The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
For immediate
April
release
The Federal
administrative
connection
hearing
with
former
officer
parent
bank
Reserve
of Provident
holding
Judge
to determine
civil
money
whether
Money
of the
Mr.
Penalties
Board's
in violations
arising
inaccurate
from
with
of Texas
Bank,
the former
Dallas,
be ordered
the
1991
filings
following
United States
1100 Commerce
Dallas, Texas
alleges
with
acquisition
by another
23, at the
Notice
of the Change
The administrative
Attachment
Inc.,
a
Texas.
an Administrative
should
Amended
the Board
participated
on April
Jones
in
Park T. Jones,
of Texas,
before
a public
Law
to pay
a
of Assessment
of
is attached.
In its Notice,
Bancorp
be held
23, 1997,
against
Provident
that
penalty.
A copy
connection
action
of the
announced
on April
Bancorp
company
will
today
commence
an enforcement
The hearing
Civil
will
Board
22, 1997
that
Mr. Jones
in Bank
Control
Act
the Federal
Reserve
in
of control
of Provident
individual.
hearing
will
commence
location:
District Court
Street, Courtroom
13B48
at 9:00
a.m.
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C.
Docket No.
95-042-B-13
In the Matter of
PARK T. JONES
i
A former institution)
affiliated party of Provident)
Bancorp of Texas, Inc.
1
)
Amended Notice of Assessment
of Civil Money Penalties
Pursuant to the Change in Bank
Control Act (the "Control
Act") and the Federal Deposit
Insurance Act (the "FDI Act")
1
1
The Board of Governors of the Federal Reserve System
"Board of Governors")
(the
is of the opinion or has reasonable cause
to believe that:
I.
[DELETED]
[DELETED]
II.
[DELETED]
[DELETED]
III. Jones
Park Jones
("Jones"), a former institution-affiliated
party
of Provident Bancorp, has violated the Control Act and Regulation
Y. 12 C.F.R. § 225.43;
IV.
[DELETED]
[DELETED]
Accordingly,
proceedings:
the Board of Governors hereby institutes these
-2(11 [DELETED] ; and
(II) For the purpose of assessing civil money penalties
against
[DELETED],
JOIES
and [DELETED] for their violations of
the Control Act and Regulation Y, pursuant to the Control Act and
the FDI Act, 12 U.S.C. § 1818(i) (2).
In connection with this proceeding, the Board of Governors
alleges as follows:
JURISDICTION
1.
Provident Bancorp was at all times pertinent to the
charges herein, a registered one-bank bank holding company under
the Bank Holding Company Act, 12 U.S.C. § 1841 et seq., whose
only subsidiary was Provident Bank, Dallas, Texas, a state nonmember bank insured by the Federal Deposit Insurance Corporation
(the "Provident Bank").
2.
From 1984, until on or about February 12, 1991, Riddle
was a director of Provident Bancorp.
Riddle was Chairman of
Provident Bancorp 'from 1987, until on or about February 12, 1991.
As such, during those periods, Riddle was an institutionaffiliated party of Provident Bancorp pursuant to 12 U.S.C.
§ 1813(u) (1) and 1818(b) (3).
3.
From at least on or about June 1990 through at least on
or about February 12, 1991, Averett was a consultant compensated
by the law firm of Riddle & Brown, Dallas Texas, of which Riddle
was a senior partner.
As set forth herein, Averett participated
in the conduct of the affairs of Provident Bancorp during that
period.
From December 14, 1990, to February 1991, Averett was a
-3member of the board of directors of Provident Bancorp.
Averett was an institution-affiliated
As such,
party of Provident Bancorp,
pursuant to 12 U.S.C. f3 1813(u) (3) and 1818(b) (3).
4.
From before June 1990 through on or about February 12,
1991, Jones was an employee of D.R. Horton, Inc., a firm
controlled by Donald R. Horton
("Horton").
In that capacity,
Jones represented Horton in connection with negotiations for
Horton to acquire a majority interest in Provident Bancorp.
From
on or about February 4, 1991 through July 1994, Park Jones was
Chairman of Provident Bancorp.
institution-affiliated
As such, Jones, was an
party of Provident Bancorp, pursuant to 12
U.S.C. 5 1813(u) (1) and 1818(b) (3).
5.
From 1984, through on or about February 4, 1991, Ducote
was a member of the board of directors and President of Provident
Bancorp.
As set forth herein, Ducote participated in the conduct
of the affairs of Provident Bancorp during that period.
Ducote was an institution-affiliated
As such,
party of Provident Bancorp
pursuant to 12 U.S.C. 5 1813(u) (1) and 1818(b) (3).
-6
FACTUAL ALLEGATIONS
Provident Bancorp's
an Acquirer
Condition in 1990 and Preliminary Efforts to
Locate
6.
