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For immediate release
April 15, 1997
The Federal Reserve Board announced the issuance of
Final Decision and Order of Prohibition
against Charles R.
Vickery, Jr., former Senior Chairman of First National Bank of
Bellaire, Bellaire, Texas.
The Order, the result of an action
brought by the Office of the Comptroller
prohibits Vickery from participating
of the Currency,
in the conduct of the
affairs of any financial institution or holding company.
A copy of the Final Decision and Order is attached.
SOAR0
OF GOVERNORS
OF THE
FEDERAL
RESERVE
SYSTEM
WIS”lNGTDN,0. c. 20551
Peter J. O'Loughlin, Esq.
Theresa Groschke, Esq.
7887 Katy Freeway, Suite 444
Houston, Texas 77024
(Return Receipt Requested)
The Honorable Walter J. Alprin
Administrative Law Judge
Office of Financial Adjudication
1700 G Street, N.W.
Washington, D.C. 20552
Gerald J. Sexton, Esq.
Jay T. Ward, Esq.
Lisa Chase, Hearing Clerk.
Office of the Comptroller of the Currency
250 E Street, S.W.
Washington, D.C. 20219
In
re:
CR.
B e llai re , Be 1 laire , Texas, AA-OCC-EC-96-95.
To the counsel and interested persons of record:
Notice is hereby given that the Board of Governors of
the Federal Reserve System has issued the enclosed Final Decision
and Order in the above-captioned case.
William W. Wiles
Secretary of the Board
BEFORE THE BOARD
UNITED STATES OF AMERICA
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
In the Matter of
CHARLES R. VICKERY, JR.,
FORMER SENIOR CHAIRMAN OF THE BOARD,
AA-OCC-EC-96-95
FIRST NATIONAL BANK OF BELLAIRE
BELLAIRE, TEXAS
)
.)
FINAL DECISION
This is an administrative
8(e) of the Federal Deposit
5 1818(e),
proceeding
Insurance Act
Charles R. Vickery
to section
("FDI Act"), 12 U.S.C.
in which the Office of the Comptroller
of the United States of America
Respondent
pursuant
of the Currency
("OCC") seeks to prohibit
from further participation
affairs of any federally-supervised
financial
institution
result of his conduct during his former affiliation
National Bank of Bellaire, Bellaire,
Texas
in the
as a
with First
(the "Bank").
As
required by statute, the OCC has referred the action to the Board
of Governors of the Federal Reserve System
(the "Board") for
final decision.
The proceeding comes before the Board in the form of a 66page Recommended
Decision by' Administrative
Law Judge
Walter J. Alprin, issued following an administrative
in June 1996.
In the Recommended
Decision,
("ALJ")
hearing held
the ALJ found that
Vickery had breached his fiduciary duty to the Bank by arranging
to be paid, as ‘referral fees," a portion of the title insurance
premium paid in connection
caused the Bank to make.
concluded
Recommended
that this misconduct
prohibition
Vickery
with real estate loans that Vickery
from banking
Decision
fulfilled the requirements
for
and continuing
for the safety or soundness of the Bank.
lengthy exceptions
The ALJ
in that it resulted in financial gain to
and reflected his personal dishonesty
disregard
("RD") 4.
In Vickery's
to these findings and conclusions,
Vickery
does not dispute his receipt of the payments, but denies that
they reflected any impropriety.
Based on a review of the record and the arguments
Vickery,
the Board rejects Vickery's
stated by the ALJ in the Recommended
specifically
Counsel's
prohibition
recommended
determination
exceptions
for the reasons
Decision, except as
noted in this Final Decision.
Enforcement
disregard
exceptions
raised by
The Board adopts OCC
to the limited term of
by the ALJ and to the ALJ's recommended
that Vickery's
conduct did not reflect a willful
for safety or soundness.
I. STATEMENT OF TEE CASE
A. STATUTORY AND REGULATORY
1. Standards
FRAMEWORK
for Prohibition
Order
Under the FDI Act, the ALJ is responsible
administrative
hearing on a notice of intent to prohibit.
U.S.C. 5 1818(e) (4).
recommended
for conducting
Follo+ng
an
12
the hearing, the ALJ issues a
decision that is referred to the Board, and the
parties may file exceptions
to the ALJ's recommendations.
Board makes the final findings of fact, conclusions
-2-
The
of law, and
determination
whether to issue an order of prohibition.
Id.; 12
C.F.R. 5 263.40.
To issue a prohibition
order under the FDI Act, the Board
1) there must be a specified
must make each of three findings:
type of misconduct
practice,
or breach of fiduciary duty; 2) the misconduct
have a prescribed
financial
must
effect -- financial gain to the respondent
loss or other damage to the institution;
misconduct
personal
-- violation of law, unsafe or unsound
must involve culpability
and 3) the
of a certain degree
dishonesty or willful or continuing
or
disregard
-for the
safety or soundness of the institution.
