purchase of Independence.
The following year, another federal grand jury, this one
sitting in Miami, Florida, and a state grand jury in New York,
each indicted Pharaon in connection with his larger involve-
ment with BCCI. Bench warrants for Pharaon's arrest were
issued in connection with the Washington and Miami indict-
ments. Pharaon responded to neither.
In the meantime, from his home in Saudi Arabia and acting
through U.S. counsel, Pharaon answered the Board's Notice
of Assessment, denying all charges and requesting a hearing.
Citing Pharaon's decision to remain beyond the reach of
federal prosecutors and relying on fugitive disentitlement, a
doctrine allowing courts to sanction parties where their fugi-
tive status has "some connection" to the proceeding,
Daccarett-Ghia v. Commissioner, 70 F.3d 621, 624 (D.C. Cir.
1995), the Administrative Law Judge recommended ruling
summarily for the Board. In a 1994 decision, the Board
declined to adopt the ALJ's recommendation, rejecting the
use of fugitive disentitlement because Pharaon's physical
presence was unnecessary to a hearing, because the Board
had no responsibility to vindicate any affront to the courts
that had indicted Pharaon, and because any judgment against
Pharaon could be satisfied from his frozen assets. The Board
made clear, however, that on remand the ALJ could use his
"express and implicit procedural powers" to ensure that
Pharaon's fugitive status not disrupt the proceedings.
Following a nineteen-day hearing, the ALJ issued a recom-
mended decision finding in favor of the Board and approving
the penalties sought in the Notice of Assessment. Filing 179
pages of exceptions challenging virtually all of the ALJ's
findings of fact and conclusions of law, Pharaon appealed to
the Board. Board enforcement counsel also appealed, argu-
ing that the ALJ should have imposed the maximum statuto-
ry penalty of $111.5 million (calculated by totaling the days
each violation had been outstanding at the time the Board
issued the Notice--8299 days--and assessing a penalty of
$1000 for each day prior to August 10, 1989, when Congress
amended the Act to increase its penalties, and $25,000 per
day thereafter, see Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, Pub. L. No. 101-73, s 907(j)(2),
103 Stat. 183, 475 (1989) ("FIRREA") (codified at 12 U.S.C.
s 1847(b)(1))). The Board adopted the ALJ's recommended
decision.
Pharaon now petitions for review. Applying the standards
set forth in the Administrative Procedure Act, see 12 U.S.C.
ss 1818(h), 1847(b)(3) (APA applies to penalty assessment
hearings under the Bank Holding Company Act), we will set
aside the Board's factual findings only if unsupported by
substantial evidence on the record as a whole, 5 U.S.C.
s 706(2)(E) (1994); we will set aside the Board's legal conclu-
sions only if "arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law," id. s 706(2)(A).
II
We begin with Pharaon's challenges to the Board's finding
that BCCI violated the Bank Holding Company Act. The Act
makes it "unlawful, except with the prior approval of the
Board ... for any action to be taken that causes any compa-
ny to become a bank holding company." 12 U.S.C. s 1842(a).
A company becomes a bank holding company if, among other
things, "(A) the company directly or indirectly ... owns,
controls, or has power to vote 25 per centum or more of any
class of voting securities of the bank or company; [or] (B) the
company controls in any manner the election of a majority of
the directors or trustees of the bank or company." Id.
s 1841(a)(2)(A)-(B). The Act provides for bank holding com-
panies to file periodic reports with the Board to facilitate
Board oversight. Id. s 1844(c); 12 C.F.R. s 225.5. Find-
ing that BCCI controlled more than twenty-five percent of
Independence's voting stock, as well as the election of a
majority of its directors, the Board concluded that BCCI had
become a holding company within the meaning of both sub-
sections (A) and (B) and that it concealed its unlawful control
by filing Y-7s that flatly denied controlling any U.S. banks.
