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UNITED STATES OF AMERICA
BEFORE TEE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C.
ON CERTIFICATION OF THE DEPARTMENT
OF THE TREASURY--OFFICE OF THE
COMPTROLLER OF THE CURRENCY
)
)
)
i
In the Matter of a Notice to
Prohibit Further Participation
Against MASSIMILIANO LOCCI,
FORMER EMPLOYEE, ISTITUTO
BANCARIO SAN PAOLO DI TORINO,
NEW YORK, NEW *YORK
;
DOCKET NO. AA-EC-97-01
)
\
FINAL DECISION
This is an administrative proceeding pursuant to the Federal
Deposit Insurance Act ("FDI Act") in which the Office of the
Comptroller of the Currency of the United States of America
("OCC") seeks to prohibit the Respondent, Massimiliano Locci
("Locci") from further participation
in the affairs of any
financial institution because of his conduct as an employee of
the Federal branch of Istituto Bancario San Paolo di Torino, New
York, New York
("the Branch").
Under the FDI Act, the OCC may
initiate a prohibition proceeding against a former employee of a
Federal branch of a foreign bank, but the Board must make the
final determination whether to issue an order of prohibition.
Upon review of the administrative
record, the Board issues
this Final Decision adopting the ALJ's Default and Recommended
Decision
("Default Decision") and orders the issuance of the
attached Order of Prohibition.
-21.
STATEMENT OF TEE CASE
A. Statutory Framework
The OCC's regulations governing administrative hearings
specify that if a respondent does not file an answer within 20
days of service of the notice, the respondent is deemed to have
waived the right to appear and contest the allegations in the
notice.
12 C.F.R. 5 19.19(c) (1).
Under the FDI Act and the
Board's regulations, the ALJ is responsible for conducting an
administrative hearing on a notice of charges.
Following the
hearing, the ALJ issues a recommended decision that is referred
to the deciding agency together with any exceptions to those
recommendations
filed by the parties.
The Board makes the final
findings of fact, conclusions of law, and determination whether
to issue an order of prohibition
in the case of a prohibition
order sought by the OCC.
The FDI Act sets forth the substantive basis upon which a
federal banking agency may issue against a bank official an order
of prohibition
from further participation
in banking.
In order
to issue such an order, the Board must make each of three
findings: 1) that the respondent engaged in identified conduct,
including an unsafe or unsound practice or a breach of fiduciary
duty; 2) that the conduct had a specified effect, including
financial loss to the institution; and 3) that the respondent's
conduct involved either personal dishonesty or a willful or
continuing disregard for the safety or soundness of the
institution.
3
i
-3B.
Procedural Historv
The record before the Board reflects the following short
procedural history in the administrative proceeding regarding
L0cci.l'
On April 21, 1997, the OCC initiated a Notice of Removal,
Notice of Assessment
Charges
of Civil Money Penalty, and Notice of
("Notice") against Locci.
The Notice alleged that Locci
engaged in unsafe and unsound banking practices and breached his
fiduciary duty during his tenure as an employee of the Branch.
The OCC alleged that Locci, who traded foreign currency options
for the Branch, caused the Branch to sustain a loss of over $10
million in foreign exchange option trading in the Italian Lira
over the period from January 18 through March 24, 1995.
Over
this period, Locci's trading exceed the Branch's written trading
policy limits and ignored the Branch's warnings about market
instabilities in foreign currency options.
Locci attempted to
hide his trading losses from the Branch by causing false entries
to be made in the Branch's books that provided inaccurate
information to the Branch about its foreign exchange option
exposure and its income and loss.
As a result, the Branch was
unaware that it had sustained substantial trading losses.
The
l' The record before the Board was certified by the ALJ to
It consists of:
constitute the.entire record relating to Locci.
the Notice issued by the OCC on April 21, 1997; OCC Enforcement
Counsel's Motion for Entry of an Order of Default with supporting
exhibits, dated June 11, 1997; the ALJ's Order to Show Cause,
issued on July 11, 1997; and the ALJ's Default Decision, issued
on August 15, 1997. Because the record contains no responsive
pleadings or exceptions to the Default Decision, the facts set
forth are uncontested.
-4OCC alleged that the conduct caused a financial loss to the
Branch, and evidenced Locci's personal dishonesty
and willful or
continuing disregard for the Branch's safety or soundness.
The Notice expressly warned of the consequences
by the Respondent.
of default
The Notice stated that Locci was required to
file an answer to the charges within 20 days of the service of
the Notice, and that failure to file an answer would constitute a
waiver of his right to appear and contest the allegations in a
hearing.
On April 23, 1997, the OCC send the Notice by Federal
Express to Locci at two known addresses in Torino, Italy.
signed for the Notice on April 30, 1997.
Locci
When he failed to
respond, OCC Enforcement Counsel filed a Motion for Entry of An
Order of Default with the ALJ on June 11, 1997.
