# Appendix — Hudson v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0045%3A03 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1997 - **Citation:** 522 U.S. 93 ## Text 5) 96 976 DEC 17 19%, \¢ No. fe In THE Supreme Court of the United States OCTOBER TERM, 1996 JOHN Hupson, LARRY BARESEL, and JACK BUTLER RACKLEY, - Petitioners, UNITED STATES OF AMERICA, Respondent. Petition for a Writ of Certiorari to the United States Court of Appeals for the Tenth Circuit APPENDIX TO PETITION FOR A WRIT OF CERTIORARI C. MERLE GILE JACK L. NEVILLE, JR. 2200 N. Classen Boulevard BERNARD J. ROTHBAUM * 2000 Citizen’s Tower LINN & NEVILLE, P.C. Oklahoma City, OK 73106 1200 Bank of Oklahoma Plaza JAMEs A. ROLFE 201 Robert S. Kerr Avenue Dallas, TX 75201 (405) 239-6781 LYNN PRINGLE Counsel for Petitioners PRINGLE & PRINGLE 4101 N. Classen Boulevard ° Oklahoma City, OK 73118 *Counsel of Record December 17, 1996 WILSON - Eres Printing Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001 Jv \ A. APPENDIX TABLE OF CONTENTS Opinion of the United States Court of Appeals for the Tenth Circuit, Filed August 8, 1996 .................. Opinion of the United States District Court for the Western District of Oklahoma, Filed December 16, 1994 Order of the United States District Court for the Western District of Oklahoma Staying Proceedings Pending Disposition of Petition for Writ of Cer- tiorari, Filed November 5, 1996 ............................... Order of the United States Court of Appeals for the Tenth Circuit Denying Rehearing, Entered NE TR, HD cescceiincisrntnicicictbhideadistnincmnhentdisiens Transcript of Proceedings had on April 7, 1994 in the United States District Court for the Western District of Oklahoma SEAMS SO an Opinion of the United States Court of Appeals for the Tenth Circuit, Filed January 24, 1994 ............. Order of the United States District Court for the Western District of Oklahoma, Filed March 25, I pacitaeceptietnitineeecteeettnaniensinidntnateciinimatandseatenvicamacnes Notice of Assessment of a Civil Money Penalty Di- rected to John Hudson, Jack B. Rackley and Larry Baresel Dated February 13, 1989 Notice of Intention to Prohibit Further Participa- tion Directed to John Hudson, Dated August 31, RE RERTGT dpi eRATT cR TAL ERR Tieden loa ee aN Notice of Intention to Prohibit Further Participa- tion Directed to Larry Baresel, Dated August 31, REPRE, Es a SUE NO TN ECO, SAN Page la 15a 18a 69a 89a 109a APPENDIX TABLE OF CONTENTS—Continued L. Stipulation and Consent Order Signed by John Hudson on October 26, 1989 M. Stipulation and Consent Order Signed by Jack Rackley on October 25, 1989 N. Stipulation and Consent Order Signed by Larry Baresel on October 24, 1989 O. Relevant Provisions of the United States Code la APPENDIX A UNITED STATES COURT OF APPEALS TENTH CIRCUIT No. 95-6030 UNITED STATES OF AMERICA, Plaintiff-A ppellant, v. JouNn HupSON; LARRY BARESEL; JACK B. RACKLEY, Defendants-A ppellees. Aug. 8, 1996 Before TACHA, LOGAN and REAVLEY,* Circuit Judges. REAVLEY, Circuit Judge. The United States appeals the dismissal on double jeopardy grounds of its criminal indictment against John Hudson, Larry Baresel, and Jack B. Rackley (“defend- ants” or “appellees”). Prior to being indicted the defend- ants had been fined by the Office of the Comptroller of the Currency (“OCC”). The defendants moved to dismiss the indictment for violating the “multiple punishments” prong of the Double Jeopardy Clause.’ The district court granted * The Honorable Thomas M. Reaviey, United States Court of Appeals, Fifth Circuit, sitting by designation. 1 The Double Jeopardy Clause of the Fifth Amendment provides: “(Nor shall any 2a the motion, concluding that the OCC fines were punish- ment for the same offenses charged in the indictment. Be- cause we find that the fines were not punitive, we reverse and remand for further proceedings. PROCEDURAL HISTORY In 1989, the OCC issued civil penalties against the appellees for alleged banking violations.” The OCC main- tained that the violations caused approximately $900,000 in losses to the Federal Deposit Insurance Corporation, and ordered Hudson to pay $100,000 and Rackley and Baresel to pay $50,000 each. The OCC also issued orders (“prohibition orders”) which in essence sought to prohibit appellees from all banking activities. As a resut of the then pending administrative actions against them, the appellees and the OCC entered into agreements (“consent orders”) in which Hudson consented to pay $16,600 and Rackley and Baresel consented to pay $15,000 each. The appellees also agreed not to participate in most, if not all, banking activities without prior authori- zation from the government. In addition, each consent order contained a provision (“waiver provision”) stating that nothing in the consent order constituted a waiver of any right the government had to bring other actions against the appellee. Hudson’s and Baresel’s consent orders each contained a provision stating that the order “does not constitute an admission” by either “to any of the charges contained” in the OCC’s notices. After the government indicted the defendants for the same transactions upon which the OCC sanctions were fense after acquittal; (2) a second prosecution for the same offense after conviction; and (3) the imposition of multiple punishments for the same offense. United States v. Halper, 490 U.S. 435, 440, 109 S.Ct. 1892, 1897, 104 L.Ed.2d 487 (1989). 2 The civil penalties were imposed pursuant to 12 U.S.C. $§ 93 (b) and 604 for alleged violations of 12 U.S.C. §§ 84 and 375b, and of 12 C.F.R. §§ 31.2(b) and 215.4(b). f proceedings. See United States v. Hudson, 14 F.3d 536 (10th Cir 1994) (“Hudson I’). Hudson I first determined that the waiver provision did not constitute a waiver of the defendants’ double }j rights. Id. at 539. The court then affirmed that the pro- | ANALYSIS The only issue we need to address on this appeal is whether the district court erred in determining that the monetary sanctions were not solely remedial. We review * Because we reverse the case on this issue, we do not address whether the monetary sanctions were imposed for offenses charged in the indictment. alee 4a the district court’s determination for abuse of discretion. United States v. Halper, 490 U.S. 435, 450, 109 S.Ct. 1892, 1902, 104 L.Ed.2d 487 (1989); United States v. Bizzell, 921 F.2d 263, 267 (10th Cir.1990). Hudson I acknowledged that the case is controlled by Halper, which considered when a civil sanction may be considered punishment for double jeopardy purposes.* Un- der the objective test outlined in Halper, a particular sanc- tion is not punishment when it bears a rational relation to the goal of compensating the government for its loss. Hal- per, 490 U.S. at 449-51, 109 S.Ct. at 1902-03 The de- brought a civil action under the False Claims civil penalties of over $130,000, based on vision for a civil penalty of $2000 per false mitted. The Court held that the fine was grossly portionate to the damage caused, and ishment. The Court emphasized that its ruling for the rare case,” id. at 449, 109 S.Ct. at 1902, civil penalty is “exponentially greater than the amount the fraud,” id. at 445, 109 S.Ct. at 1900, and is treme and so divorced from the Government’s damages, id. at 442, 109 S.Ct. at 1898, that it could only be char- acterized as punishment under the Double Jeopardy Clause. In the case at bar there was no gross disproportionalitv between the total fines imposed, $44,000, and the proven damages to the government, $72,000. *The recent Supreme Court case of United States v. Ursery, — US. ——, 116 S.Ct. 2135, 185 L.Ed.2d 549 (1996), reaffirms that Halper controls the case at bar. In Ursery, the Supreme Court F egeee! Heat jeopardy purposes. Id. at ——. 116 S.Ct. at 2141-44. Because the case at bar involves civil fines and sanctions. Halper controls. Sa In United States v. Bizzell, 921 F.2d 263 (10th Cir. 1990), we held that a fine is not punishment unless it is overwhelmingly di to the government’s dam- ages. Id, at 267. In Bizzell, the Department of Housing and Urban Development (“HUD”) filed administrative complaints against Charles and John Bizzell. The Bizzells entered into settlement agreements with HUD. Both agree- ments prohibited the Bizzells from participating in HUD programs for a short period,’ and John Bizzell agreed to pay a $30,000 sanction. When the government subse- was a punishment because it bore no relation to a remedial goal. Id. at 265. This court agreed that the prohibitions The Bizzell court read Halper to state that “a civil remedy enacted by the government does not rise to the level of proscribed ‘punishment unless ‘in a particular case a civil penalty . . . may be so extreme and so divorced from the Government’s damages and expenses as to con- stitute punishment.’” Jd. (quoting Halper, 490 U.S. at 442, 109 S.Ct. at 1898); see also Burke v. Board of Gov. penses as to constitute punishment.’” (quoting Halper, 490 U.S. at 442, 109 S.Ct. at 1898)), cert. denied 504 U.S. 916, 112 S.Ct. 1957, 118 L.Ed.2d 559 (1992). In Bizzell we noted that under Halper the question is “whether the civil remedies can be fairly described as remedial,” Jd. at 267, * John Bizzell was excluded for two years conditioned upon the payment of his fine and Charles for 18 months. /d. at 26h If subjective intent of the administrative agency were f : d ; : : ' the Halper test “constitutes an objective rule grounded in the nature of the sanction and the the particular case. It does not authorize courts to under- take a broad inquiry into the subjective purposes that ma be thought to lie behind a given judicial proceeding.” Halper, 490 U.S. at 453, 109 S.Ct. at 1904 (Kennedy, J., concurring); cf. Hicks v. Feiock, 485 U.S. 624, 635, 108 S.Ct. 1423, 1431, 99 L.Ed.2d 721 (1988). Cases in two other circuits