For its subsection (A) finding, the Board relied primarily
on a May 17, 1985, agreement between Pharaon and the
International Credit and Investment Company (Overseas)
Ltd. ("ICIC"), a BCCI-controlled company. Titled "Acquisi-
tion of Shares of Independence Bank," and signed by Phar-
aon and Swaleh Naqvi, BCCI's then-second-in-command, the
agreement provides in relevant part as follows:
1. [Pharaon and ICIC] have agreed to acquire 100% of
shares capital of the Bank (the said shares) from the
present shareholders thereof....
2. All the said shares of the Bank on their purchase as
aforesaid shall be transferred to and held in the name of
[Pharaon] but only 15% of the said shares of the Bank
will be held by [Pharaon] as beneficial owner thereof.
3. For the balance of 85% of the said shares of the
Bank, ICIC shall have the right to purchase them at
their cost price from [Pharaon] either in its own name or
in the name or names of its nominee or nominees and, till
[sic] such purchase is effected and the shares transferred
to the name of ICIC and/or its nominee or nominees,
[Pharaon] will hold them in a fiduciary capacity for ICIC.
4. ICIC will provide funds to, or otherwise procure a
loan for [Pharaon] of the cost of 85% of the said shares of
the Bank and in consideration of the premises mentioned
in 3 above, ICIC will itself pay or discharge all interest,
costs, charges, commission and/or expenses of and inci-
dental to the said loan and repayment thereof and hold
[Pharaon] indemnified and harmless in respect thereof.
The agreement also entitled ICIC to dividends issued on its
shares, gave ICIC the right to possess Independence's share
certificates, and prohibited Pharaon from disposing of ICIC's
shares.
Relying on the "right to purchase" language in paragraph
three, Pharaon argues that the agreement merely gave ICIC
an option to purchase, vesting it with no actual control. The
Board rejected this argument, as do we. The agreement
plainly states that Pharaon will hold only fifteen percent of
Independence beneficially (paragraph two), and that ICIC
will fund Pharaon's purchase of the remaining eighty-five
percent (paragraph four). Not only does paragraph three
itself specifically provide that Pharaon "will hold" the eighty-
five percent "in a fiduciary capacity for ICIC," but Naqvi
testified that the "right to purchase" language simply clarified
BCCI's right to become nominal as well as beneficial owner of
the shares.
Pharaon also claims the parties neither effectuated nor
followed the agreement, but the record contains substantial
evidence to support the Board's contrary finding. The Board
pointed to evidence that BCCI provided over $10 million of
Independence's $23 million initial purchase price, that BCCI
issued a $5 million guarantee to support a $12.6 million loan
Pharaon obtained from the Bank of Boston for the remaining
amount of the purchase, and that BCCI later refinanced the
Bank of Boston loan, taking physical possession of Pharaon's
Independence stock certificates in accordance with the agree-
ment. Additional evidence that the parties implemented the
agreement comes from a June 1986 meeting at which Pharaon
proposed to Naqvi and Agha Hasan Abedi, then-head of
BCCI, to increase his share of Independence from fifteen
percent to fifty percent. Subsequently changing his mind,
Pharaon sent Naqvi a handwritten note stating that "I would
suggest that for the time being the 15/85 arrangement be
maintained until we can determine the course we want Inde-
pendence to take."
Pharaon's other arguments provide no basis for overturn-
ing the Board's subparagraph (A) finding. Although he
claims that BCCI's financing of Pharaon's purchase of Inde-
pendence cannot by itself support a finding of control under
the Act, the Board's determination that BCCI controlled
Independence rested not just on BCCI's financial support,
but also on the entire record, including the plain language of
the 1985 agreement, the 1986 meeting with Abedi and Naqvi,
and Pharaon's follow-up note. Pharaon points to evidence in
the record that he too helped manage Independence and
contributed to its capital requirements. Because we must
consider the entire record before us, however, such evidence
in no way undermines the Board's conclusion that BCCI, not
Pharaon, controlled Independence. Pharaon claims that the
ALJ improperly relied on allegations that he acted as a
nominee for BCCI in transactions not at issue in the Indepen-
dence proceeding. At the beginning of his recommended
decision, however, the ALJ made quite clear that he consid-
ered such matters only for background and to demonstrate
Pharaon's financial condition, not to prove the violations
relating to Independence.