2. Title Insurance Premium Solittino.
Applicable
Texas Department of Insurance Rules provide
a title insurance company is permitted
to make payments
persons who have actually rendered services commensurate
payment.
Rule P-22, OCC Exhibit
(‘Ex.")
8
at 9.
that
only to
with the
The payee must
submit an invoice stating in detail the services performed,
and
the payor must verify that the services were actually performed.
Rule P-22(F), OCC Ex. 8 at 9.
The rule also requires that the
title insurance company verify in writing that ‘No portion of the
charge for the services actually rendered shall be attributable
to, and no payment shall be made for the solicitation of, or as
an inducement
for the referral or placement
insurance business with the company."
-3-
Id.
of the title
B. PROCEDURAL HISTORY
The OCC issued a Notice of Intention
Participation
against Vickery on January
Simultaneously,
to Prohibit Further
26, 1996.
RD 1.
the OCC brought an action against Vickery seeking
a civil money penalty of $250,000.
Both actions were addressed
in a common hearing before the ALJ and by the ALJ's Recommended
Decision.
Unlike this prohibition
decision,
the final decision
as to the civil money penalty action is statutorily
the Comptroller.
12 U.S.C. § 1818(h),
(i).
assigned to
The Board takes
official notice that, on March 31, 1997, the Comptroller
final Decision and Order assessing
issued a
the full $250,000 amount
against Vickery.
II.
FINDINGS OF FACT
1.
Relevant Persons and Institutions
First National Bank of Bellaire was at all times relevant to
this proceeding
occ.
RD 5.
a national bank subject to supervision by the
Vickery was the Senior Chairman of the board of
directors of the Bank from 1967 until he was terminated by the
board of directors
was responsible
activities,
RD 5.
As Senior Chairman, Vickery
for approving and supervising
including loans, investments,
asset/liability
principal
in 1994.
management.
RD 6.
all banking
operations,
and
Vickery was also the
shareholder of the Bank, owning or controlling
percent of the Bank's outstanding
also a principal
shareholder
shares in 1991.
of other banks,
Be was
including Texas
National Bank of Baytown and Mayde Creek Bank, N.A.
-4-
RD 5.
about 40
RD 6.
During the time central to this action, mid-1991
to early 1992,
Vickery was also chairman of the Bank's executive
member of the loan committee.
RD 5.
committee and a
The other members of the
loan committee were G. Warren Coles, Chairman and president of
the Bank, and Craig Wooten, the Bank's executive vice-president
and chief operating officer.
RD 7.
Vickery was also an active
member of the Texas State Bar from 1948 to September
he requested
inactive status.
1988, when
RD 6.
During his banking career, Vickery's
affiliated
banks
engaged in repeated litigation with banking regulators.
In one
case, the OCC was upheld by both a district court and the Fifth
Circuit Court of Appeals
in its direction that the banks cease
the practice of distributing
credit life insurance
income to
Vickery and other bank insiders in connection with loans that
they had arranged for the Bank to make.
First Nat'1 Bank of
LaMarque v. Smith, 436 F. Supp. 824 (S.D. Tex. 1977), aff'd 610
F.2d 1258
(5th Cir. 1980).1'
Vickery maintained
commissions
a longstanding practice
of collecting
from title insurance companies in return for
referring borrowers
to them.
OCC Ex. 45 at 5.
Among these
11
In another case, the OCC was upheld in part and reversed
in part when it imposed a cease and desist order against the
Bank. First Nat'1 Bank of Bellaire v. Comutroller of the
Currencv, 697 F.2d 674 (5th.Cir. 1983). AII aspect of the order
that was upheld required that the Bank take action to prevent
further violations of the restrictions on loans to bank insiders.
697 F.2d at 683-84.
In a third case, the Fifth Circuit upheld
the OCC's cease and desist order against the Bank and its
affiliates for violations of lending limits in connection with
the loans involved in the present action. Texas National Bank v.
Deoartment of the Treasurv, 50 F.3d 1033 (5th Cir. 1995) (table).
-5-
companies was Sovereign, which would pay Vickery a commission
20 percent of the insurance premiums
for issuing a title policy
arising from real estate transactions
Vickery-affiliated
Sovereign‘s
representative
a registered
Vickery
banks.
financed by loans from
RD 6; Coles Tr. 1110; occ Ex. 45 at 5.
in these transactions
title insurance agent and attorney,
the "referral fees" in 1982.
testified
a similar arrangement
insurance company and Dover understood
doing business.
Dover Tr. 430.
was P.B. Dover,
who began paying
Dover Tr. 428, 429.
that he entered into the arrangement
had earlier maintained
of
Dover
because Vickery
with another title
that this was the price of
By 1991, the Texas Department
of
Insurance had issued rules, intended to prevent rebates and
kickbacks
that were driving up the cost of insurance,
prohibited
that
title insurance companies from making payments
induce referrals for placement
of title insurance business
required that any payments be justified by the performance
actual services.