On July 11,
1997, the ALJ issued an order requiring that Locci respond to the
OCC's Motion for C‘efau;t by July 28, 1997, sending the order by
Federal Express to Lccci's known address in Torino, Italy.
Locci
did not respond to the order.
On August 15, 1997, the ALJ granted OCC Enforcement
Counsel's Motion for Default, finding that Locci had failed to
file a timely answer.
Accordingly,
the ALJ issued a Default
Decision that incorporated the findings and relief set out in the
Notice, including the order of prohibition
sought by the OCC.?'
?' The ALJ also entered a default as to Locci in regard to
the civil money penalty and restitution elements of the OCC's
Notice. On November 13, 1997, the OCC adopted the ALJ's
recommendation imposing a $50,000 civil money penalty, but
(continued...)
-511.
DISCDSSION
The scope of the Board's review in a case where an
uncontested finding of default has been made by an administrative
law judge is limited to a determination
that the record supports
a finding of default and that the allegations in the notice
support the relief sought.
In the circumstances here under
review, the Board finds that the allegations contained in the
OCC's Notice meet the statutory criteria for the issuance of an
order of prohibition.
Locci's conduct alleged in the Notice
breached his fiduciary duty to the Branch.
He caused the Branch
to sustain substantial losses through foreign exchange option
trading in Italian Lira that exceeded the Branch's written
trading policy limits and ignored the Branch's warnings about
market instabilities in foreign currency options.
Locci
attempted to hide these trading losses from the Branch by causing
false entries to be made in the Branch's books.
This conduct
demonstrated personal dishonesty, as well as a willful disregard
for the safety or soundness of the Branch.
Finally, the Branch
lost over $10 million as a result of Locci's actions.
Moreover,
the Board finds that the OCC has established the basis for a
default order of prohibition under the terms of the statute since
Locci failed to respond either to the Notice or the Order to Show
2'(...continued)
__
_
remanded the matter for further proceedings regarding the
recommendation that Locci pay $10,700,000 in restitution to the
Branch.
-6Cause despite service reasonably calculated to give him notice of
the action.
CONCLUSION
For these reasons, the Board orders the issuance of the
attached Order of Prohibition.
*k
By Order of the Board of Governors,
this B
December, 1997.
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
LJ.
L??
William W. Wiles
Secretary of the Board
day of
BEFORE
THE
BOARD
UNITED STATES OF AMERICA
OF GOVERNORS
OF THE FEDEm
D.C.
WASHINGTON.
ON CERTIFICATION OF THE DEPARTMENT
OF THE TREASURY--OFFICE OF THE
COMPTROLLER OF THE CURRENCY
)
In the Matter of a Notice to
Prohibit Further Participation
Against MASSIMILIANO LOCCI,
1
RESERVE
SYSTEM
1
DOCKET NO. AA-EC-97-01
i
FORMER EMPLOYEE, ISTITUTO
BANCARIO SAN PAOLO DI TORINO,
NEW YORK, NEW YORK
ORDER
!
)
OF PROHIBITION
WHEREAS, pursuant to section 8(e) of the Federal Deposit
Insurance Act, as amended,
(the l'ActlV)
(12 U.S.C. § 1818(e)), the
Board of Governors of the Federal Reserve System ("the Board") is
of the opinion, for the reasons set forth in the accompanying
Final Decision, that a final Order of Prohibition should issue
against MASSIMILIANO LOCCI ("Locci") ;
NOW, THEREFORE, IT IS HEREBY ORDERED, pursuant to section
8(e) of the Federal Deposit Insurance Act, as amended,
(12 U.S.C.
§ 1818(e)), that:
1. In the absence of prior written approval by the
Board, and by any other Federal financial institution regulatory
agency where necessary pursuant to section 8(e) (7) (B) of the Act
(12 U.S.C. 5 1818(e)(7) (B)), Locci is hereby prohibited:
(a) from participating
in the conduct of the
affairs of any bank holding company, any insured depository
-2institution or any other institution specified in subsection
8(e) (7) (A) of the Act
(12 U.S.C. 5 1818(e) (7) (A));
(b) from soliciting, procuring, transferring,
attempting to transfer, voting or attempting to vote any proxy,
consent, or authorization with respect to any voting rights in
any institution described in subsection
8(e) (7) (A) of the Act
(12
U.S.C. § 1818(e) (7) (A));
(c) from violating any voting agreement previously
approved by the appropriate Federal banking agency; or
(d) from voting for a director, or from serving or
acting as an institution-affiliated
3(u) of the Act,
party as defined in section
(12 U.S.C. 5 1813(u)), such as an officer,
director, or employee.
2.
This Order, and each provision hereof, is and shall
remain fully effective and enforceable until expressly stayed,
modified, terminated or suspended in writing by the Board.
This Order shall become effective at the expiration of
thirty days after service is made.
By Order of the Board of Governors, this ‘8
December, 1997.
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
d! /
-
William W. Wiles
Secretary of the Board
LCI
day of