Interamericas Invest v. Bd of Gov of the FR

• Court: Court of Appeals for the Fifth Circuit
• Decided: June 2, 1997
• Docket: 96-60326
• Status: Published

Opinion

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).

- 2 - 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.

- 3 - 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

- 4 - 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.

- 5 - 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.

- 6 - 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

- 7 - 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.

- 8 - 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

- 9 - 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

- 10 - 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

- 11 - 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,

- 12 - 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

- 13 - 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

- 14 - 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

- 15 - 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

- 16 - 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

- 17 - 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.

- 18 - 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.

- 19 - 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.

- 20 - 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.

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

- 21 - 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

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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