687.
Rule P-22(H),
(E);
to
and
of
OCC Ex. 8 at 9; Hopson Tr.
Dover stopped paying the referral fees after the insurance
regulations
changed, but resumed them after Vickery demanded
to
know where his referral fee was and advised Dover that the
regulations
did not apply to referral fees among lawyers.
Tr. 431.3' Dover continued to pay Vickery
1994.
Dover
referral fees until
Dover Tr. 437.
21
Vickery told Dover that if he were not willing to pay
the fees he would find someone else to do it. Dover Tr. 431-32.
-6-
2.
The Moore Loans
Between June 1991 and February 1992, the Bank originated
series of 23 loans to real estate developer
his wife, and to corporations
Jerry J. Moore and
owned by them.
secured by shopping center properties
a
The loans were
owned by the Moores.
RD 7.
The total dollar volume of the Moore loans originated by the Bank
was about $46 million; the Bank retained about $24 million of
that amount, selling participations
affiliates.
in the remainder to its
RD 7.
Vickery was the Bank's representative
in negotiating
the
terms of each of the Moore loans, RD 7, and was viewed by the
Bank's board of directors as the loan officer on the Moore loans.
RD 22; Olsen Tr. 784.
The other members of the loan committee
had little influence on the decision
to make the loans: The ALJ
found that Coles "acceded" to each loan and that Wooten had
little involvement with the Moore loans.
assumed responsibility
loan.
Coles Tr. 1089.
Each of the loans was approved, booked,
for ratification.
703; Wooten Tr. 598.
Vickery
for credit and final approval of each
and funded before being presented
directors
RD 7-8.
to the Bank's board of
RD 22; Coles Tr. 1134; Olsen Tr.
One of the directors
his concern about the Moore loans.
resigned because of
Levy Tr. 1073.
of the Bank's board of directors
meetings
,
The minutes
contain no evidence of
any formal disclosure by Vickery of his arrangement with
Sovereign or his receipt of payments
loans.
RD 22.
-7-
in connection with the Moore
In choosing a title insurance company
loans, Vickery's preference
in connection with the
for Sovereign was overridden by
Moore's insistence on the use of Commonwealth
Land Title, a title
insurance company with which Moore had been doing business
years.
RD 8.
for 30
In response, Coles advised Moore that any change
RD 8;
in title companies would have to be approved by Vickery.
Coles Tr. 1110; OCC Ex. 40.
As part of the loan negotiation
process, Moore told Vickery that Commonwealth
would be closing
the Moore loans, and that Vickery would have to accept that or
work it out with Commonwealth.
1095.
RD S-9; Moore Tr. 78; Coles Tr.
Vickery told Coles that Commonwealth
could be used as the
title insurer, but that "Commonwealth would have to honor the
same kind of agreement
policies".
[Vickery had] with Sovereign
RD 9; Coles Tr. 1111-1112, 1113, 1125.
requirement was honored by Commonwealth,
This
which in every case paid
20 percent of the gross insurance premium to Vickery
proxy,
on the title
or his
Sovereign.
In connection with the first Moore loan, Commonwealth
the 20 percent cut directly to Vickery's defunct
despite the fact that the Bank was represented
paid
law firm,
by separate
outside counsel who was paid directly from the loan proceeds.
For the remaining loans, the payments to Vickery we're made more
circuitously.
Sometime before August 8, 1991, Vickery
telephoned
Dover and
told him that he would be receiving some checks that he had "to
run through Sovereign
Title Company," and that in return for
-8-
handling the paperwork
involved, Dover could keep the greater of
five percent or $500 of the check proceeds
remainder to Vickery.
this conversation,
certification
RD 13; Dover Tr. 437-38, 460.
forms from Commonwealth
that called for Dover to
specified services on each of 12
Moore loans in return for Commonwealth's
payment
20 percent of the title insurance premium.
for further instructions,
that he had performed
to Sovereign of
Dover called
signed the certification
forms, and returned them to Commonwealth.
certification
Following
Dover received a package of premium-splitting
certify that he had performed
Commonwealth
and should send the
RD 14.
Despite his
services in return for the
payments, Dover admitted that he did no work on the Moore loans,
and was unaware of any work performed
by Vickery.
RD 21; Dover
Tr. 453-54.
On or around August 16, 1991, Commonwealth
checks totalling $31,483 payable to Sovereign,
sent Dover two
representing
percent of the title insurance premiums Commonwealth
20
earned on
the 12 Moore loans between July 19 and August 6, 1991.
RD 14.
Dover deposited the proceeds of both checks into his personal
account, and then used the funds to buy two cashier's
checks, one
for Vickery in the amount of $29,908, and the other which he kept
himself in the amount of $1,574, or five percent of the total
amount received from Commonwealth.
procedure
RD 15.