Provident Bancorp and Provident Bank were in a troubled
condition during 1990, and in need of additional capital to
comply with regulatory requirements.
approximately
Provident Bancorp owed
$14 million to NCNB National Bank Texas
(U1NCNBU8),
secured by the common stock of Provident Bank (the "Holding
Company Note").
Provident Bank's troubled condition prevented
Provident Bancorp from servicing this debt.
In addition,
Provident Partners, a Texas partnership consisting of Riddle,
Ducote, and two other Provident Bancorp shareholders, owed
approximately
$600,000 to NCNB secured by 66,764 shares of
Provident Bancorp stock (7.8% of the outstanding common stock),
the partnership's
only asset (the "Provident Partners Note").
The stock at the time had a value substantially below the
outstanding loan balance.
The loan was also personally
guaranteed by each of the partners.
Because of the troubled
condition of Provident Bank and Provident Bancorp, it was likely
that the individual partners would have to pay off the Provident
Partners loan from their own assets.
Of the partners, Riddle had
substantial assets and expected that he would be the partner
against whom NCNB would enforce the guarantee.
7.
In early 1990, Riddle began negotiations with a group
represented by a Fort Worth attorney, which was seeking to
acquire a majority interest in Provident Bancorp
Group").
(the "Fort Worth
As part of this negotiation, Riddle and Ducote secured
-5a commitment from NCNB allowing the Fort Worth Group to satisfy
the $14 million holding company note for $1.4 million, if the
Provident Partners Note were repaid for the full $600,000.
The
proposed transaction called for the Fort Worth Group to acquire
the two NCNB notes for $2 million which would then be redeemed
for newly issued Provident Bancorp stock and the stock owned by
Provident Partners, respectively.
The Fort Worth Group would
also inject new capital into Provident Bancorp by purchasing
newly issued Provident Bancorp stock for $1 million.
If the
transaction were completed, Riddle and Ducote would be released
from their $600,000 guarantees of the Provident Partners Note.
Although the parties signed a letter of intent, the proposed
transaction with the Forth Worth Group never reached fruition.
First, Riddle learned that an investor who had been associated
with a highly-publicized
savings and loan association failure
would be financing the Fort Worth Group.
Riddle understood
that
applicable law required disclosure of the source of financing,
and that the Federal Reserve and other banking regulators would
be unlikely to approve a transaction financed by this individual.
Second, the Fort Worth Group failed to provide a $500,000 good
faith deposit called for in the letter of intent.
8.
After the transaction with the Forth Worth Group
foundered, Riddle turned to Horton, a wealthy Fort Worth
homebuilder,
as a possible acquirer of a majority of Provident
Bancorp through a similarly structured transaction.
On June 27,
1990, Horton and Ducote, on behalf of Provident Bancorp, entered
into a letter of intent for Horton to acquire a majority of the
voting shares of Provident Bancorp for $3 million.
Of that
amount, $2 million would be used to acquire the Holding Company
Note and the Provident Partners Note, and $1 million would be
used to provide new capital to Provident Bancorp.
In addition,
the letter of intent proposed the formation of a "liquidating
trust"
(sometimes referred to as a "liquidating corporation")
which would be a vehicle for Horton to make future capital
injections into Provident Bancorp through warrants Horton would
be granted as part of the transaction.
According to the letter
of intent, Horton would contribute to the liquidating trust
approximately
$10 million worth of real estate, specifically
197
rental properties which Horton and his family owned free and
clear (the "rental properties").
Horton would use his own cash
balances to pay the $3 million in the initial acquisition of
shares.
According to the letter of intent, the $3 million would
be repaid from cash generated from liquidation of the rental
properties or debt placed on them.
9.
In addition to the letter of intent, Horton's
representatives
and Provident Bancorp, entered into a side
letter, dated June 27, 1990 (the "June 27, 1990 side letter").
The June 27, 1990 side letter, initialed by Ducote, stated that
although the letter of intent "is to be used only for the 'Change
in Control' filing and the purchase is subject to a definitive
agreement,
.._
the source of the actual investment will be from a
loan and/or a sale of the assets to be contributed into a selfliquidating company."
10.
As demonstrated by the June 27, 1990 side letter,
Horton did not intend to close on the acquisition, if he had to
use his own cash to fund it.
From that time until a definitive
stock purchase agreement was signed on December 21, 1990, Horton
represented to Jones, Averett, Ducote, Riddle and others that the
transaction would not go forward unless Horton either had
received a loan commitment to borrow the funds for the
acquisition or had actually sold the rental properties before the
acquisition occurred.
Accordingly, beginning in July 1990,
Jones, Ducote, Averett, and Riddle engaged in a wide-ranging
search to locate a lender willing to finance Horton's
acquisition.
The Horton
11.