are closely on point. In the type of insidious conduct described in this case.” Id. at 841 (quoting United States v. Furlett, 781 F.Supp. Ta 536, 538 oe (quoting the ALJ opinion) ). In they were not y disproportionate to the gov- ernment’s costs incurred in pursuing the traders. Furlert, 974 F.2d at 842. On appeal, the traders argued that the district court erred in upholding the ALJ's sanctions because the ALJ 4 . & : z g : The court held that the fines were remedial largely because they were not disproportionate to the damages caused to the government. /d. at 843. In United States v. WRW Corp., 986 F.2d 138 (6th Cir.1993), WRW corporation was assessed civil penalties of $90,350 for violations of safety standards under the these same violations, and they served prison sentences and paid criminal fines. After the United States brought an action to collect the civil fines that had been assessed against the corporation, the defendants moved to dismiss on double jeopardy grounds. Relying on Halper, they argued that the imposition of civil penalties promoted the aims of retribution and deterence, given the various factors * Federal Mine Safety and Health Act of 1977, §§ 2 et seq., 110(a), (d), 80 U.S.C. §§ 801 et seq., 820(a), (d). used to determine the amount of the civil penalty." The court stated that these factors may as readily be ascribed to remedial as to punitive purposes, id. at 141-42, and emphasized that “the fact that the Government’s expenses may not have been considered when assessing the amount of the penalty does not alter the objective conclusion by the trial court that the penalty assessed is rationally related to the goal of making the Government whole.” Id. at 142 (citing Furlett, 974 F.2d at 843-44). The court then held that the fines were rationally related to the goal of making the government whole in large part because the civil fines were not excessive in relation to the United States’ ex- penses incurred in the investigation and prosecution of the defendants’ violations. /d. at 142. CONCLUSION Under Bizzell and Halper, we hold that it was an abuse of discretion for the district court to rule that the monetary sanctions were not solely remedial. The sanctions were rationally related to the government’s damages. We there- fore reverse the order granting the defendant’s motion to dismiss and remand for further proceedings. REVERSED AND REMANDED. ™ These factors included: the operator’s history of previous vio- lations, the size of the penalty versus size of the operator’s business, whether the operator was negligent, the effect of the penalty on the operator’s ability to remain in business, and the good faith of the operator to achieve rapid after notification of a viola- tion. Jd. at 141, n. 1 (citing 80 U.S.C. § 820(i)). 9a APPENDIX B UNITED STATES DISTRICT COURT W.D. OKLAHOMA No. CR-92-152-T UNITED STATES OF AMERICA, ¥ Plaintiff, JOHN Hupson, LARRY BARESEL, and JACK BUTLER RACKLEY, Defendants. Dec. 16, 1994 ORDER RALPH G. THOMPSON, District Judge. Before the court is the motion of defendants John Hud- son, Larry Baresel and Jack Butler Rackley to dismiss the August 1992 indictment for criminal law violations of 18 U.S.C. §§ 2, 271, 656 and 1005. Defendants were alleged to have violated those statutes by mismanagement and illegal operation of several banks. These violations were based on the same lending transactions which were the subject of prior administrative sanctions imposed against defendants by the Office of the Comptroller of the Currency (“OCC”). The OCC action culminated in the execution by defendants of a Stipulation and Consent Order (“Con- sent Order”), which, inter alia, prohibited defendants from future participation in banking activities and imposed monetary fines for alleged federal law violations. Defendants moved to dismiss the indictment on the grounds that it constitutes punishment for the same con- a — A 10a duct which was the subject of the Consent Order and there violated the double jeopardy clause. This court de- nied that motion, finding that the Consent Order contained a knowing and voluntary waiver of the defendants’ double jeopardy claim. The court further found that, in any event, the sanction prohibiting participation in banking activities and the fines were not punitive measures encom- passed by the double jeopardy clause. Defendants appealed that decision to the Tenth Circuit Court of Appeals, which affirmed in part and reversed and remanded for further action. United States v. Hudson, 14 F.3d 536 (10th Cir.1994). The Tenth Circuit reversed the determination that the Consent Order included a waiver, but affirmed the decision that the prohibition against future participation in banking activities was not punitive. 14 F.3d at 539, 541. The Tenth Circuit re- versed the decision that monetary sanctions were not puni- tive and, remanded the action for further consideration of the effect of the monetary fines. Id. at 542-43. The court has held an evidentiary hearing and the parties have sub- mitted additional brief on the issues presented. The ques- tion before the court on remand is whether the Consent Order monetary sanctions and the indictment address the same conduct by defendants and, if so, whether the mone- tary sanctions imposed by the OCC are remedial or puni- tive. Double jeopardy rights arise where an individual is punished twice for the same conduct or offense. The test to be applied to determine whether there are two offenses or only one is whether each provision “requires proof of an additional fact which the other does not.” Burke v. Board, 940 F.2d 1360, 1367 (10th Cir.1991), citing Blockburger v. United States, 284 U.S. 299, 304, 52 S.Ct. 180, 182, 76 L.Ed. 306 (1932). If the same offense results in criminal punishment and civil money penalties, lla multiple punishments exist for purposes of double jeopardy where “a civil penalty [is] so extreme and so divorced from the government’s damages and expenses as to constitute punishment.” Burke, 940 F.2d at 1367, citing United States v. Halper, 490 U.S. 435, 442, 109 S.Ct. 1892, 1898, 104 L.Ed.2d 487 (1989). The OCC charged defendants with participating in a plan to have banks with which they were associated make nominee loans to nominal borrowers in a manner which allowed defendants to receive the benefit of the loans. The OCC asserted that this resulted in violations of the statu- tory restrictions regarding lending limits, those concerning loans to officers, directors or other controlling persons of banks, and the statutes requiring accurate recordation of loans on the books of national banks. The monetary sanctions were imposed by the OCC pursuant to the au- thority granted by 12 U.S.C. § 93(b) and 504, as well as 12 U.S.C. §§ 84 and 375a and 375b. In the indictment at issue, defendants are charged with, inter alia, violations of 18 U.S.C. § 656, which prohibits misapplication of bank funds. The government concedes that the violations which were the subject of the Consent Order and those charged in the indictment, are based on the same loan transactions. However, the government argues that different statutes are involved and, accordingly, different offenses are at issue for double jeopardy purposes. Defendants argue that, if the OCC proved the allegations which were the subject of a Consent Order, that same proof would also establish a violation of 18 U.S.C. § 656, the statute charged in the indictment. A review of the evidence establishes that, for double jeopardy purposes, the Consent Order and the indictment involve the same conduct. As defendants correctly note, a violation of the statutes under which the OCC proceeded in the Consent Order necessarily encompasses a violation of 18 U.S.C. § 656. United States v. Twiford, 600 F.2d 1339, 1343-44 (10th Cir.1979). See also United States v. oS ae 12a Davis, 953 F.2d 1482, 1492 (10th Cir.1992). The broad range of conduct prohibited by 12 U.S.C. § 93(b) and § 504 necessarily encompasses the conduct which is the subject of 18 U.S.C. § 656. Furthermore, the same loan transactions are the subject of both the indictment and the Consent Order. As a result, this case is distinguishable from Burke, where the court determined double jeopardy was not violated because a cease and desist order ad- dressed conduct occurring at a time different from that at issue in the challenged indictment. 