Dover used the same
for amounts received from Commonwealth
with loans made on August
9,
1991
in connection
($4,208 before splitting),
September 11 ($7,725), October 11 ($8,097), and January
-9-
3,
1992
In each case, Commonwealth
RD 15-21.
($2,113).
percent of its insurance premium,
sent Dover 20
and Dover retained $500 or five
percent of that amount and forwarded the remainder
Vickery
thus received personal payments
to Vickery.
in connection
with
each of the Bank's 23 loans to the Moores, totalling about
$52,880.
III.
RD 10;
CONCLUSXONS
OCC Ex. 33-38.
OF
LAW
A. MISCONDUCT
1. Breach
of Fiduciary
Duty
The Board adopts the ALJ's recommended
the above facts, Vickery violated
conclusion
the duty of loyalty that he
owed the Bank to refrain from engaging in self-dealing
conflicts of interest.
that, on
or
"The threshold inquiry in
RD 30.
assessing whether a director violated his duty of loyalty is
whether the director has a conflicting
Directors are considered
transaction.
either
interest in the
to be 'interested'
'appear on both sides of a transaction
derive any personal
self-dealing,
corporation
if they
[ 1 or expect to
financial benefit from it in the sense of
as opposed to a benefit which devolves upon the
or all stockholders
generally."
In re Seidman,
37
F.3d 911, 934 (3d Cir. 1994); auotins In re Bush, OTS AP 91-16 at
11, 15-16.
Indeed, these principles
situation
involving Vickery,
OCC issued policy directives
officers
in his affiliated
have been applied to an analogous
Coles, and the Bank.
In 1976, the
requiring that Vickery and the
banks cease the practice of selling
-lO-
credit life insurance in conjunction with loans made by their
banks in return for commissions paid by the insurance company to
them personally,
First National Bank Of
rather than the bank.
LaMaraue v. Smith, 436 F. Supp. 824, 826-27.
aff'd in Dart, 610 F.2d 1258 (5th Cir. 1980).
(S.D. Tex. 1977),
Upon a challenge
by the banks to the policy directive, both the district court and
the court of appeals upheld the OCC's actions and condemned the
conflict of interest represented by insiders pocketing
from the credit life sales.
profits
The Fifth Circuit emphasized
that:
The payment to and retention by loan officers of commissions
derived from the sale of credit life insurance involves an
inherent conflict of interest: the loan officer's judgment
may be influenced by his direct financial reward from making
the loan. As a result, the officer may be induced to make a
loan he would not otherwise have considered sound. When
loan officers are allowed to retain commissions, the
prospect of financial gain is interjected into the lending
decision.
610 F.Zd 1265.
Under this authority, it is clear that Vickery breached his
fiduciary duty of loyalty to the Bank.?'
kickbacks of title insurance premiums,
Receipt of the
like the pocketed profits
from the sale of credit life insurance premiums,
to have a personal
caused Vickery
financial stake in the loans made by the Bank
21
Vickery excepts to the ALJ's determination that he was
required to avoid even the appearance of a conflict of interest.
RD 4. Because the evidence,clearly establishes that Vickery
engaged in an actual conflict of interest, it is not necessary to
reach this issue, and the Board, like the Comptroller, does not
adopt the ALJ's conclusion on the appearance issue. See occ
Decision and Order at 12 n.5. For the same reason, the Board
need not reach the issue, raised in OCC Enforcement Counsel's
exceptions, of whether Vickery's actions also breached his duty
OCC Decision and Order at 7.
of care. &
-ll-
that could have influenced his lending decisions
recommendation
and his
As Bank lending officer,
of title insurers.
Vickery's duties to the Bank included denying loan applications
that were not in the Bank's interests.
on the other hand, were directly
His personal
interests,
served by ensuring that loans
were made in any case, the bigger the better, so that he would
receive his referral fees from the title insurance company."
Furthermore, Vickery's
choice of title insurance companies was
not made solely in the interests of the Bank, but was influenced
by which company would be willing to pay his referral
Thus, Vickery's
responsibilities
fees.
as loan officer of the Bank were
compromised by the incentive to make loans and utilize title
insurance companies
for reasons other than the best interests of
the Bank.
The Board adopts the ALJ's determination
to Vickery constituted
"referral fees" -- or, in the term used by
a Texas title insurance regulator,
Vickery's alternative
the payments.
-- and rejects
explanations
for
are either incredible on their
similar conflicts even if true, or are
unsupported by the record.
characterizations
"kickbacks"
and mutually contradictory
These explanations
face, would present
that the payments
First, contrary to his other
and w,ithout business explanation,
he states
that he did not know what the payments were for, but that he
21
In addition, the availability of kickbacks created an
incentive for Vickery to prefer real estate-secured lending over
other kinds of loans in order to assure the participation of a
title insurer that would provide him fees.