While we can uphold the Board's conclusion that BCCI
controlled Independence solely on the basis of its subsection
(A) finding, we note that the record also contains substantial
evidence to support the Board's subsection (B) finding that
BCCI controlled the election of at least three members of
Independence's five-member board of directors. Abedi se-
lected Kemal Shoaib to serve as Independence's CEO and
chairman, Shoaib received pension and other fringe benefits
from BCCI, and Shoaib remained in active contact with BCCI
while at Independence. A Shoaib letter to Naqvi states that
another director, a Morrison & Foerster partner, was "nomi-
nated by us." When a third board position opened, Shoaib
wrote to Naqvi seeking approval for two potential candidates.
Although Pharaon points to some genuine inconsistencies in
other ALJ findings about BCCI's involvement in the selection
of Independence personnel, the Board's finding that BCCI
controlled a majority of the Independence board finds firm
support in the record.
Challenging the Board's interpretation of the Act's penalty
provisions, Pharaon argues that regardless of BCCI's viola-
tions, he cannot be penalized for acting as BCCI's undisclosed
nominee. The Board found Pharaon personally liable under
section 8(b) of the Act, which authorizes the Board to levy
civil penalties against "[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." 12 U.S.C. s 1847(b)(1). Comprehensively over-
hauling the regulation of financial institutions in 1989, Con-
gress added a new subsection 1847(d), which provides three
tiers of penalties for "any company" that commits a reporting
violation. FIRREA s 911(e), 103 Stat. at 481 (codified at 12
U.S.C. s 1847(d)). According to Pharaon, because subsection
(d) mentions only companies, individuals are no longer liable
for reporting violations under subsection (b). Although the
Board responds that repeals by implication are disfavored, we
need not invoke that familiar canon of statutory interpreta-
tion because we cannot even discern a basis for implying a
repeal. Establishing a range of penalties for reporting viola-
tions by companies, FIRREA has no bearing on section
1847(b)'s long-standing and still-existing provision for indi-
vidual liability other than to increase maximum penalties
from $1000 to $25,000 per day. See Chevron U.S.A. Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 842
(1984) ("If the intent of Congress is clear, that is the end of
the matter...."). Congress passed FIRREA to strengthen
"the enforcement powers of Federal regulators of depository
institutions" and "the civil sanctions and criminal penalties for
defrauding or otherwise damaging depository institutions and
their depositors." FIRREA s 101(9), (10), 103 Stat. at 187.
We cannot imagine that Congress would have exempted
individuals from liability for false reports without saying so.
We are equally unpersuaded by Pharaon's argument that
the Board lacked evidence to connect him to BCCI's scheme.
Sweeping broadly, section 1847(b) reaches any action "caus-
ing, bringing about, participating in, counseling, or aiding or
abetting" a violation of the Act. 12 U.S.C. s 1847(b)(5).
Nothing in the Act requires that Pharaon have known the
details of BCCI's plan to conceal its ownership of Indepen-
dence. Interamericas Invs., Ltd. v. Board of Governors of
the Fed. Reserve Sys., 111 F.3d 376, 384 (5th Cir. 1997). It is
enough, as the Board found, that Pharaon agreed to act as
BCCI's nominee. As BCCI's nominee, he could be held
responsible for acts undertaken by BCCI to further its secret
purchase of Independence, such as filing false reports with
U.S. regulators.
III
Having thus upheld the Board's twin findings that BCCI
violated the Act by secretly acquiring Independence and that
Pharaon, serving as the scheme's lynchpin, is personally liable
as a participant, we turn to Pharaon's procedural challenges.
He claims principally that the ALJ improperly denied him
discovery and excluded testimony by misapplying the fugitive
disentitlement doctrine.