940 F.2d at 1367. Because the same conduct is addressed in the indictment and the Consent Order, the court must next determine whether the punishment imposed under the civil penalty is sufficient to invoke double jeopardy protection against the subsequent indictment. Double jeopardy does not apply where the civil penalty at issue is solely remedial, but applies if that penalty is also partially designed to punish. Austin v. United States, —— US. 113 S.Ct. 2801, 2802, 125 L.Ed.2d 488 (1993); Hudson, 14 F.2d at 540. It is not sufficient to show only that the statute authorizing the saixore® 23a Q. How long have you been practicing law? A. Approximately eleven years. Q. The division within the O.C.C. that you are a part of, again, is what? A. The enforcement/compliance division. Q. And what are the duties of the enforcement and compliance division? A. Our primary duties are to ensure that banks are operated in a safe and sound manner, and compliance with law. Q. And the O.C.C. is the agency, isn’t it, that super- vises national banks? A. We are the primary regulator of national banks. Q. What position do you hold within the enforcement and compliance divisions? A. As I mentioned, I am the assistant director. Q. And how long have you been assistant director? A. For almost five years. Q. And does your position as assistant director give you an [7] understanding and some input of what the O.C.C.’s policies are concerning the enforcement of bank- ing regulations? A. Very much so. In the enforcement area, part of my job is to help draft policies on enforcement-related matters. Q. And does your position as assistant director also give you familiarity with the regulations and the laws that banks must adhere to? A. Yes. Q. Are you familiar with the O.C.C. civil money penalties assessed against Mr. Hudson, Baresel, and Mr. Rackley? A. Yes, lam. Q. How is it that the—the acts that led to these civil money penalties came to your attention? A. In 1988, I was the staff attorney for the O.C.C who was assigned to review and investigate these matters. Q. And who was that? A. No, I was the staff attorney. Q. What recommendation did you make? A. My initial recommendation was to commence a formal investigati Q. And were you the attorney who was in charge of the formal investigation? A. Iwas in charge. Yes. Q. Does a person have to hold a certain office, either in a bank or a bank holding company, before they are subject to O.C.C. jurisdiction, as it were? A. Yes. The statute has changed since 1988, but at the time, the individual had to be an officer or director or a person participating in the affairs of the institution. Q. And did Messrs. Hudson, Baresel, and Rackley all fit within that description? A. Yes, there did. Q. What happened as this normal investigation com- menced? A. The investigation was commenced to discover addi- tional facts concerning the transactions that had been referred to us, and in order to develop the factual record, we took a series of depositions, primarily in Oklahoma City, of the people—the people who were the principals of the transaction as well as a number of the borrowers. The investigation lasted approximately 100 days. [9] At the conclusion of the investigation, I presented my findings to the O.C.C.’s supervision review committee, which is a charging body within the agency composed og ae ; 8 ge 2 oTTELLTFE LE 2 spain : tera wits - Hid Bau ri ad ELE 26a Tipton or Hammon during the time Mr. Hudson was the principal shareholder? A. Yes, I was. Q. What—tell us about the history of the violations that led up to the findings that you made. A. The bank had been—or the bank had been cited for insider violations at the previous exam, both at Tipton and at Hammon. These were exams that were conducted in 1986. In addition, both institutions were operating under a formal agreement. This is an enforceable document that are put on banks that are in a troubled condition. It is designed to force the banks to correct their policies and procedures and {11] take corrective actions so that they operate in a safe and sound manner in compliance with the law. Q. How seriously does the O.C.C. construe the exist- ence of a formal agreement? A. It’s very serious. In terms of the—if you could look at it in terms of the hierarchy or enforcement actions, the O.C.C. will take actions ranging from informal ac- tions, which could be just morally suasion, asking the bank to pass a board resolution, or enter into a non- enforceable document, like a memorandum of understand- ing or a commitment letter. The most serious sanction in that hierarchy would be a cease and desist order. The second most serious action would be a formal written agreement. Q. Did the O.C.C. make attempts at some of these lesser remedies, such as the memorandums of understand- ing or the commitment letters? A. No, I believe that the—I believe that the first enforcement action that was taken against the institutions was a formal agreement in both cases. The reason for that being that, by the time the banks had been examined in 1986, their conditions had deteriorated to the point where we felt that we would best be able to address the problems through a more formal document. 27a And. eo. all were. the, parties to the formal agree- A. The board of directors of both banks and a repre- sentative [12] of the comptroller. Q. Did the bann, in that formal agreement, agree to ‘ per vision review committee, may have been called “enforce- ment review committee” at that time, and they agreed with my recommendations. So notices of intent to remove and subsequent notices, penalty assessments notices were drafted and served on _ Q. Is the decision then to assess civil money penal- ties and the decision to seek removal then is not made by any one particular person; is that correct? A. Oh, no, no, no. It’s made by the supervision re- view committee who—who acts as a advisory body for the senior deputy controller of the banks division. Q. How many people sit on that committee? A. I believe there are six. _Q. Prior to the—the issuances of these notice to assess civil money penalties and intent to remove these three defendants from banking, did the O.C.C. cause what is known as [13] 15-day letters to be sent to each of these gentlemen? ¢ ene . could ex to J Thom wi a 15-day is. coins as Pa ee A. By statute, before we assess a civil money penalty, the agency is supposed to consider certain statutory fac- tors. They cover things like the gravity of the violation, the history of . ‘olations, the fi ‘al 28a of the individual, and other factors that justice may re- ton and two concerning Hammon, each with respect to a different date of a report of supervisory activity; is that correct? A. Yeah. The first one concerns the report of super- visory activity from September 30th of 1986, the second one is from the report of May 31st, 1987, and the third from September 30th, 1986, and the final one was from May 31st of 1987. [14] Q. Would you please turn to Exhibit Number 5. This is the response that Mr. Hudson provided to the 0.C.C.? A. Yes. Q. And this is in response to the 15-day letter; cor- rect? A. Yes, it is. Q. And at the very end of this exhibit there is a fairly detailed financial statement from Mr. Hudson. Do you A. Yes, it was. Q. Why was the O.C.C. concerned with what Mr. Hudson’s financial condition was? A. Well, as I—as I mentioned, the statute requires us to consider the financial capabilities of the individual when . Would you please pay—turn, excuse me, to 12 of this notice, in the second full paragraph, where 1t says “take notice.” Do you see that paragraph? It mentions that the respondents, that being the three defendants here,—correct? . A. Yes. Q. —could have a hearing, if they wanted to, before the comptroller? A. Yes. Q. Did they elect to have a hearing or not? A. I-—I don’t specifically recall them filing a request Q. And by signing this, did Mr. Hudson agree that he had committed the violations that the O.C.C. said that he had [16] committed? A. No, he did not. 30a Q. Does this also waive any further rights to have— whether or not he had committed these acts—litigated before an administrative law judge? A. Yeah. He—he waived any ability to challenge the validity of the order. Q. Did the O.C.C.’s inquiry then into Mr. Hudson with respect to these transactions cease when this stipula- tion and consent order was signed? A. Yes. Q. Would you please turn to Exhibits Number 8 and 9. Are these the 15-day letters that were served on Mr. Baresel? A. Yeah. The first one, again, is from September 30th, 1986 examination, and the second is from the— UHM—the second one also appears to be from the same examinations. Q. But they were two different banks; correct? A. Yes, The first one was First National Bank of Tipton, and the second was First National Bank of Q. And was that requested by the O.C.C. for the same reason it was requested of Mr. Fudson? A. It was. Q. Would you please turn to exhibit number 12. Is this the stipulation and consent order that terminated the O.C.C.’s proceedings against Mr. Baresel? A. Yes. Q. In signing this, did Mr. Baresel admit that he had done the acts that the O.C.C. said that he had? A. No, he did. law judge? A. Yes, he did. Q. So did the execution of this document also termi- nate O.C.C. proceedings with respect to Mr. Baresel? A. It did. Q. Would you please turn now to government ex- hibits number 13 and 14. Are these the two 15-day letters that were sent to Mr. Rackley? A. Yes, they are Q. And did Mr. Rackley also submit two responses, one for each bank, as indicated in government exhibits 15 and 16? [18] A. He did. - . Rae A a a be ee el a 32a Q. And do you know the reason for that? A. Yeah. The primary reason was they had no money. Judging [19] from the representation that each of them had made about their financial condition, they did not appear to have the financial means to pay the penalties as assessed in the notice. There's another reason, as well, which is that the agency will frequently settle cases, as we did here, because it gets the matter behind us. If we had to choose to hold out and litigate it, it could have been, you know, a year or two down the road before we would finally get a resolution of caused or more reflective of their financial condition the time? A. It’s really a mixture of the two. In this case, mean, their financial conditions were so poor that we—we really couldn't assess a penalty that we thought was propor- Q. If you would, please look at the other set of ex- hibits, [20] the defendants’ exhivits that are on the table next to you, at exihibit number 5, the affidavit of Susie Pritchett. A. Okay. Q. Would you please turn to page 4 at paragraph E. A. Okay. wh mens de tty deterred ego Laramore versus the Comptroller of the Currency, which held that we did not have the authority to use our cease and desist powers that way. We followed that decision and, therefore, we did not feel that we [21] had the legal authority to order restitution at the time. Q. Would assessment then of a civil money penalty be the only way that the—the O.C.C., by itself, could have obtained any kind of enforceable money judgment, pen- alty, whatever, against these three defendants? A. Yes. sa ee Ot ae 1 A. Okay. Q. Okay. Could you explain what this letter is? A. Yeah. This is a letter that I wrote to you which addresses a number of things. The—the first part of it, under number 1, is an esti- mated cost of the investigation and administrative actions that the O.C.C. incurred. 