In certain market
conditions, such a preference might well be harmful to a bank.
-12-
thought they were paid "out of the goodness of [Commonwealth's]
heart"
(Vickery Tr. 119, 127).
Next, he suggests that the
payments were fees for services performed
(Excep. 14).
alleviate,
for Commonwealth
If that were so, that would only underscore,
the conflict of interest.
Vickery was the Bank's
fiduciary, and therefore had a duty not to provide
another party in a transaction
not
services to
in which the Bank was involved.
Third, he claims that the payments were for services performed
for the Bank.
performed
The record does not support a finding that Vickery
any such services.2'
In short, Vickery is correct only
when he characterizes
payments as similar to the kind of commissions
or referral
the
fees
he had been paid by Sovereign for 20 years. Excep. 19, 21; OCC
Ex. 45.
That characterization,
however, is no defense: these
previous payments also represented breaches of Vickery's
fiduciary duty of loyalty.
Nor is Vickery's
precise role in the loan transactions
crucial to the determination
that he had a conflict of interest.
In his exceptions, Vickery denies that he had ultimate
decisionmaking
authority
for the Moore loans
But even if Vickery had merely recommended,
(Excep. 5-6, 18).
rather than approved,
e/ In transactions in which the Bank was represented by
According to Dover,
counsel its counsel was not Vickery.
Sovereign performed no servi'ces for the Bank in connection with
the loans. Moreover, Vickery was in the hospital during several
of the closings.
Even if Vickery had provided services to the
Bank, he offers no explanation as to why his Bank salary -- in
excess of $149,000 -- did not sufficiently compensate him for
such services, or why Commonwealth would pay him out of its
insurance premium for services rendered to the Bank.
-13-
the loans, his receipt of fees would have been a conflict of
interest and a breach of fiduciary duty."/
Similarly, Vickery's argument that he did not give detailed
instructions
to Dover as to the handling of the payments
7. 13) is immaterial.
sufficient
his instructions,
they were
to cause Dover to forward to him payments
Commonwealth.
credibility
Whatever
(Excep.
from
Moreover, the ALJ had ample basis for resolving
issues against Vickery and in favor of Dover's
detailed recollection of Vickery's
instructions.
There is also no basis for Vickery's
argument
that his
conflict of interest is benign because the interests
and the title insurer are coincident.
of the Bank
Even though the title
insurer and the Bank have a common interest in assuring
borrower has good title to its security,
their interests diverge
in that the title insurer's interest is in maximizing
61
that the
the volume
In any event, the record flatly contradicts Vickery's
Vickery doesnot
contest that he negotiated the loans
assertion.
with Moore or that Moore viewed him as the ultimate
decisionmaker.
Coles testified that Vickery had the ultimate say
as to making the,loans, that the third member of the loan
committee was not consulted after the loans began to be made, and
that Vickery made a decision to keep making the loans over Coles'
objections.
Coles Tr. 1089, 1099-1100, 1124. The Board of
directors only approved the loans after they had been made. &
Levy Tr. 715 (by the time the Board approved the loans, "these
loans were done deals"); Edwards Tr. 897 (board discussion of the
Moore-related loans consisted of: "The loans have been made. You
all need to approve them"); Vickery Tr. 304 (the board "never had
arguments or discussions of 'loans. They just have a list of
loans, and the board approves them, and that is that").
Vickery's dominance of the board was such that if a director
"crossed" Vickery, he would not be renominated for the board the
next year; when Vickery's brother was not renominated, Vickery
Edwards Tr.
had two policemen escort him out of the building.
902.
-14-
of business, while a bank's interest includes rejecting dubious
loans -- and in complying with regulatory
of lending.
limits on concentration
The Bank's interests also include, in approving
use of a title insurance company, consideration
record of performance
the
of that company‘s
when a claim is made under a policy
-- a
point at which the interests of the bank and those of the insurer
certainly diverge.
Furthermore,
an overlap of institutional
interests does not as a general matter negate the conflict.
LaMaraue,
the Fifth Circuit found self-dealing
In
and an unsafe and
unsound practice where individual bank insiders profited
from the
sale of credit life insurance, even though the court found that
that insurance benefitted
same is true here.
banks, borrowers
and insurers.
The
Even assuming that title insurance benefits
the lender, the lending officer's personal
insurance constitutes
stake in placing such
a conflict of interest.
*
aenerallv
Penner v. Litton, 308 U.S. 295, 311 (1939) (fiduciary may not
utilize his strategic position
for personal
The Board therefore rejects Vickery's
facts do not establish
a proscribed
breach of fiduciary duty."
gain).
arguments that these
conflict of interest or
Excep. at 44-75.