Dallas
Group
Notice
of Change-in-Bank
Control
On or about July 25, 1990, the Federal Reserve Bank of
(the "FRB-Dallas") received a Notice of Change-in-Bank-
Control form (Federal Reserve Form 2081), submitted on behalf of
Horton, Terrill J. Horton and Wanda Lee Boyd Martin, Horton's
brother and mother-in-law
Group")
respectively
(the "July 25 Notice").
(collectively, the "Horton
The July 25 Notice represented
that the Horton Group intended to acquire a majority of the
common stock of Provident Bancorp, plus warrants to purchase
additional stock.
Ducote drafted the description of the
transaction and was the contact person named on the form.
-a12.
Reserve
The Control
Form
I) identify
2)
have
been
13.
Notificants
also
There
letter
investment
will
contributed
14.
fund
the
balances
the
FRB-Dallas
acquisition
relevant
loan
also
the July
dated
that
whether
of
in the June
27,
of the actual
of the
assets
25 Notice
August
to be
be repaid
from
a "liquidating
copies
commitments)
the proposal
would
from cash
into
that
In that
Horton
and would
requested
loan
of the terms
Bancorp
put
and
1, 1990.
it understood
properties
also
be repaid
letter
and clarification
(including
questioned
would
The
company."
corporations,
1 letter
documents
sale
Group's
accounts.
in the
"the source
arrangements,
the Horton
cash
of Provident
of the rental
The August
Horton‘s
and/or
of the
in Horton's
described
that
stated
that
to the statement
in a letter,
trust."
FRB-Dallas
that
reviewed
of his affiliated
liquidation
the parties.
information
FRB-Dallas
initial
between
self-liquidating
additional
the
and any other
no reference
the
for the acquisition
terms,
balances
a loan
acquisition,
all details
corporation
be from
transaction
letter,
be cash
insisting
into
The
requested
was
in the
provide
represented
represented
liquidating
side
of the
would
to be used
consideration
repayment
25 Notice
§ 1817(j) (6) CD), and Federal
the notificant:
of funds
and understandings
of funds
intent.
that
be borrowed,
The July
the
12 U.S.C.
or other
including
agreements,
1990
funds
or will
financing,
from
require
the source
if any
and,
source
2081,
Act,
of
be provided.
to use the
-9-
liquidating trust as a source of additional capital for Provident
Bancorp would violate section 4 of the Bank Holding Company Act.
15.
On August 6, 1990, Horton, Jones, Riddle, Averett, and
Ducote met with the FRB-Dallas staff.
At that meeting, the FRB-
Dallas staff reiterated its concerns about the use of the
liquidating trust concept in the July 25 Notice.
On August 10,
1990, Ducote submitted a written response to the August 1, 1990
letter.
Jones reviewed the response before it was filed.
The
August 10, 1990, letter stated that the proposal had been revised
in light of FRB-Dallas' concerns.
It represented that Horton
would use $3 million "from his wholly-owned
corporations and
other personal sources . .. to acquire" the shares.
represented
It also
that the Horton Group would still form a Subchapter S
corporation to hold the rental properties and liquidate them in
an orderly manner.
The proceeds from the liquidation would be
used to repay Horton for his initial investment, with the
remainder to be distributed to the individuals to exercise the
warrants.
In response to another query in FRB-Dallas' August 1,
1990 letter, though, the August 10, 1990 response suggested that
Horton might borrow against the rental properties either before
or after the acquisition was closed.
In response to a question
requesting the submission of a loan commitment letter from one of
Horton's companies, the August 10 letter stated that Horton "can
simply withdraw funds at his sole discretion
without need for loan commitments."
[from his company]
No loan documents with
respect to a loan from third-party lender were submitted in
-lO-
response to the specific request in the August 1 letter, nor did
the August 10 letter disclose that a commitment for third-party
financing was a precondition to the closing of the acquisition.
16.
Jones was aware that the description of the transaction
in the August 10 letter was inaccurate and so informed Ducote in
writing.
Jones also stated that FRB-Dallas would need to be
informed of changes in the transaction prior to closing, but
neither Jones, nor Ducote did anything at that time to inform
FRB-Dallas that it was reviewing a misdescribed transaction.
17.
Following receipt of the August 10 letter, FRB-Dallas
staff contacted Ducote by telephone for further clarification of
the conflicting
statements regarding Horton's financing and
sources of funds.
In a letter to the Reserve Bank, dated August
17, 1990, and submitted on August 20, 1990, Ducote represented as
follows:
a. There are no agreements, formal or informal between
Horton and Provident Bancorp as to the use of the funds
which may be generated by the new corporation (which would
hold the single family houses) being formed.
b. Mr. Horton and the other notificants represent that
the source of funds to be used in the initial closing shall
be cash withdrawals from Mr. Horton's Sub-S corporations.
Based on this clarification, FRB-Dallas processed the acquisition
as a cash, rather than a financed transaction.
Jones, Averett
and Riddle reviewed this statement before it was submitted and
received copies of it after it was filed.