34a Q. And you have there costs associated with your work, that of Rosmary Cole, attorney, and Adam Bioloski, and Larry Burch, the examiner; correct? A. Yes. Q. In addition to these persons, were there others who also worked on the investigations into Messrs. Hudson, Baresel and Rackley? A. Yes. Larry—Larry Burch was the examiner in charge of the examination. He had a crew with him when he did the exam. I wouldn’t know how many people were on the crew, but it’s fair to say that he—he didn’t do it by himself. [22] There’s also, obviously, clerical support at all levels, at the duty-station level, the district office, the Washington office, there were funds paid to the administrative law judge who heard the case, there were other—other ex- penses, as well. Q. And would other people, such as Elizabeth Cory, to whom the 15-day letter responses are directed, who also worked on this investigation? A. Yeah, Elizabeth was the—Elizabeth Cory was the initial reviewing attorney in the Dallas district office, and she—she did work on it at that level. Q. Would you please turn to exhibit number 20, gov- ernment’s exhibit, and explain what this document is. A. This is the Federal Financial Institution’s examina- tion council. It’s their policy on the assessment of civil money penalties. Q. And this one was in effect as of what day? A. This became effective on July 23rd, 1980. Q. And would you turn to exhibit number 21 and explain what this is. A. This is an excerpt from the O.C.C.’s policies and procedural—procedures manual. It is—is the O.C.C. civil money penalty policy that was in effect at—as of January 28th, 1988. a ’ 35a Q. And is this the one that was in effect at the time the [23] stipulation and consent orders were entered into by these three defendants? A. Yes. Q. Do you see the paragraph on Exhibit Number 21 headed “Purpose” on the first page? A. Yes. Q. Would you read the sentence that’s there in the second paragraph that begins “these policies”? A. It states: “These policies are internal guidelines for the use of the O.C.C. and do not create any substantive or procedural rights enforceable at law or in any administra- tive hearing.” Q. Are the powers that the O.C.C. has granted to it by Congress? Q. And Exhibit Number 22: Could you explain what this is. A. This is a later version of the same policy. Q. That's dated—when did this one go into effect? A. April 8th, 1991. Q. And Exhibit Number 23: What is that? A. Yet another version of it. This is the most recent one. It was issued on June 16th, 1993. Q. During this period of time, had Congress changed the law with respect to what powers the O.C.C. had? Is that why there are changes in this policy statement? [24] A. Yeah. The—the reason we changed the 1988 one and issued the 1991 policy was because of the enact- ment of F.I.R.R.E.A., which I mentioned earlier. Prior to F.LR.R.E.A., the O.C.C.’s authority was that we could assess civil money penalties of a thousand dollars a day. After F.L.R.R.E.A., there was a three-tiered struc- ture that was put in place that was a substantive change in the law, and we felt that in order to have our policy conform to the new law, we needed to revise the policies. That’s why we did it. 36a The penalties against Mr. Hudson, Mr. Rackley and Mr. Baresel were under the pre-F.I.R.R.E.A. law. _Q. So the appropriate policy again would have been Exhibit Number 21, January 28th, 1988? A. Yes. Q. What is it that the O.C.C. was trying to accomplish in assessing civil money penalties and the removal actions against Messrs. Hudson, Baresel and Rackley? A. The purpose of civil money penalties is to deter future violations of law or encourage the correction of existing violations, and that’s what we were hoping to accomplish. The purpose of the removal action is to prevent the person from working in the banking industry again so that they cannot engage in additional violations or inside practices. Q. Do you know what the amount of losses due to loans that are mentioned in the 15-day letters were at Hammon and Tipton? [25] A. Yeah. In both cases, they were slightly under half a million dollars. The aggregate loss at the two institutions was between 900,000 and $1 million. Q. Do you know who actually bore the costs of those losses? A. The Federal Deposit Insurance Fund. Q. And what kind of agency is that? A. It’s a government agency. | i wi i the that was held in the administrative case, that was a matter Q. knew? A. . Rackley knew, as well. I would also add that I deposed all three individuals as part of my investigation. My recollection is that Mr. Hudson [26] and Mr. Baresel took the Fifth Amendment to every question, and Mr. Rackley took the Fifth Amend- ment to a number of questions. Q. What group is it—what class of people is it that the O.C.C. exists to protect? A. The depositions of the financial institutions. Q. And were the actions taken by the O.C.C. in this A. In my judgment, yes. MR. OGILVIE: May I have just one moment, please, Your Honor? THE COURT: Yes. MR. OGILVIE: That’s all I have of Mr. Stipano, Your Honor. CROSS-EXAMINATION Q. —that went—that statement went into effect in 1991; is that correct? A. It did. 38a Q. And that, of course, was after the stipulation and consent order that had been entered into by all of the defendants in [27] this case; correct? A. That is correct. Q. Now, plaintiff's exhibit number 19, which, I be- lieve, is your letter to Mr. Ogilvie in April of this year,— A. Yes. Q. —what was the purpose of you sending the letter to Mr. Ogilvie? A. He asked me for a breakdown of how much the agency spent on the investigation and prosecution. Q. And that was for purposes of establishing what you claim to be the government loss for purposes of this ing? A. I don’t know why he wanted it. He asked me to provide it. Q. When did you first start to assemble the informa- tion that’s set forth in the Government Exhibit 19? A. I don’t have a precise date. My—well, for—the specific information in the letter I started putting together Penny: S8¥> & week to a week-and-e-half before the date letter. That would be late March or early April— Yes. Q. A. Q. A. A. Well, in some areas I was able to provide @ figure that I think has a degree of reliability. travel expenses, the—all of us—all 39a In other areas, I think it’s less precise, you know, at this late date, to go back and to try to figure out what— what the cost A. It was the only investigation I had going. Yes. Q. Okay, but you were tending to other matters in the Comptroller’s Office, I take it,— [29] A. Yes. Q. —related to enforcement and compliance? A. Yes. Q. And I think it if the Hudson matter had not been on the table, so to speak, you would have still been work- ing for the Comptroller’s Office. A. IThope so. Q. And that would have been the same with Mrs. Burch or—or Mr. Burch and Mr. Hill? A. As far as I know, yeah. Q. And they would have had other matters they would have been tending to, as well; correct? A. Sure. Q. Now, also you factored into the cost something called “benefits”; is that right? A. - Yes. 40a Q. And is the government in this proceeding claiming, as part of their investigatory loss, some bene- —some kind of benefits? A. No, it’s—it’s just a percentage of our total com- pensation. It’s just a—I multiplied our salary—the per- centage of our salaries by 36 percent. Q. Okay. What kind of benefits? Are we talking health care and— A. Yeah, exactly. [30] Q. —that kind of thing? A. Yes. Q. So that that’s part of the so-called investigative loss that the government’s— A. Well, it’s part of our-—our compensation as gov- ernment employees. Q. Is that part of the investigative cost that you’re asking the court to consider in determining whether the civil monetary penalties were solely remedial as opposed to punishment? A. I—not directly. No. Q. Now, the notice of assessment that you made an earlier reference to, that was issued in February of 1989; is that correct? A. Is there a copy of it in the exhibits? Q. You might look on—in the defendants’ list as Bates Number 00153, and that will either be exhibit 2 or 3, but there'll be—you’ll see a Bates number in the lower right-hand side. Be in Exhibit 3. A. Yeath, I—I found it. Your question goes to the notice of assessment? Q. Yes, the date that it was issued. The date I have is February of 1989. A. February 13th, 1989. Q. Yes. And when did the Office of the first consider assessing the sum, the amount of $100,000 against [31] Hudson and $50,000 against Baresel and Rackley, and I’m talking about the amount? A. The amount would first have been considered when I presented the findings of my investigation to the 4la supervision review committee. I don’t have a precise date. It would probably have been January of 89. Q. Well, isn’t it true that Mrs. Elizabeth Cory es- tablished the sum of $100,000 to be assessed against Mr. Hudson, Rackley—or Mr. Hudson, $50,000 against Baresel and Rackley, in March of 19887 A. No. Ms. Cory had no authority to establish any penalty. f Q. Okay. Didn’t she make a recommendation in that regard? A. I don’t know if she did or not. If it’s— Q. Okay. Let me invite your attention to defendants’ exhibit number 2 and the Bates Stamp 00032. - A. Okay. She made a recommendation to that effect. Q. Yes, sir. And you identified this Bates Number 00032 in Exhibit 2 as being Mrs. Cory’s memorandum to Mr. Bodner dated 3-23-88, just to make sure we're all reading from the same page? A. That's correct. Q. And Mrs. Cory, after reviewing all of the facts set forth in—in an "86 examination and in an ’87 examina- tion, Mrs. Cory, in March of ’88, made a recommendation of! 