As we read the record, the ALJ mentioned Pharaon's
absence as a consideration in connection with just one ruling
Pharaon challenges: a July 1995 decision allowing only live
testimony at the hearing. Pharaon treats this ruling as a
form of fugitive disentitlement. We think the Board offers a
more accurate interpretation: The ALJ did not punish Phar-
aon for his fugitive status, but merely relied on what the
Board referred to in its 1994 decision as his "express and
implicit procedural powers" to ensure that Pharaon's fugitive
status not adversely affect the hearing. Later making this
point explicit, the ALJ explained that "the importance of
visual observations of witnesses" significantly influenced his
ruling requiring Pharaon to appear in person. Given the
significance of personal observation to credibility determina-
tions, we cannot say that this ruling amounted to an abuse of
discretion. We reach the same conclusion with respect to
another ruling, also challenged by Pharaon, in which the ALJ
"similarly order[ed]" that a witness Pharaon proposed on the
eve of the hearing could only appear in person.
Citing fugitive disentitlement, Pharaon challenges several
other discovery rulings. See Pet'r Br. at 53 ("Pharaon was
thus denied the basic rudiments of due process, apparently
based on the disentitlement doctrine."). Because none of the
rulings rested on fugitive disentitlement, however, we need
not consider them further.
Pharaon also claims that the Board failed to disclose 127
unspecified files of relevant documents and an agreement
with the New York District Attorneys' Office immunizing
Naqvi for his testimony. Offering no grounds to support
these challenges, Pharaon has waived them. Terry v. Reno,
101 F.3d 1412, 1415 (D.C. Cir. 1996), cert. denied, 117 S. Ct.
2431 (1997).
Next, Pharaon claims ALJ bias, relying chiefly on a state-
ment made by the ALJ in his 1993 ruling on fugitive disen-
titlement. Claims of bias must "be raised as soon as practica-
ble after a party has reasonable cause to believe that grounds
for disqualification exist." Marcus v. Director, Office of
Workers' Compensation Programs, 548 F.2d 1044, 1051 (D.C.
Cir. 1976) (footnote omitted). Aware of the ALJ's alleged
bias when he appealed the recommended decision to the
Board, Pharaon failed to raise the issue or argue that the
case should be remanded to a different ALJ. He has thus
waived his principal ground for asserting bias. Other evi-
dence of alleged bias--the ALJ's record of ruling in favor of
the Board in other proceedings and his allegedly incorrect
rulings against Pharaon in this case--falls far short of demon-
strating that the ALJ had "a fixed opinion--'a closed mind on
the merits of the case.' " Throckmorton v. NTSB, 963 F.2d
441, 445 (D.C. Cir. 1992) (quoting United States v. Haldeman,
559 F.2d 31, 136 (D.C. Cir. 1976)). "Almost invariably, [such
rulings] are proper grounds for appeal, not for recusal."
Liteky v. United States, 510 U.S. 540, 555 (1994).
Pharaon's final procedural challenge, presented only in a
sparse footnote, invokes 5 U.S.C. s 557(c), which states that
"[b]efore ... a decision on agency review of the decision of
subordinate employees, the parties are entitled to a reason-
able opportunity to submit ... exceptions to the ... recom-
mended decision[ ] ... [and][t]he record shall show the ruling
on each ... exception presented." Pharaon faults the Board
for failing to respond with specificity to each of his many
exceptions to the ALJ's recommended decision. Section
557(c) functions as a bedrock of judicial review of agency
action. We have long held, however, that agencies need only
indicate that they have considered and rejected a party's
exceptions, see Human Dev. Ass'n v. NLRB, 937 F.2d 657,
668 (D.C. Cir. 1991), and that they have no obligation to
respond at all to entirely insubstantial arguments, Interna-
tional Ass'n of Bridge, Structural & Ornamental Iron Work-
ers v. NLRB, 792 F.2d 241, 247-48 (D.C. Cir. 1986). "As-
sum[ing]" Pharaon to be challenging the ALJ's recommended
decision "in its entirety," the Board said that it had reviewed
Pharaon's submission and denied his exceptions. From our
own review of the Board's decision and Pharaon's exceptions,
we are satisfied that the agency in fact considered and
rejected all of them. To be sure about this, at oral argument
we asked Pharaon's counsel to identify any significant excep-
tions to which the Board failed to respond. He offered none.