Vickery's attempts
11 The breach of fiduciary duty caused by Vickery's selfdealing is not affected by the fact that it was not also a
that Vickery's
usurpation of corporate opportunity -- h,
In
kickbacks did not properly belong to the Bank. Excep. 49-51.
LaMaraue, the Fifth Circuit affirmed the district court's
decision that the personal profit from the sale of credit life
insurance constituted self-dealing even though it vacated the
portion of the district court's decision that addressed
610 F.2d a+- 1263.
usurpation of corporate opportunity.
Accordingly, LaMaraue makes clear that such self-dealing is a
(continued...)
-15-
to distinguish other conflict of interest cases as more heinous
do not in any way redeem his conduct.
Vickery may not have explicitly
Excep. 46-49.
conditioned
While
the making of the
loans on the receipt of the fees, he took active steps to ensure
that he would receive funds directly in connection
loans.
with those
In any event, as discussed above, a bank officer has a
duty to make a lending decision free from -
personal
financial
stake in the transaction.
The Board also adopts the ALJ's recommendation
that Vickery
violated his duty of candor by failing to inform the officers and
directors of his potential
financial interest in the Moore loans.
The general knowledge or inference of Coles and Wooten that
Vickery was receiving commissions
in connection
with title
insurance carries no weight in light of Vickery's
dominance
of
the bank and the absence of any record, such as a board of
directors vote, that would have brought the payments
attention of regulators.
968 F.2d 164, 171
to the
See Greenbercr v. Board of Governors,
(2d Cir. 1992)
(minutes of board of directors
meetings silent as to conflict relationship).
The Board finds,
however, that the absence of disclosure bears more directly upon
Vickery's
culpability
than upon the existence
of a conflict,
in
that it is not clear that a conflict arising out of a bank
officer‘s personal
financial, interest in a transaction
could be
l'(...continued)
breach of fiduciary duty and an unsafe and unsound practice even
if it is not also a usurpation of corporate opportunity.
-16-
cured by board of directors
approval."'
Furthermore,
suggestion that Vickery should have removed himself
approval process because of the conflict,
appropriate
case.
in many conflict situations,
the
from the loan
an action that is
is circular
in this
Had Vickery not been involved as the lending officer, the
title insurer would have had no reason to make payments
and the conflict would not have existed.
recusal or board of directors
Accordingly,
to him
while
approval may cure some conflicts,
this is not such a case.?'
8' See LaMaraue, 436 F. Supp. at 830 ("The illegality of
self-deaxng
exists regardless of the financial strength of the
plaintiff banks.
'Full disclosure' of the practice of all
shareholders cannot legitimize this type of self-dealing.")
'1 In his exceptions, Vickery objects to the ALJ's official
notice of a prior OCC decision, affirmed by the Fifth Circuit,
which held that the Bank and other Vickery-controlled banks had
violated legal lending limits with respect to the Moore loans.
The ALJ limited his consideration of this proceeding with respect
to the prohibition action to its potential bearing on Vickery's
culpability.
RD 2 n.2.
The only issue determined in that proceeding -- that the
Moore loans violated the Bank's lending limits -- is irrelevant
to the existence of the breach of fiduciary duty found here.
Vickery's conflict would have existed had the Moore loans
complied with the lending limits. Accordingly, because the two
cases involve different claims, there is no res judicata bar to
Moreover, to the extent that
considering the prior proceeding.
the fact that the Moore loans violated lending limits bears on
Vickery's culpability, the facts established in the prior
proceeding may be used collaterally against Vickery in this
proceeding, as his ability to control the prior litigation
establishes that he was in privity with the Bank. See
Restatement (Second) of Judgments 5 39.
-17-
B. EFFECTS
There is no dispute that Vickery's
breach of fiduciary duty
did not cause financial loss to the Bank, but there is also no
dispute that Vickery received financial gain from the referral
commissions.
RD 46.
insurance premiums
less the five percent of that amount or $500
for Dover, amounted to $52,881.
sufficient
20 percent of the title
His percentage,
That financial gain is
RD 48.
to establish the second category of prohibition
requirements.
C. CULPABILITY
The ALJ determined
personal dishonesty
that Vickery's
and a continuing
conduct reflected both
disregard for safety or
soundness, but did not find that it established
disregard
for safety or soundness.
two findings and OCC Enforcement
a willful
Vickery excepts to the first
Counsel excepts to the third.
The Board finds that ample evidence supports the conclusion
that Vickery's
conduct reflected personal dishonesty
willful and continuing
the Bank.
disregard
and both
for the safety and soundness
The standard for personal dishonesty
is clearly met by
the evidence supporting the ALJ's findings that Vickery
integrity,
fairness, straightforwardness,
and displayed
RD 49.
a disposition
The arrangement
of
lacked
and trustworthiness,
to lie and misrepresent
the facts.
that Vickery worked out with Dover to
1
"run checks through" Sovereign displays an intent to shield the
transactions
from regulatory
scrutiny, and Vickery's
to Dover that it would involve some paperwork
-18-
indication
indicates a
consciousness
certifications
the closing.
credibility
that Dover would be required
that he had performed
RD 50-51.
determination
to file false
services
in connection with
Further, the Board adopts the ALJ's
that Vickery
intentionally
Texas Finance Commission when he testified
misled the
under oath on October
16, 1992, that he had no knowledge of the $2,432 fee paid to
"Vickery Law Corporation"
loan.