2 $100,000 assessment against Mr. Baresel; is that cor- [32] A. Yes, she did. . Or Mr. Hudson, is that correct? A hundred thousand against Mr. Hudson. And 50,000 against Rackley and Baresel; correct? No, she recommended 75,000. Okay. She made a recommendation of an amount? Yes, she did. POPOPOPO Q. And that was prior to the time that the Govern- ment incurred all of these—this $72,500 in investigatory expenses; correct? A. Yeah. Yes, that’s correct. Although, I—let me— I'm sorry, let me clarify that. Probably a portion of the 42a examiner, Larry Burch’s, expenses had already been in- curred, because he had done the examination. Q. Okay. But my point is that the amount—there had been a recommendation of a hundred thousand dol- lars against Mr, Hudson. After Mrs. Cory reviewed all of the ’86 and °87 examinations of the bank, she made that recommendation in March of '88? A. She did. Q. And, in fact, that’s what ultimately was assessed against Mr. Hudson, at least initially. A. Y¥es. [33] Q. And that was prior to the time that the—these deposition expenses were—were incurred by the Govern- A. Mrs.Cory’s recommendation was prior to the in- vestigation. Q. Yeah. Now, you indicated also that you had financial infor- mation from Mr. Hudson? A. Yeah, as—as provided in—in his 15-day letter response. Q. And you received financial information from Mr. Hudson prior to the notice of assesment; did you not? A. I did. Q. In fact, you had financial information from Mr. Hudson in February of 1988; correct? If you want to take a look at plaintiff's exhibit number 5, or Government's exhibit number 5, which should be a letter. A. Yes. Q. Okay. That a letter—just for the record, that’s a letter from Mr. Hudson’s counsel to Mrs. Cory; correct? A. Yes. Q. And it sets forth Mr. Hudson's positions with re- spect to the comptroller’s allegations? A. It does. A. Yes. Q. And in fact, Mr. Hudson’s counsel—you were vised through his counsel that Mr. Hudson had a negative worth of some $5 million; correct? Page 14, if that Hi at Mi i if 4 + but attention to exhibit 14 in the Feb- art te i ! Fe 2O>rOrO>0> a z : 5 i z : : a —_ w | z aT : iE 24 ork of F | | : _— 44a against Mr. Hudson in the face of a negative net worth of what was represented to you to be $5 million; correct? A. Yes. Q. And Mr. Baresel and Mr. Rackley, you had finan- cial information on them, as well; did you not? A. We did. Q. And that information, basically, showed a very weak financial condition; correct? A. Yes. Q. And you had that information prior to the time the Government initiated the investigation, the costs of which you have referenced in the letter. A. We did. Q. Now, the total, if I understand correctly, in your letter—your April letter to Mr. Ogilvie, the investi loss was $72,000? Isn’t that what it totaled? wanted to, you could have made those same estimates in 1988; could you have not? A. I don’t understand the question. Q. Well, you provided Mr. Ogilvie with a letter esti- mating— Oh. —the cost breakdown to the 0.C.C.— a result of this investigation? same information would have been available early 1989; would it—would it have not? It—it would have been available as of the time we settled the case. Okay. Which was in—in what? The fall of ’89? Yeah. November. 5 S ZzOP0? 73) >of> taken in the fall of °88; correct? pHa tt! Hf i it : A ine Be Ih = gigiae Hi if ; 3 é i segs ioizaaige i 1Ai F i jedan ta af Bil ae ju ah i ; i : Wie Hii a fy ae 3 S - a 4 | : 7 / ily “31 *5 i; Alea ue patie at | aha 2 Hil pubis FEL aWololcpell ly sb lifetge 3 s 2 opieohey! Ho sg [> ] F : 4 at i : rE Fie H g : 58a true that the F.D.LC. is funded by insurance premiums paid by the banks? Okay. But the—at least in part, in fact, in large C. is funded by insurance premiums paid ? F.D.LC. insurance fund is. If the fund be- [56] A. It is im the sense that it’s turned over to the F.D.LC., which is a government agency. Q. Okay. But the source of the money is not from the government treasury; is it? It comes from the banks? A. The source of any government money does not— comes from people and businesses. Q. Well, I— A. In my judgment it is government money. Yes. Q. Well, okay, let me ask it this way: Isn’t it true that the—that the banks pay insurance premiums which go into the F.D.LC. fund? A. Yes. Q. Thank you. CROSS-EXAMINATION (Continued) Other degree of culpability with reference to Mr. Hudson, Bare- sel, and Rackley, did not treat this as one case and treat —treat these individuals and make your recommendations based on one investigation? 59a A. We did a single investigation. In deciding what sclinad nis eau Gl Gal os tall Gee ©. Okay. Was the same rationale, basically, used in your [57] judgment with reference to the actions you took? 4 ¢ : E j e E sé : i it : . re Rg 5 ie Sh He frit si]! riteii I—I skimmed it and I read portions of it. I believe you've commented on the— ef Ee 60a MR. ROLFE: Okay. Thank you. CROSS-EXAMINATION (Continued) BY MR. GILE: Q. Sir, if I asked you the same questions with re- gard to Mr. Rackley, would your answers be the same > Yes, it does. - Were you also aware that Mr. Rackley’s—his sole profession, I believe since college, had been i ing industry; had it not? A. I know that he was a national bank examiner and : : BY MR. OGILVIE: Q. Mr. Stipano, would you look at the C.M_P. Matrix that is Defendants’ Exhibit Number 4, please, the one you identified as having filled out. A. Yeah. Okay. 6la Q. Do you recall when in the investigative process this was done? aa PF ; 3 L =§ See Pee [ 3 d as : a ee © 4 2 i 28 ef 9° 5 se § | 7 i - _ ct abi Mi Di ee di ee ae ee ee 62a [61] A. The comptroller has that power since passage of F.I.R.R.E.A. In this case, we—we could have—after F.I.R.R.EA. was passed, we could have assessed these in- dividuals for violations of the formal agreement. Prior to F.I.R.R.E.A., we could not have. Q. Prior to F.L.R.R.E.A., could the comptroller have made the same assessment against these three defendants if they had simply been negligent rather than willful? —when—that govern these transactions only provide tha we could only assess penalties for violations are civil regulatory laws that apply to national banks, like the lending-limit statute; the which, again, are banking statutes primarily by Federal Reserve; and cease—cease and desist orders. Those are the of things that we could assess penalties for at that time. Q. You had also mentioned in your testimony, excuse me, there [62] was one C.M.P. policy that took effect in January of 1985; correct? A. Yes. Q. And that was superseded by one that took effect in January of 19887 A. That's correct. Q. Did Congress change the O.C.C.’s powers by stat- ute during that period of time? A. No. Q. Would the O.C.C. still have the powers that it was delegated by Congress whether there was any policy in effect at any time? A. Yes. 63a MR. OGILVIE: That's all I have of Mr. Stipano; Your Honor. MR. NEVILLE: No questions, Your Honor. MR. ROLFE: Nothing further, Your Honor. MR. GILE: No THE COURT: Thank you. Please step down. THE WITNESS: Thank you. (Witness Excused ) THE COURT: Mr. Ogilvie? MR. OGILVIE: Your Honor, I don’t have any fur- ther testimony to offer the court. I submit all of the Government's exhibits, being 1 through [63] 23, that we stipulated to earlier, and again I'll state that we stipulate to the admissibility for the court’s consideration of all of the defendants exhibits, as well. I don’t have anything further of an evidentiary nature to offer the court. I have a suggestion concerning, per- haps, how—how we might proceed from here, if the court wouldn’t mind my—my suggestion. THE COURT: Before you make that suggestion, I'll be glad to hear it, plaintiff's Exhibit 1 through 24, inclu- sive, are admitted by stipulate without objection, and defendants’ Exhibit 1 through 5, inclusive— MR. NEVILLE: Yes, Your Honor. THE COURT: —are also, on the same basis, ad- mitted. MR. OGILVIE: Your Honor, I see, at least from the Government’s standpoint, that there are two fairly com- plicated legal issues that remain. One is whether these sanctions now, in light of the new evidence the court has received today, are punitive or remedial; and secondly, whether the actions by the O.C.C. encompass the same conduct as is mentioned in the indictment. I recall from Your Honor’s earlier ruling that that point was—was not decided by this court, and it’s also mentioned in the Tenth Circuit's opinion as a finding that this court might have to determine. 