IV
This brings us finally to Pharaon's statutory and constitu-
tional challenges to the penalties. In keeping with our limit-
ed review of agency penalty assessments, we will not overturn
the Board's choice of sanctions unless they are either " 'un-
warranted in law or ... without justification in fact.' " Blue-
stone Energy Design, Inc. v. FERC, 74 F.3d 1288, 1294 (D.C.
Cir. 1996) (quoting Butz v. Glover Livestock Comm'n Co., 411
U.S. 182, 185-86 (1973)) (ellipsis in original).
Citing the difference between his thirty-seven million dollar
penalty and the range of penalties set out in a Board Civil
Money Penalty Assessment Matrix and claiming the Board
failed to follow a thirteen-factor test set forth in an Inter-
agency Policy Regarding the Assessment of Civil Money
Penalties by the Federal Financial Institutions Regulatory
Agencies, 45 Fed. Reg. 59,423, 59,424-25 (1980), Pharaon
urges us to set aside the penalty as arbitrary and capricious
in violation of the APA. According to the Board, neither the
matrix nor the interagency policy limits its discretion.
We agree with the Board about the matrix. An internal,
staff-level guideline, the matrix cautions that "because the
facts and circumstances of each penalty case are different, the
assessment of a civil money fine cannot be completely re-
duced to the mechanical application of a formula or purely
numerical index. The exercise of judgment based on exper-
tise and experience is important and necessary." Because
the matrix does not constrain the Board's discretion, the
agency had no obligation to explain any departure from it.
See, e.g., Vietnam Veterans of Am. v. Secretary of the Navy,
843 F.2d 528, 539 (D.C. Cir. 1988) (where no indication that
agency intended to bind itself by staff memorandum, docu-
ment not binding).
In contrast to the matrix, the Board has expressly adopted
the interagency policy. See In re Cedar Vale Bank Holding
Co., 82 Fed. Res. Bull. 871 (1996), aff'd sub. nom. Long v.
Board of Governors of the Fed. Reserve Sys., 117 F.3d 1145 (10th Cir. 1997). Considering the factors listed in the inter-
agency policy, the ALJ concluded that Pharaon's violations
would yield a penalty of slightly over $151 million, well above
the statutory maximum. Although the Board's January 1997
final decision does not review each factor in turn, a compari-
son of the Board's decision with the interagency policy indi-
cates that the Board in fact considered each factor relevant to
this case. When we asked Pharaon's counsel about this at
oral argument, he was unable to point to any relevant factor
the Board ignored.
Pharaon correctly observes that the Board nowhere tells us
how its enforcement counsel originally selected thirty-seven
million dollars. But we will "uphold a decision of less than
ideal clarity if the agency's path may reasonably be dis-
cerned." Motor Vehicle Mfrs. Ass'n v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983); see also Detroit/Wayne
County Port Auth. v. ICC, 59 F.3d 1314, 1317 (D.C. Cir.
1995). This is just such a case. After weighing the
mitigating factors set forth in 12 U.S.C. s 1818(i)(2)(G)(i)-(iv)--
"(i) the size of financial resources and good faith of the ...
person charged; (ii) the gravity of the violation; (iii) the
history of previous violations; and (iv) such other matters as
justice may require"--the Board found the penalty "in line
with the gravity of the offenses, the intentional nature of the
actions, [and] the attempts to conceal the nature of the
transactions." Under all of these circumstances, we find
nothing arbitrary and capricious in the Board's selection of
the penalty. Indeed, had the Board applied the penalty
standards set forth in 12 U.S.C. s 1847(b), as Board enforce-
ment counsel urged, it could have imposed a penalty of over
$111 million, three times the amount it actually assessed.
Although Pharaon challenged the calculation of this maximum
penalty before the Board, he does not do so here.