At the time of the
August 20 submission, Ducote, Averett, Jones and Riddle were
aware that Horton was not willing to proceed with the transaction
unless it were financed from a third-party lender.
-11-
18.
intent
The
On October
not
to disapprove
among
letter,
advise
proceed
had
with
not been
notified
that
of
acquisition.
the Notificants
of any of the
As of October
that
only
a notice
Group
or conditions
change...."
the transaction
a third-party
Horton
requested
terms
to the transaction
FRB-Dallas
from
things,
"if the
issued
FRB-Dallas
the proposed
other
FRB-Dallas
parties
12, 1990,
the Horton
if financing
12, 1990,
Group
could
would
be arranged
lender.
The Respondents
Arranged
For DLG Financial
Corporation
To Lend
Funds to Horton for the Acquisition
of Provident Bancorp and
Contemporaneously
for DLG to Sell Mortgage Loans to Provident
Bank at Inflated Prices.
The
19.
not
consummated
party
could
transaction
not
lenders,
on terms
Financial
corporation,
interested
and November
would
1990,
Ducote
learned
bank
acquisition
Horton.
At meetings
at Provident
Bank
La Garza
stated
his
interested
acquisition
loan
stated
he wanted
that
of single
family
to meet
Riddle,
was
to the Horton
Provident
mortgage
third-
and
the
loans
Group.
Bank
DLG
and
Averett,
Ducote
Jones
and at Riddle's
in making
However,
to agree
from his
recently
S. De La Garza,
loans.
for De La Garza
firm
was
numerous
that
unknown
Daniel
arranged
that
Jones
to financing
a previously
its principal,
in making
because
contacted
commit
Bancorp
to Horton.
("DLG"),
and
1990,
Although
instructions,
acceptable
Corporation
of Provident
be arranged.
none
In late November
20.
acquisition
October
acting. on Riddle's
institutional
formed
Group's
during
financing
Averett,
were
Horton
firm.
and
office,
De
an
De La Garza
to purchase
also
pools
-1221.
After the meetings with De La Garza in Dallas, Averett,
with Riddle's approval, assisted Jones in soliciting a loan
commitment from DLG by furnishing proprietary information about
Provident Bank and Provident Bancorp to De La Garza.
In
addition, Averett and Jones met with De La Garza to discuss the
terms of the loan which DLG proposed to the Horton Group.
22.
As a consequence of the prospect of a loan commitment
from DLG, the Horton Group revived negotiations with Riddle and
Averett beginning in early December 1990.
23.
On or about December 4, 1990, De La Garza sent a loan
commitment letter addressed to Horton concerning the proposed
acquisition loan.
In that letter, DLG offered to lend Horton $3
million secured by the rental properties and personally
guaranteed by Horton so that Horton could acquire Provident
Bancorp.
The December 4 loan commitment letter also stated that
a precondition
for making the loan was the purchase by Provident
Bank of approximately $10 million in mortgages from DLG, and a
further agreement by Provident Bank to enter into a "purchase
in/purchase out" agreement with DLG concerning an additional $7.5
million in mortgages.
24.
On or about December 6 or 7, 1990, De La Garza sent
another signed loan commitment letter addressed to Horton,
bearing a date of December 5, 1990.
commitment letter was substantially
The December 5 loan
the same as the December 4
letter, except there was no mention that the purpose of the loan
was to acquire Provident Bancorp.
The December 5 letter also
-13stated
that
Provident
was a condition
amount
Jones
5 letter
that
purchase
any
from
language
from
mortgage
later
contract."
Averett
Subsequent
versions
Horton
deleted
and
Bank
be documented
forwarded
Riddle's
references
DLG was offering
to Horton
on the
be
letter,
as the
to Jones.
letter
loans
between
DLG
to be purchased
7, 1990,
were
loan
in a "separate
commitment
December
the
to tell
DLG should
comments
to mortgage
DLG
in the
reviewed
Averett
commitment
should
of the loan
Jones
from
from
to Horton
the acquisition
of a loan
By approximately
Provident.
that
versions
loans
a loan
instructed
conditioning
by Provident
transaction
making
Riddle
DLG.
of mortgage
Averett,
Riddle,
of mortgages
removed
to DLG's
precedent
of $3 million.
December
purchase
Bank's
the
acceptable
loan
and
by
terms
in principle
to
Horton.
25.
During
the
same
Provident
Bank
set forth
in the December
before
Bank
mortgages
agreed
to purchase
December
would
period,
6, 1990,
mortgage
4 and
that
Provident
and
mortgages,
in/purchase
that
out"
Bank
would
Provident
facility
agreed
$ 8 million
of
with
DLG
DLG
in single
would
enter
of
amounts
letters.
that
another
on behalf
in the
On or
Provident
family
face value.
purchase
Bank
from
commitment
orally
of 99 percent
negotiated
loans
5 loan
Averett
buy approximately
at a price
Averett
He further
$ 2 million
into
for an additional
in
a "purchase
$7.5
million
in mortgages.