64a [64] Because of the complexity of the—the legal prin- ciples that guide the resolution of both of those issues, my suggestion to the court would be to allow both parties a period of time to submit briefs in writing so that both sides can give this a more studied treatment than we could here in court today. My suggestion, if the court would accommodate my schedule, since I am due to be out of town at a school next week, is to permit us two weeks from tomorrow in order to, perhaps, file simultaneous briefs on these two issues and any other issues that the court might wish to hear addressed by the parties. Thank you, Your Honor. Mr. NEVILLE: Your Honor, I have no objection or no problem with the suggestion by Mr. Ogilvie. It might be helpful, and probably Mr. Marks might be overloaded, if we could have reference to the transcript, if the court thinks that that would be beneficial. I know we'd like to have—try to get a reference to the tran- script before the briefing is done. We have no objection and no problem with that schedule. I guess my question is, if that’s agreeable with the court, and if so, are we talking simultaneous briefs, or how does the court wish us to proceed? THE COURT: Well, let’s talk about that. Counsel for the defendants, are you in agreement with [65] that? MR. ROLFE: Yes, Your Honor. THE COURT: Mr. Gile? MR.GILE: Yes, Your Honor. THE COURT: My suggestion would be that we first consult with the court reporter to see what he can do to accommodate you. The second would be whether the Government should file a brief, and I should think, for the court’s purposes, it might be most useful to have, also, proposed findings of fact and conclusions of law, as we would do in a civil case, non-jury case, because, ultimately, this court must 65a make factual determinations and conclusions of law to satisfy the requirements of the opinion and order of the Court of Appeals. I believe, from my standpoint that would facilitate my work. So since it is the Government’s burden to establish the two findings on the two issues, wouldn’t it be more or- derly and in keeping with our usual procedures to have you file yours, Mr. Ogilvie, in proposed findings of fact and conclusions of law and a supporting trial brief, and then give the defendants the opportunity to respond to it. I don’t think it matters much, and I think that we have a clear choice as between those two, that is, the sequential version or the simultaneous version, and I really don’t care. I'm going to have to go through it anyway. [66] What’s your suggestion? MR. OGILVIE: Your Honor, the only reason I sug- gested that briefs might be filed simultaneously is first, that in this hearing, unlike in many, I think the issues of fact and the issues of law are fairly well identified, since many of these issues have been addressed to this court in motions and responses before and because of the benefit of the Tenth Circuit Court’s opinion. Because of those things, my suggestion was simultaneous briefs, because I gathered that we would probably all be in agreement as to what the issues are. If the court would like for the Government to file its brief first and permit a response, I think that that would be perfectly appropriate also. I think that my concern was more the length of time to have an opportunity to do that, in a considered fashion, more so than forcing the defendants to reply to something they hadn’t seen before. THE COURT: Yes. Well, I— MR. OGILVIE: If the court would be more inclined for me to file first and permit an opportunity for reply, I think that’s appropriate also. THE COURT: The only reason not to do that is simply it takes longer, and I know it’s in everyone’s inter- ‘ : . 1 66a est to keep the case moving and to make these determina- tions as soon as possible. As I understand the testimony and the evidence, there’s [67] not a lot of disagreement with regard to the factual issues. It’s what those facts from the evidence constitute in contemplation of these two issues, under largely un- disputed acts, whether it was punitive or solely remedial, and whether it was the same conduct to be applied. Am I misreading this or misinterpreting it, or are we Cealing with, largely, undisputed facts but hotly disputed characterizations of those facts? MR. OGILVIE: I think that’s very accurately stated, Your Honor. MR. NEVILLE: I would agree with that, Your Honor, and I—I—the only reason I was—after hearing Mr. Ogilvie phrasing the issues, that I would prefer to go after his brief, respond to his brief, is I don’t agree with exactly the issues that he’s framed. We think the ques- tion before the court, setting aside the similar conduct or facts, is whether or not the Government’s effort here was solely remedial. I didn’t understand him exactly to say that when he postured what he viewed the issue to be. Therefore, I would prefer to respond to his brief. THE COURT: Well, let’s discuss that. Under the opinion of the Court of Appeals, must it not be solely remedial, Mr. Ogilvie? Do you have a copy of the opinion? MR. OGILVIE: I do, Your Honor, and I’m examin- ing the end of the court’s opinion where I recalled that that statement [68] is made. It does say that in the Court’s opinion at the bottom of page 4, there must be a determination whether or not the fines are solely remedial. THE COURT: That’s the issue that I thought we were MR. OGILVIE: I think I—I think we agree on what the issues are, although I may have phrased it in an in- artful way. 67a THE COURT: Well, but let’s be sure. That is the issue as defined by the Circuit’s opinion? MR. OGILVIE: I agree with that, Your Honor. THE COURT: Well, if that’s the case, Mr. Neville, is there any particular need or benefit to the defendants to respond rather than file simultaneous findings and briefs? MR. NEVILLE: May I ask Mr. Rothbaum to address the court on that issue, Your Honor? THE COURT: Yes. MR. ROTHBAUM: Only on one point, Your Honor, the same conduct issue. This as a developing area after Halper. The same conduct issue in this case will en- compass, for example, Section 93(b) the statute under which the comptroller acted here in comparison to the statutes on which the indictment has been brought. Sec- tion 93(b), in turn, encompasses all of Chapter 2 of Title 12, the National Bank Act. [69] The only problem I see with the simultaneous brief is, without knowing the government’s theory, our brief will, necessarily, be very abstract, will be a discussion of general principles of law. THE COURT: I’m convinced, Mr. Rothbaum. Thank you. I think that the whole goal here is to address these issues thoroughly and responsibly, and if it requires a little more investment of time, it won’t be that much, and I think everyone will be better served if we invest that extra time and approach it in the sequential fashion. So with that said, Mr. Ogilvie, when did you want your deadline to be? MR. OGILVIE: Your Honor, I had originally asked for it to be two weeks from tomorrow. If it might—if it might be appropriate, perhaps the Court could tie the briefing schedule to the completion of the transcript by Mr. Marks. The Court, for example, might give the Gov- ernment a certain amount of time after that event, when- ever it might occur, and then the an appropriate response 68a time for the defendants after the submisison of the Gov- ernment’s brief or after that deadline. THE COURT: All right, I think we'll do it this way. I’m going to recess the hearing if there’s nothing further at this time. I’m going to give you gentlemen and Ms. Poarch the opportunity to speak with the court reporter to see what his schedule will permit to accommodate your needs. On that basis, [70] I'd like then to ask you to propose a briefing and submission schedule, and if it’s reasonable, I'm going to approve it, and I know it will be. So talk to him, propose a schedule, and I’m sure I'll approve it, and we probably will not need to formally reconvene for that purpose. Agreeable? MR. OGILVIE: Yes,Your Honor. MR. NEVILLE: Yes, Your Honor. MR. ROLFE: Yes, sir. THE COURT: We'll be in recess. (Proceedings closed) 69a APPENDIX F UNITED STATES COURT OF APPEALS TENTH CIRCUIT Nos. 93-6117, 93-6123, and 93-6125 UNITED STATES OF AMERICA, sf Plaintiff-A ppelles, v. JoHN C. Hupson, LARRY BARESEL, and JACK BUTLER RACKLEY, Defendants-A ppellants. Jan. 24, 1994 Before KELLY, SETH, and GOODWIN *, Circuit Judges. SETH, Circuit Judge. Appellants John Hudson, Larry Baresel and Jack Rack- ley were indicted in August 1992 for criminal law viola- tions of 18 U.S.C. §§ 2, 371, 656 and 1005 because of their alleged mismanagement and illegal operation of sev- eral banks. These violations were based on the same lend- ing transactions which were the subject of prior administra- tive sanctions imposed against the Appellants by the Comp- troller of the Currency (“OCC”) for violations of various federal banking laws. * Honorable Alfred T. Goodwin, United States Circuit Judge for the Ninth Circuit, sitting by designation. 70a Each Appellant moved to dismiss the indictment on double jeopardy grounds. The United States District Court for the Western District of Oklahoma consolidated and denied all three motions, and this appeal followed. In early 1989 the OCC issued a “Notice of Assessment of a Civil Money Penalty” against the Appellants assessing civil penalties pursuant to 12 U.S.C. §§ 93(b) and 504 for alleged violations of 12 U.S.C. §§ 84 and 375b and 12 C.F.R. §§ 31.2(b) and 215.4(b). The OCC main- tained that Appellants’ violations caused approximately $900,000.00 in “losses”. Appellant Hudson was ordered to pay $100,000.00, and Appellants Rackley and Baresel to pay $50,000.00 each. Payments were to be made to the Treasurer of the United States. Later in 1989 the OCC issued a “Notice of Intent to Prohibit Further Participa- tion” (“Prohibition Order”) to the Appellants, which sought to prevent the Appellants “from further participa- tion, in any manner, in the conduct of the affairs of any insured depository institution.” In essence, the OCC sought to prohibit Appellants from all banking activities. As a result of the then pending OCC administrative pro- ceedings, the Appellants entered into a Stipulation and Consent Order (“Consent Order”) (October 1989) whereby Appellant Hudson consented to pay $16,500.00 and Appellants Rackley and Baresel consented to pay $15,000.00 each. The Appellants also agreed not to par- ticipate in most, if not all, banking activities unless they received prior written authorization from the OCC and the appropriate federal regulatory agency. In addition, the Consent Order at the end included a provision (“Waiver Provision”) stating: “Respondent understands that nothing herein shall preclude any proceedings brought by the Comptroller to enforce the terms of this Stipulation and Consent, and that nothing herein constitutes, nor shall Re- spondent contend that it constitutes, a waiver of any Tla right, power, or authority of any other representatives of the United States, or agencies thereof, to bring other actions deemed appropriate.” The first issue to be considered is whether the Waiver Provision of the Consent Order effectively cut off Appel- lant’s rights to