RD 44; OCC Ex. 51.
by Commonwealth
on the first Moore
As the ALJ found, it "simply is not
credible" that Vickery would have forgotten
light of the controversy
surrounding
about the payment,
the Moore loans.
That false answer under oath displays a disposition
that reflects personal dishonesty.
*
for safety or soundness.
found that a "willful disregard
soundness"
is established by intentional
an unsafe or unsound banking pcactice.
Vickery's
969, 974 (1992).
arrangement
intentionally
to falsehood
conduct reflected a
previously
Reserve Bulletin
RD 44-45.
RD 51; OCC Ex. 51 at 38.
The Board also finds tha$bckery's
willful disregard
in
The Board has
for safety or
conduct that constitutes
In re Maoee, 70 Federal
There is no question that
of the referral fees was conduct
engaged in -- indeed that it had been consistently
engaged in for decades, despite knowledge
that similar payments
had been found to constitute an unsafe or unsound practice and
breach of fiduciary duty in LaMaraue.
*
unquestionably
willful.
-19-
Such deliberate
conduct is
Vickery's
"disregard for safety or soundness"
because his self-dealing
practice:
constituted
is established
an unsafe or unsound
As the Board has previously
observed:
The safety or soundness element addresses the nature, rather
than the degree, of the departure from ordinary standards of
prudent banking.
Conduct departing from such standards
represents an unsafe or unsound banking practice when it is
of a kind that, if continued, would present an abnormal risk
-- i.e., risks other than those inherent in doing business
__ of harm or loss to the bank.
In re Van Dvke, No. AA-EC-87-88
(June 13, 1988), slip op. at 26,
aff'd, Van Dvke v. Board of Governors,
876 F.2d 1377, 1380
(8th
Cir. 1989); see Greene Countv Bank v. FDIC, 92 F.3d 633, 636 (8th
Cir. 1996) (unsafe or unsound practice
is conduct deemed contrary
to accepted standards of banking operation
abnormal risk or loss to a banking
Here, the self-dealing
which might result in
institution
practice
standards of prudent banking because
or shareholder).
is contrary to ordinary
it creates incentives
to
make loans and deal with title insurers for reasons other than
the bank‘s best interests.
A lending officer whose judgment is
skewed by personal interest has the potential
to commit a bank to
loans that would expose the Bank to abnormal risk of harm or
loss.
Under the Board's
standards,
reflected ~a willful disregard
therefore, Vickery's
conduct
for the Bank's safety and
soundness.
The ALJ's conclusion
to the contrary used an overly-narrow
.
standard that would require a finding that an individual
deliberately
exposed the Bank to abnormal risk of loss or harm
(RD 54), a standard that incorrectly appears to require that an
individual
intend or be conscious of potential
Because' the statute plainly contemplates
individuals
harm to the Bank.
prohibition
of
who benefit from their practices even if the bank is
as yet unharmed,
the culpability
standard must be sufficiently
broad to embrace schemes designed solely to enrich the
individual,
the bank.
personal
if the practice
is of a type that could cause harm to
The practice of making lending decisions with a
financial interest acting as a thumb on the decisional
scales is clearly a practice
that exposed the Bank to abnormal
risk of loss or harm.='
The Board also adopts the ALJ recommended
conclusion
that
Vickery engaged in "continuing disregard for the safety and
soundness
reflecting
of the institution,"
recklessness
institution's
safety.
a standard that captures conduct
or indifference with respect to an
See Brickner,
747 F.2d at 1203 n.6.; Grubb
v. FDIC, 34 F.3d 956, 962 (10th Cir. 1994).
This series of loans
was made over a period of some months, and Vickery's
for personal
fees was made against a backdrop of previous
in which the Comptroller
collection
hazardous
arrangement
cases
and the courts had made clear that the
of such fees was not only improper but potentially
to the institution.
Both the district court and the
lo/
This distinguishes situations where individuals have
acted passively or not acted-at all. a,
e.s., Brickner v.
FDIC
747
F.2d
1198
(8th
Cir.
1984)
(bank
officers
failed to take
-I
action to rein in lending officer despite explicit FDIC
warnings).
Even where such conduct does not rise to the level of
willful disregard for safety or soundness,it may still satisfy
the standard for continuing disregard.
a,
e.q., Brickner, 747
F.2d at 1203.