26.
On or about
of Provident
Bank,
December
retained
6, 1990,
a consulting
Averett,
firm,
acting
on behalf
Pinnacle
Financial
-14-
Group, Houston, TX,
("Pinnacle"), to review the documentation of
the mortgage loans to be purchased by Provident Bank.
Pinnacle's
review revealed that many of the .loans had imperfect payment
histories, the loan documents were not in standard form, and many
of the loan files were missing documents.
Pinnacle was not asked
to provide an appraisal of the market value of the loan package.
After DLG and Averett agreed on the price, and Pinnacle's due
diligence review was completed, Riddle assigned the legal
work on
the transaction to the law firm of which he was the managing
director, Riddle & Brown, P.C., Dallas, Texas.
27.
DLG did not own the mortgages involved in this purchase
at this time.
FGMC, Inc., a subsidiary of General Homes Corp., a
then bankrupt Houston, Texas homebuilder, owned the mortgages.
In November 1990, FGMC had agreed to sell a larger pool of loans
to Interamericas Investments, Inc. (then known as Holdcon,
Inc.) ("Interamericas") pursuant to a publicized bidding process.
Interamericas' winning bid was 63 percent of face value for the
entire pool.
Interamericas and FGMC, though, did not enter into
a definitive agreement obligating Interamericas to buy the
mortgages until shortly after Averett had orally agreed that
Provident Bank would buy from DLG the bulk of the loans at a
price of 99 percent of face value.
Subsequently,
Interamericas
assigned its rights to purchase the FGMC loans to DLG.
Interamericas was DLG's financial backer and provided office
space to De La Garza.
Interamericas
De La Garza also had represented
in negotiating with FGMC.
-1528.
On December 17, 1990, the directors of Provident Bank
were summoned to a special board meeting.
At that meeting,
Averett sought the board's approval of the transaction in which
Provident would purchase $8 million in mortgages from DLG at a
price of 99 percent of face value, would agree to purchase an
additional $2 million in mortgages by March 31, 1991, and would
agree to a "purchase in/purchase out" arrangement in the amount
of $7.5 million.
The board members were all management employees
of Provident Bank, effectively subordinates of Riddle and
Averett, whom Riddle had designated earlier to oversee the
management of Provident Bank.
The board voted to approve the
agreements Averett had negotiated.
However, Averett did not
disclose to the directors at or before the special meeting
(1) that DLG was also planning to lend funds to Horton so that
the Horton Group could acquire a majority interest in Provident
Bancorp;
(2) that the mortgage transaction with Provident Bank
had been a precondition
to making the acquisition loan; and
(3)
that consummation of the Horton Group's acquisition would
facilitate Ducote's and Riddle's release from their potential
$600,000 guaranty on the Provident Partners Note.
29.
On December 18, 1990, Provident Bank entered into
agreements with DLG, as outlined in Paragraphs 23-25, and 28, and
transferred approximately
approximately
$8 million to DLG.
FGMC transferred
188 single-family mortgage loans to DLG, which
immediately endorsed approximately 131 of the mortgages to
Provident Bank.
In December 1990, the fair market value of the
-16
loan pool purchased by Provident Bank from DLG was between 68
Accordingly, Provident
percent and 83 percent of face value.
Bank overpaid by approximately $1.3 to $2.5 million.
30.
While preparations progressed
for the closing on the
Provident Bank-DLG mortgage loan transaction, Jones negotiated
technical terms of DLG's loan commitment to Horton with De La
Garza and DLG's attorney.
Jones and Averett kept each other
informed of the progress of the negotiations between the Horton
Group and DLG concerning DLG's proposed loan, and between DLG and
Provident regarding the mortgage loan transaction.
On December
19, 1990, Averett wrote to Jones that DLG was in the process of
selling mortgages to Provident Bank and that Provident Bank had
entered into the other agreements with DLG set forth above.
Jones countersigned
that letter, acknowledging
its receipt on
behalf of the Horton Group.
31.
On December 20, 1990, Horton countersigned a loan
commitment letter which DLG had transmitted approximately one
week earlier.
That December 20 letter committed DLG to lending
Horton $3 million for one year at an interest rate of the
Chemical Bank prime rate plus 2 percent.
would be the security for the loan.
The rental properties
The borrower would be a
newly formed limited partnership, DRH Investment Limited
Partnership
("DRH").
Horton was the general partner of DRH and
would also personally guarantee the loan from DLG.
Failure to Notify FRB-Dallas
of the Financing of the Horton
Acquisition
by DLG and the Contemporaneous
Provident
Bank
Mortgage
Loan Purchase
from DLG.
32.