raise the double jeopardy defense. We review the decision of the district court on this issue de novo. Larson v. Tansy, 911 F.2d 392 (10th Cir.). To be valid waivers “not only must be voluntary but must be knowing, intelligent acts done with sufficient awareness of the relevant circumstances and likely consequences.” Brady v. United States, 397 U.S. 742, 748, 90 S.Ct. 1463, 1469, 25 L.Ed.2d 747. Moreover, because a fundamental constitutional right is at issue, we must subject the pur- ported waiver to stringent scrutiny and “indulge every rea- sonable presumption against the loss of constitutional rights.” United States v. Geittmann, 733 F.2d 1419, 1423 (10th Cir.) (quoting Jilinois v. Allen, 397 U.S. 343, 90 S.Ct. 1057, 1060, 25 L.Ed.2d 353). The pertinent language of the Waiver Provision pro- vides that “nothing herein constitutes, nor shall Respond- ‘ent contend that it constitutes, a waiver of any right, United States . . . to bring other actions... .” This lan- guage states that the Government does not waive its rights to institute further actions against Appellants. In fact, the The Government would have us rely on United States v. Marcus Schloss & Co., 724 F.Supp. 1123 (S.D.N.Y.), in which the court held: “{T]he defendant in an SEC civil proceeding who, disposition, even accompanied by monetary sanctions, as the basis for a claim of double jeopardy.” Id. at 1127 (emphasis added). The problem with the Government's reliance on Marcus Schloss is that there is 74a as we have come to understand the term... . We therefore hold that under the Double Jeopardy Clause a defendant who already has been punished in a crimi- nal prosecution may not be subjected to an additional civil sanction to the extent that the second sanction may not fairly be characterized as remedial, but only as a deterrent or retribution.” Id. at 448-49, 109 S.Ct. at 1902 (citations omitted). Applicants contend that the above quoted language means that unless a sanction is “solely” remedial, i.e., not serving deterrent or retributive ends, it is punishment. This position is confirmed by the recent Supreme Court decision .n Austin v. United States, ——- US. ——, 113 S.Ct. 2801, 125 L.Ed.2d 488. In Austin, the Court addressed whether a civil forfeiture was punishment for purposes of the Eighth Amendment’s Excessive Fines Clause. The Court noted that “sanctions frequently serve more than one purpose” Jd. at ——-, 113 S.Ct. at 2802. However, even if a sanction is remedial, it is still subject to the Excessive Fines Clause if “it can only be explained as serving in part to punish.” I/d. (emphasis added). The Court went on to quote the Halper decision in support of its holding that the forfeiture was punishment because it did not serve “solely” remedi purposes. /d. at ——. 113 S.Ct. at 4816. 2. is supported by common sense. That is to say, if a par- ticular remedial sanction can only be understood as also punishments also serve remedial purposes. We therefore 75a must conclude that if a sanction is noi exclusively remedial, but rather can only be explained as also affecting deter- rence or retribution, it is punishment for double jeopardy analysis. We are careful to note that a determination that a sanction is at least in part punishment requires that it must be explained as also serving as a deterrent or retribu- tion, not merely that it may be so explained. Although Halper dealt with the scenario where civil sanctions were meted out after a criminal prosecution, we have recognized that a civil sanction’s being exacted first does not alter the applicability of Halper. United States v. Bizzell, 921 F.2d 263 (10th Cir.). The Nonparticipation Sanctions The nonparticipation sanctions were agreed to by Appel- lants when they signed the Consent Order. The gist of these sanctions, which were premised on 12 U.S.C. § 1818 (e), (i), was that Appellants were indefinitely barred from 0 ne ae Wen, Cus Gio tn thay a tained the written consent of the OCC and other appropri- ate regulatory agencies to reenter the banking industry. The parties are primarily concerned with § 1818(e) which provides: (1) Authority to issue order. Whenever the ap- propriate Federal banking agency determines that— (A) any institution-affiliated party has, directly or indirectly — (i) violated—- (1) any law or regulation; (ii) engaged or participated in any un- safe or unsound practice in connection with any insured depository institution or “ew” institution: or 76a (iii) committed or engaged in any act, omission, or practice which constitutes a breach of such party’s fiduciary duty; (B) by reason of the violation, practice, or breach described in any clause of subparagraph (A)— (i) such insured depository institution or busines institution has suffered or will probably suffer financial loss or other dam- ages; (ii) the interests of the insured deposi- tory institution’s depositors have been or could be prejudiced; or (iii) such party has received financial gain or other benefit by reason of such violation, practice, or breach; and (C) such violation, practice, or breach— (i) involves personal dishonesty on the part of such party; or (ii) demonstrates willful or continuing disregard by such party for the safety or soundness of such insured depository insti- tution or business institution. the agency may serve upon such party a written no- tice of the agency’s intention to remove such rf . ‘ty from office or to prohibit any further participation by such party, in any manner, in the conduct of the affairs of any insured depository institution. Although the Supreme Court has expressly refused to rely on statutory language as determinative of the remedial or punitive qualities of a sanction, Halper, 490 U.S. at 447, 109 S.Ct. at 1902 (“the labels ‘criminal’ and ‘civil’ are not a paramount importance”), “the Court did not 77a abandon earlier analytical framework used to determine whether a specific penalty provision may be characterized as remedial or punitive in a general sense.” United States v. WRW Corp., 986 F.2d 138, 140 (6th Cir.). With this in mind, Appellants argue that the express language of § 1818(¢) coupled with its legislative history clearly dem- onstrate that the statute was intended to serve punitive goals. However, Appellants concede that § 1818(e) is also designed in part to protect the integrity of the bank- ing system which promotes a remedial goal. While we United States v. Bizzell, 921 F.2d 263 (10th Cir.). In that case, the two defendants were charged by the Depart- Similarly, the OCC’s use of debarment as a means protecting the integrity of the banking system and 78a interests of the depositors is a legitimate remedial pur- pose that need not necessarily be defined as also serving as deterrence or retribution. Appellants attempt to dis- tinguish Bizzell by arguing that they are barred for life as opposed to eighteen or twenty-four months. This dis- tinction is unpersuasive because the Prohibition Order clearly states that they may again participate in banking activities if they obtain the proper consent. Moreover, Appellants claim that the OCC’s prohibition is punitive because there was a finding of scienter, i.e., that Appellants had violated a law of regulation through personal dishonesty. Again this fails because the finding by the OCC was that Appellants had “engaged in con- duct or practice . . . which resulted in substantial financial loss or other damage. . . .” Prohibition Order, p. 1. The fact that Appellants’ violations involved personal dishon- esty is not dispositive. See Bizzell, 921 F.2d at 265 (de- fendants’ sanctions based on filing false statements). While Appellants “may interpret debarment as punitive, and in- deed feel as though they have been punished, debarment constitutes the ‘rough remedial justice’ permissible as a prophylactic governmental action.” Jd. at 267 (citation omitted). Having reviewed the evidence surrounding Appellants’ alleged misconduct and the subsequent Consent Order, we are convinced that the Government’s nonparticipation sanc- tion was solely designed to protect the integrity of the banking industry by purging the system of corrupt in- fluences. We therefore hold that Appellants’ revokable ban from further participation in banking activities is solely remedial even though it carries the sting of punish- ment in the eyes of Appellants. The Money Sanctions The prohibition sanctions were remedial, but what of the money sanctions? Halper, Bizzell and WRW addressed the situation where the sanctions allegedly exceeded the 79a actual damage caused by the various defendants. In the case presented herein, Appellants allegedly caused over $900,000.00 in losses, yet were originally fined $200,- 000.00, which was later reduced substantially by the Con- sent Order. From this the district court concluded: “It is not disputed by the defendants that 12 U.S.C. §§ 93 .. . [and 504] give the Comptroller authority to assess civil money penalties for violations. . . . As noted by the government: “The amounts of money that may be assessed [under the statutes] is stated in terms of the number of days that each violation continues. In addition, both statutes require the OCC to take into account the financial resources and good faith of the person against whom sanc- tions are sought, the gravity of the violation, the history of previous violations, and any other factors that justice may require, in determining the appropriate sanction to impose. “The amounts of the agreed fines appear to be rea- sonable under the guidelines set forth in the statutes, and the statutes serve legitimate remedial goals.” Order, pgs. 5-6 (filed March 25, 1993) (citation omitted). Our problem with this holding is that the district court determined only that “the statutes” are remedial. As we have stated, the fact that a statute may be remedial does noi