Pharaon's principal constitutional challenge to the thirty-
seven million dollar penalty rests on the Eighth Amendment's
Excessive Fines Clause, U.S. Const. amend. VIII ("Excessive
bail shall not be required, nor excessive fines imposed, nor
cruel and unusual punishments inflicted."). Protecting indi-
viduals against government power to extract payments as
punishment, Austin v. United States, 509 U.S. 602, 609-10
(1993), the Excessive Fines Clause requires us to consider the
" 'value of the fine in relation to the offense.' " United States
v. Emerson, 107 F.3d 77, 80 (1st Cir. 1997) (quoting Austin,
509 U.S. at 627 (Scalia, J., concurring)), cert. denied, 118
S. Ct. 61 (1997). Reviewing the question de novo, see Lam-
precht v. FCC, 958 F.2d 382, 391 (D.C. Cir. 1992), we discern
no Eighth Amendment violation. As we have already indicat-
ed in rejecting Pharaon's APA challenge, the penalty is
proportional to his violation and well below the statutory
maximum.
Pharaon's Fifth Amendment claim has even less merit. He
relies on the Supreme Court's statement in BMW of North
Am. v. Gore, 116 S. Ct. 1589 (1996), that "[e]lementary
notions of fairness enshrined in our constitutional jurispru-
dence dictate that a person receive fair notice not only of the
conduct that will subject him to punishment but also of the
severity of the penalty that a State may impose." Id. at 1598. Here, section 1847(b)'s maximum penalty provisions provided
just that notice. Because the assessed penalty falls far below
the statutory maximum, Pharaon cannot claim that he lacked
constitutionally adequate notice. Cf. Long, 117 F.3d at 1156 (upholding a $717,941 penalty against due process challenge
when statute authorized Board to assess a maximum penalty
of $45.6 million). We need not consider Pharaon's Double
Jeopardy claim because he failed to include it in his excep-
tions to the ALJ's recommended decision. See 12 C.F.R.
s 263.39(b)(1) (1997) (failure to raise exception constitutes
waiver).
For his final argument, Pharaon claims that the Board had
no basis under 12 U.S.C. s 1818(e)(1)(A)-(C) for its order
permanently barring him from participating in the affairs of
any federally insured depository. He offers no challenge to
the Board's subsections (A) and (C) findings, and for good
reason: It is undeniable that he "violated [the] law," id.
s 1818(e)(1)(A)(i), and that his violation at least "involve[d]
personal dishonesty," id. s 1818(e)(1)(C). Pharaon claims
only that the record contains insufficient evidence to support
the Board's finding under subsection (B), the so-called effects
prong, see Oberstar v. FDIC, 987 F.2d 494, 502 (8th Cir.
1993), which requires that the Board establish that:
by reason of the violation ... (i) such insured depository
institution or business institution has suffered or will
probably suffer financial loss or other damage; (ii) the
interests of the insured depository institution's deposi-
tors have been or could be prejudiced; or (iii) such party
has received financial gain or other benefit by reason of
such violation, practice, or breach.
12 U.S.C. s 1818(e)(1)(B).
According to Pharaon, subsection (B) requires the Board to
demonstrate the exact amount of harm caused by Pharaon's
participation in BCCI's scheme. The plain language of the
statute provides to the contrary, however. Section
1818(e)(1)(B) allows the Board to impose an order of prohibi-
tion not only if the insured institution "suffered ... financial
loss or other damage" or if the interests of its depositors
"have been ... prejudiced," but also if the institution "will
probably suffer financial loss or other damage" or if its
depositors "could be prejudiced." Id. Under all the circum-
stances of this case, we think the Board had ample basis for
concluding that as a result of BCCI's secret takeover of
Independence and Pharaon's participation in the scheme,
BCCI "will probably suffer financial loss or other damage"
and its depositors "could be prejudiced."
V
Because the Board's findings of fact are supported by
substantial evidence in the record and because we discern no
reversible errors in the Board's procedures, legal conclusions,
or choice of sanctions, we affirm.
So ordered.