No one notified
Group
FRB-Dallas that the Horton Group was
financing its acquisition with a loan from DLG, or that DLG was
contemporaneously
selling mortgage loans to Provident Bank.
As
set forth in detail below, Riddle, Averett, and Jones consciously
advised that DLG's loan to Horton not be disclosed to FRB-Dallas.
33.
Horton, Jones, other employees of Horton's companies,
and Horton's attorneys met on December 6, 1990 at Horton's
offices.
At that meeting and thereafter prior to closing, one of
Horton's attorneys recommended that the proposed loan commitment
from DLG be disclosed to FRB-Dallas.
Jones, based on advice from
Riddle communicated by Averett, advised Horton not to disclose
the loan to the FRB-Dallas.
Horton followed the advice not to
disclose the DLG loan.
34.
During the week prior to December 21, Horton's outside
law firm also recommended that the FRB-Dallas be informed in
writing of various technical changes in the structure of the
transaction.
Riddle was opposed to Horton's outside law firm
approaching FRB-Dallas about these changes.
Riddle's opposition to the Horton Group.
Averett communicated
Instead, Riddle
arranged a meeting with officials of FRB-Dallas on December 20,
1990, about technical changes in the transaction.
At that
meeting, Riddle represented that the Horton acquisition was a
"cash" transaction, and confirmed that the "liquidating trust"
originally proposed was no longer part of the acquisition.
-18.
Although aware that Horton had been negotiating for financing
from DLG, Riddle did not disclose that DLG would be lending
Horton $3 million for the acquisition.
Nor did Riddle disclose
to FRB-Dallas that DLG had just sold $8 million in mortgages to
Provident Bank, and entered into other agreements concerning the
future purchase of mortgages by Provident Bank from DLG.
35.
Riddle was aware that the Control Act required the
disclosure to the Federal Reserve of the sources of financing for
the change in control of a banking institution.
Riddle also knew
that the source of financing was an important factor in the
evaluation of a Control Act Notice.
Consummation
Bancorp
36.
of the Horton
Group's Acquisition of Provident
On December 21, 1990, a stock purchase agreement was
signed by the Hbrton Group and Provident Bancorp.
The Horton
Group concurrently purchased the Holding Company Note and the
Provident PartnersNote
from NCNB for $2 million.
Under a
separate concurrent agreement with Provident Partners, the Horton
Group agreed to accept the 66,764 shares of Provident Bancorp
stock securing the Provident Partners note in full satisfaction
of the obligation, thereby releasing Provident Partners from
further liability, and releasing Riddle, Ducote, and the two
other partners from any personal liability on the approximately
$600,000 debt outstanding.
37.
On December 31, 1990, there was an additional closing
into escrow under the stock purchase agreement.
Horton paid
-19-
$1
million
to
Provident
On the
stock.
same
Bancorp
day,
DLG
for additional
wired
$1 million
38.
On January
7, 1991,
DLG wired
to Horton
to satisfy
its
commitment
On February
39.
Horton
Group
Bancorp.
and became
Jones
President
was
was
elected
$2 million
dissolved
Bancorp.
resigned
of Provident
to Horton.
of $3 million.
of Provident
and Averett
issued
the additional
the escrow
4, 1991,
control
Riddle
thereafter,
Provident
took
lOan
newly
from
Shortly
the board
chairman
Bank
and the
of
in Riddle's
in April
place
1991.
Mortgage
Loan and Other Transactions
Between Provident
Bank
DLG after the Horton Group Assumed
Control of Provident
To
40.
implement
in connection
Provident
with
Bank
transactions
secured
purchased,
"Warehouse
the face
percent
Line")
amount
of the
42.
from
entered
personally
as conservator
in December
to the Horton
several
1991.
Provident
by condominium
the transactions
Bank
lent
mortgages
DLG
which
personal
Although
approximately
June
$6 million
Group,
of these
and De La Garza's
face amount
1990
additional
In each
negotiated
DLG
of the mortgages,
to purchase
made
with
for DLG.
5, 1991,
On or about
approximately
DLG
into
in March
who was acting
On April
$2 million,
agreed
and DLG
Jones
De La Garza,
recently
the loan
beginning
transactions,
41.
the understandings
and
paid
Provident
approximately
DLG had
guarantee
Bank
(the
60 percent
lent
DLG
of
85
of the mortgages.
26,
several
1991,
Provident
mortgage
from the Resolution
of the failed
Travis
Bank
pools
Trust
Federal
purchased
which
DLG had
Corporation,
Savings
for
& Loan
acting
(the
-2o"Travis po01s~'). The agreement between DLG and Provident Bank
provided that Provident Bank would pay DLG the amount DLG was
required to pay the RTC, and upon any future resales of the
mortgages
in the Travis pools, DLG would receive 50 percent of
the profits.
43.