-21-
Fifth Circuit in the LaMaraue case informed Vickery
uncertain
terms that the receipt of personal
officer in connection with bank business
and an unsafe and unsound practice.
Vickery was also
LaMaroue,
610 F.2d at 1265.
E.D. Vickery Tr. 853;
had been prohibited
Notwithstanding
Dover Tr. 431.
for caution, Vickery nevertheless
self-dealing
aware that fee-splitting
title insurance companies for referrals
Texas regulation.
gain by a lending
constitutes
Vickery was quite aware of those rulings.
Vickery Tr. 265.
in no
arranged
the Dover scheme,
It is not a defense that the relatively
amount that Vickery received in referral
the primary reason why Vickery decided
small
fees may not have been
in a position where his
financial interest plays any role in a lending decision.
Accordingly,
Vickery's repeated self-dealing
referral fees for the Moore loans satisfies
continuing
in arranging
the standard
for
disregard for the safety or soundness of the Bank.
Finally, the ALJ recommended
Vickery be prohibited
that the Board order that
for only a fixed term of three years,
rather than indefinitely.
Vickery's
as a
to make the loans, since a
lending officer should not place himself
personal
by
these bases
creating a conflict of interest with his responsibilities
lending officer.
among
The ALJ based this recommendation
on
age, ill health, and the fact that his conduct did not
harm the Bank directly.
recommendation.
RD 56.
To the extent that the Board has authority
issue a limited-term prohibition,
that authority
The Board declines to adopt this
I
to
it does not choose to exercise
in the circumstances
-22-
of this case.
The assumed
absence of harm to the bank carries little weight as a mitigating
factor in that, as noted above, the FDI Act plainly contemplates
that a prohibition
order can be based solely on financial gain,
even if the bank is not harmed.
Vickery's
dealing reflect an inveterate obliviousness
concepts of fiduciary responsibility
This long history of recalcitrance
for the Board to have confidence
decades of selfto fundamental
and safe and sound banking.
does not suggest any reason
that Vickery would be suited to
return to banking in three years' time.
While age and ill health
are factors that may warrant
they do not bear upon
compassion,
the ultimate issue in the matter of prohibition,
individual's
participation
whether an
character is consistent with his continued
in banking.
While Vickery of course retains the
statutory right to seek agency consent to return to banking, the
Board declines,
to the extent it has such authority, to issue
such consent prospectively.='
z,
The Board denies Vickery's exceptions to the ALJ's
evidentiary rulings, which were within the scope of the wide
discretion allocated to the ALJ in the conduct of a hearing.
The
Board also denies the request for oral argument, to the extent
that it is addressed to the Board, since the Board finds that the
issues have been adequately addressed in the administrative
record.
-23-
For the foregoing
reasons, the Board orders that the
attached Order of Prohibition
Governors,
this _/+*a
issue.
of April,
By Order of the Board of
1997.
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
&/,-d%
_
William W. Wiles
Secretary of the Board
-24-
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE
WASHINGTON, D.C.
ON CERTIFICATION OF THE
DEPARTMENT OF THE TREASURY
--OFFICE OF THE COMPTROLLER
OF THE CURRENCY
SYSTEM
)
)
I
AA-OCC-EC-96-95
In the Matter of
i
CHARLES R. VICKERY, JR.,
i
FORMER SENIOR CHAIRMAN
OF THE BOARD,
FIRST NATIONAL BANK OF
BELLAIRE
BELLAIRE, TEXAS
ORDER
.;
;
;
1
OF PROHIBITION
WHEREAS, pursuant to section E(e) of the Federal Deposit
Insurance Act, as amended,
(the "Act") (12 U.S.C.
Board of Governors of the Federal Reserve System
§ 1818(e)), the
("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 CHARLES R. VICKERY, JR.;
NOW, THEREFORE,
IT IS HEREBY ORDERED, pursuant
8(b) (3), 8(e), and 8(j) of the Federal Deposit
amended,
to sections
Insurance Act, as
(12 U.S.C. 55 1818(b) (3), 1818(e) and 1818(j)),
*
that:
-21. In the absence of prior written approval by the Board,
and by any other Federal financial institution regulatory agency
where necessary pursuant to section B(e) (7)(B) of the Act (12
U.S.C. 5 1818!e (7)(B)),
CHARLES R. VICKERY, JR. is hereby
prohibited:
(a) from participating in the conduct of the
affairs of any bank holding company, any insured depository
institution or any other institution specified in subsection
B(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 .9(e)(7)(A) of the Act (12
U.S.C. § lBlS!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 party as defined in section
3(u) of the Act, (12 U.S.C. § 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.
-3This Order shall become effective upon the expiration of
thirty days after service is made.
By Order of the Board of Governors, this /f&*y
1997.
BOARD OF GOVERNORS OF l?IE
FEDERAL RESERVE SYSTEM
Secretary of the Board
of April;