On or about July 3, 1991, Provident Bank purchased $3
million in mortgage loans from DLG for approximately
Simultaneously,
$2 million.
DLG agreed to repurchase these mortgages on or
before September 1991 for the original $2 million purchase price
(the "DLG Financial Facility Pool").
44.
In addition, Jones provided other services of a
questionable nature to DLG and De La Garza.
Specifically, in
June and July 1991, Jones executed an escrow agreement, signed a
verification of deposit form, and orally verified to an insurance
department examiner that falsely represented that DLG had $5
million on deposit at Provident Bank.
Jones also did not
investigate when DLG engaged in an apparent $5 million check kite
involving Provident Bank and another bank.
In addition, in late
August 1991, Jones facilitated the evasion of regulatory
restrictions on transactions between DLG and an insurance company
by permitting DLG to sell a $5 million pool of mortgages to
Provident Bank, which were then immediately sold to the insurance
company.
-21Refinancing
of the DLG-Horton
Acquisition
Contemporaneous
Mortgage
Loan Transaction
Provident
Bank.
45.
1n approximately
mid-September
Loan and
between DLG
and
1991, Horton decided to
seek refinancing of the loan DRH owed to DLG.
He sought this
refinancing because he no longer wished to encumber the rental
properties while his homebuilding firms were in the process of
preparing for a public stock offering.
In addition, Horton
sought to be released from personal liability on the loan to DLG.
Finally, the loan was due to mature in December 1991, and would
shortly need to be refinanced or paid-off.
On Horton's behalf,
Jones initiated discussions with De La Garza concerning
refinancing the acquisition loan.
At the same time, negotiations
between Jones and De La Garza began concerning several possible
mortgage loan and other transactions between DLG and Provident
Bank.
Jones simultaneously
the acquisition
negotiated both the refinancing of
loan between DLG and the Horton Group, and
various transactions between DLG and Provident Bank involving the
mortgage pools described above.
negotiations,
In the course of those
the terms of the refinancing loan improved for
Horton, while the terms of the transactions with Provident Bank
improved for DLG.
On October 3, 1991, the refinancing was
completed with Horton pledging his majority interest in Provident
Bancorp to secure a new $3 million loan from DLG.
-22VIOLATIONS OF LAW AWLI REGULATION
[Deleted], Jones, and [Deleted] violated the Change-inBank Control Act, 12 U.S.C. § 1817(j), and Implementing
Regulations
of Regulation
Y, 12 C.F.R. 5 225.43(a) (1)
46.
The Control Act, 12 U.S.C. § 1817(j) (1) and
Regulation Y, 12 C.F.R. § 225.41(a) (l), prohibit any person,
acting directly or indirectly or through or in concert with one
or more persons, from acquiring control of a bank holding company
without giving the Federal Reserve sixty days prior notice.
Notice to the Federal Reserve requires, among other items,
information disclosing,
(([tlhe identity, source and amount of
funds or other consideration used or to be used in making the
acquisition, and, if any part of these funds or other
consideration has been or is to be borrowed or otherwise obtained
for the purpose of making the acquisition, a description of the
transaction, the names of the parties, and any arrangements,
agreements, or understandings
with such persons.
12 U.S.C.
5 1817(j) (6) (D); 12 C.F.R. § 225.43(a) (1).
47.
The responses to the FRB-Dallas' August 1 letter filed
by Ducote on behalf of the Horton Group on August 10 and August
20, 1990, violated the Control Act in that they did not
accurately state that Horton would not proceed with the
acquisition unless he had secured third-party financing before
closing.
48.
The Control Act was also violated by Horton's failure
to disclose to the FRB-Dallas that DLG was financing the Horton
Group's acquisition, and that Provident Bank engaged in mortgage
-23transactions with DLG related to DLG's acquisition loan to
Horton.
49.
.[DELETEDl
50.
[DELETED]
51.
AS alleged above, Jones aided and abetted the
violations of the Control Act, 12 U.S.C. § 1817(j) and Regulation
Y, 12 C.F.R. 5 225.43(a) (1).
52.
[DELETED]
REQUESTED RELIEF
Cease and Desist
Actions
53.
[DELETED]
54.
[DELETED]
Civil Money Penalty
55.
Assessment Actions
Sections 7(j) (16) (C) and 8(i) (2) (B) of the FDI Act (12
U.S.C. §§ 1817(j) (16) (C) & 1818(i) (2) (B)) authorize the
assessment of civil money penalties.
56.
[DELETE~~]
57.
[DELETED]
58.
[DELETED]
59.
[DELETED]
60.
Jones committed violations of the Control Act,
12 u.s.c
§ 1817(j) and Regulation Y, 12 C.F.R. 5 225.43(a) (11,
and such violations were part of a pattern of misconduct, caused
more than a minimal loss to Provident Bancorp or Provident Bank,
or resulted in pecuniary gain or other benefit to Jones.
-2461.
After taking into account the size of Jones's financial
his good faith, the gravity of the violations, the
Tt?SOLXCeS,
history of previous violations,
and such other matters as justice
may require, the Board of Governors hereby assesses a civil money
penalty of $50,000 against Jones for the violations of law set
forth in this Notice.
Jones shall forfeit and pay the penalty as
hereinafter provided.
62.
[DELETEDI
[DELETED]
63.
64.
The penalties set forth in Paragraphs 57, 59, and 61,
and 63 hereof, are assessed by the Board of Governors pursuant to
section 8(i) of the FDI Act
(12 U.S.C. 5 1818(i)), and Subparts A
and B of the Board of Governors' Rules of Practice.
Remittance
of the penalties set forth herein shall be made within 30 days of
the date of this Notice, in immediately available funds, payable
to the order of the Secretary of the Board of Governors,
Washington,
DC 205'51, who shall make remittance of the same to
the Treasury of the United States.
65.
Notice is hereby given, pursuant to section 8(i) (2) of
the FDI Act and section 263.19 of the Board of Governor's Rules
of Practice, that [DELETED], Jones and [DELETED] are afforded an
opportunity
for a formal hearing before the Board of Governors
concerning this assessment.
As required by section 263.19(a) of
the Rules of Practice, a request for such a hearing must be filed
with OFIA within 20 days after the issuance and service of this
Notice.
Pursuant to section 263.11(a) of the Rules of Practice,
-25any request for a hearing filed with OFIA shall be served on the
Secretary of the Board of Governors.
A hearing, if requested,
will be public unless the Board of Governors shall determine that
a public hearing would be contrary to the public interest, and in
all other respects will be conducted in compliance with the
provisions of the FDI Act and the Board of Governor's Rules of
Practice before an administrative
law judge.
The hearing
described above may, in the discretion of the Board of Governors,
be combined with any other hearing to be held on the matters set
forth in this Notice, including those concerning the issuance of
a cease and desist order.
66.
1n the event that any respondent shall fail to request
a hearing within the aforementioned
20-day period, that
respondent shall be deemed, pursuant to section 263.19(c)(2) of
the Board's Rules of Practice
(12 C.F.R. § 263.19(c) (2)), to have
waived the right to a formal hearing, and this Notice shall,
pursuant to section S(i) (2) of the FDI Act, constitute a final an
unappealable assessment order against, and may be referred for
collection to the United States Department of Justice.
Procedures
Generally
67. Except as set forth in Paragraph
Jones and
68, hereof,
[DELETED],
[DELETED] are hereby directed to file with OFIA,
Washington, DC 20552, an answer to this Notice within 20 days of
service of this Notice, as provided in section 263.19(a) of the
Rules of Practice
(12 C.F.R. 5 263.19(a)).
263.11(a) of the Rules of Practice
Pursuant to section
(12 C.F.R. § 263.19(a)), any
-26
answer filed with OFIA shall be served on the Secretary of the
Board.
AS provided in the Board's Rules of Practice
§ 263.19(c)),
(12 C.F.R.
the failure to file answers as required by this
Notice within the time provided herein shall constitute a waiver
of that respondent's
rights to appear and contest the allegations
of this Notice, and authorization for the presiding officer, upon
motion of the Board of Governors, and without further
proceedings, to find the facts to be as alleged in this Notice
and to file with the Secretary of the Board of Governors a
recommended decision containing such findings and appropriate
conclusions.
Any final order issued by the Board based upon a
failure to answer is deemed to be an order issued by consent.
It is further ORDERED, pursuant to Rule 263.20(a) of the Board's
Rules of Practice, 12 C.F.R. 263.20(a). for good cause, that no
-27
amended
answer
may be filed
as a result
amended
Notice
of Assessment
of Civil
68.
days
[DELETED],
after
Secretary
the
issuance
why
failure
to submit
will
service
of this
Penalties.
may
submit,
of this Notice,
written
within
to the
statements
detailing
described
should
not be public.
a statement
within
the aforesaid
a waiver
of any
interest
they may
20
have
The
period
to a
hearing.
Authority
69.
Board
such
Money
[DELETED]
of Governors,
the hearings
be deemed
private
and
of the Board
reasons
and
Jones,
of the issuance
of Governors
officer
for any
to take
any
authorized
delegated
to designate
hearing
that
and all actions
to take
this
Notice
time
as a presiding
Dated
is hereby
under
may
time
and place
be conducted
that
of Practice
to be conducted
officer
shall
DC,
this
Notice
officer
with
hereon
thiszsay
of April,
and
would
respect
until
be
to
such
be designated.
8th day of December,
3
amended,
of the
and presiding
on this
the presiding
the Rules
and any hearing
at Washington,
the
to the Secretary
1997
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
By:
William W. Wiles
Secretary
of the Board
1995,
a~