necessarily mean that sanctions imposed thereunder are solely remedial. We are also troubled by the absence of any declaration of what the precise remedial goals of the statutes are. Moreover, we disagree with the trial court’s implied conclusion that the statutes are exclusively remedial because they authorize civil remedies which take into account various factors like history of violations, a party’s financial resources and good faith, and the gravity of the violation. These factors are equally consistent with 80a a deterence determination. Thus the Government may employ these factors in order to exact an appropriate money sanction that will effectively deter a party from further wrongdoing. Additionally, we recognize that the language of 12 U.S.C. § 504 closely parallels that of 12 U.S.C. § 93(b), and that both expressly permit civil sanctions. However, these sanctions are “money penalties” limited to a maxi- mum of $1,000.00 per day of a continuing violation. Rather than remedying any particular loss, these statutes appear to be designed, at least in part, to punish and deter improper conduct. This is further exemplified by § 93(a) which provides that parties are personally liable for all damages caused by any knowing violations. On its face, this provision seems to remedy injured parties for losses incurred by the same conduct that is subjected to penal- ties pursuant to §§ 93(b) and 504. We also conclude that the court’s determination that the amounts of the fines were reasonable was without any factual support in the record. The court made no findings as to the actual losses incurred nor who may have suf- fered the losses, and how they compared to the sanctions imposed. In addition, even if they were reasonable, the sanctions could still be punitive. Merely because overly excessive fines may be deemed punitive, see Hulper, 490 U.S. at 452, 109 S.Ct. at 1904, the converse is not neces- sarily true, i.e., a money sanction can be reasonably re- lated to one’s violations and still be used as punishment. We must therefore vacate the district court’s holding con- cerning the money sanctions and remand for further pro- ceedings. In deciding whether or not the fines are solely remedial, the court must determine the precise injury caused to the Government for which the sanctions are the remedy. See Halper, 490 U.S. at 452, 109 S.Ct. at 1904 (on remand Government must provide accounting of actual losses). See also 12 U.S.C. §§ 93(b)(8) and 504(g) (monies 8la are to be paid to the United States Treasury). If there was no injury to be remedied, then presumably the fines were imposed to deter the Appellants from continued vio- lations. If there was an injury, the court must determine if the fines were in fact intended solely to remedy the injury, which will include a determination whether they were reasonable. The “same conduct” issue may have to be decided. See Burke v. Board, 940 F.2d 1360 (10th Cir.), wherein the court decided that the two did not re- late to the same offense. Accordingly, the district court’s holding on the waiver issue is REVERSED; its holding on the nonparticipation sanction issue is AFFIRMED; its decision on the money sanction issue is VACATED; and the case is REMAND- ED for further proceedings consistent with this opinion. IT IS SO ORDERED. 82a APPENDIX G [Filed Mar. 25, 1993] IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA CR-92-152-T UNITED STATES OF AMERICA, 7 Plaintiff, JOHN HupDSoNn, LARRY BARESEL, and JACK BUTLER RACKLEY, Defendants. ORDER Under consideration are the defendants’ respective motions to dismiss the indictment on grounds of double jeopardy. All three defendants contend that the indictment violates the double jeopardy clause of the Fifth Amend- ment because civil penalties imposed by the Comptroller of the Currency constitute “punishment” and were im- posed for the same offense or offenses for which the de- fendants now stand indicted. The government contests both the assertion that the civil penalties imposed consti- tute punishment and the assertion that they were imposed for the same offenses. For reasons set forth infra, the court concludes that the civil sanctions imposed were not “punishment” in the double jeopardy sense. Therefore, the issue of whether the offenses charged in the indict- ment are the same as those invoking the civil sanctions need not be addressed. As to each defendant, the Comptroller of the Currency (“Comptroller”) issued a “Notice of Assessment of a 83a Civil Money Penalty” on February 13, 1989 for alleged violations of 12 U.S.C. §§ 84, and 375(b), and 12 C.F.R. §§ 31.2(b) and 215.4(b). The amount of the assessment sought by the Comptroller as to the respective defendants was: (1) $100,000 assessed against John Hudson; (2) $50,000 assessed against Jack Butler Rackley, (3) $50,000 assessed against Larry Baresel. The Comptroller also issued a “Notice of Intent to Pro- hibit Further Participation” to each defendant, which sought prohibition “from further participation, in any manner, in the conduct of the affairs of any insured depository institution.” * As a result of the civil proceedings, each defendant entered into a Stipulation and Consent Order.* The de- fendants consented to civil money penalties in the follow- ing amounts: John Hudson $16,500.00 Jack Rackley $15,000.00 Larry Baresel $15,000.00 The defendants also consented with respect to institu- tions and agencies set forth in the agreements,® that they would not: 1 See Brief in Support of Defendant Larry Baresel’s Motion to Dismiss Indictment on Grounds of Double Jeopardy and Motion to Adopt Co-defendant’s Plea of Double Jeopardy, Exhibit “B”, p. 1; Brief in Support of Motion of Defendant Rackley to Dismiss In- dictment on Grounds of Double Jeopardy, Att-2, p. 1; Brief of John Hudson in Support of Motion to Dismiss Indictment on Grounds of Double Jeopardy, Exhibit “Prohibition Notice,” p. 1. 2 See Brief in Support of Defendant Larry Baresel’s Motion to Dismiss Indictment on Grounds of Double Jeopardy and Motion to Adopt Co-Defendant’s Plea of Double Jeopardy, Exhibit “C”; Brief in Support of Motion of Defendant Rackley to Dismiss Indictment on Grounds of Double Jepardy, Att-83; Brief of John Hudson in Support of Motion to Dismiss Indictment on Grounds of Double Jeopardy, Exhibit [Stipulation and Consent Order]. * Id. at 2-4. ? {i 84a (a) participate in any manner in the conduct of their affairs; (b) solicit, procure, transfer, attempt to transfer, vote or attempt to vote any proxy, consent, or au- thorization with respect to any voting rights; (c) vote for a director, or serve or act as an “in- stitution-affiliated party,” as defined in 12 U.S.C. § 1813(u) (as amended); or (d) violate any voting agreement previously ap- proved by the “appropriate federal banking agency,” as defined in 12 U.S.C. § 1813(q) (as amended); Also included in the Stipulation and Consent Order as to each defendant was a provision © stating: Respondent understands that nothing herein shall preclude any proceedings brought by the Comptroller to enforce the terms of this Stipulation and Consent, and that nothing herein constitutes, nor shall Re- spondent contend that it constitutes, a waiver of any right, power, or authority of any other representatives of the United States, or agencies thereof, to bring other actions deemed appropriate. In analyzing the double jeopardy question, the court looks for guidance to the seminal United States Court case of United States v. Halper, 490 U.S. 435 (1989). In that case the Court stated “that in determin- ing whether a particular civil sanction constitutes criminal punishment, it is the purposes actually served by the sanction in question, not the underlying nature of the proceeding giving rise to the sanction, that must be evalu- ated.” Id. at 447 n.7. The assessment of whether or not a sanction constitutes criminal punishment is set forth as follows: * Id. at p. 3. 5 Id. at p. 5. 85a In making this assessment, the labels “criminal” and “civil” are not of paramount importance. .. . [T]he These goals are familiar. We have recognized in other contexts that punishment serves the twin aims of retribution and deterrence. . . . From these prem- ises, it follows that a civil sanction that cannot fairly be said solely to serve a remedial purpose, but rather can be explained only as serving either retributive or deterrent purposes, is punishment, as we have come to understand the term. .. . We therefore hold that Id. at 447-448. Of course, in Halper the criminal prosecution occurred first, but its teaching is just as viable here. See United States ». Sanchez-Escarcno, 950 F.2d 193, 200 (5th Cir. 1991), cert. denied, —— US. , 113 S. Ct. 123 (1992) (“[T]}he Halper principle that a civil penalty can be factored into the double jeopardy matrix should apply whether the civil penalty precedes or follows the criminal proceeding.”); United States v. Mayers, 897 F.2d 1126, 1127 (11th Cir. 1990), cert. denied, 498 US. 865 (1990) (order of proceedings, civil or criminal, does not affect double jeopardy application ). Upon review of the record, it is concluded that the non- participation agreement and the agreed fines were solely 86a 87a remedial. The statute authorizing the Comptroller’s ac- The court is satisfied that the agreed civil sanctions serve tions demonstrates that it is intended to maintain the the legitimate governmental purpose of protecting the integriy of the banking system. 12 U.S.C. § 1818(c)(1) integrity of the banking system, and that they are reme- (B)(c) provides in pertinent part: dial. While the defendants find the sanctions harsh, it (c) Removal an¢ pe vhibition authority i not their subjective perception that is dispositive, but (1) Authority to issue order. Whenever the ap- counts. As is pointed out in Halper, 490 U.S. at 447 propriate federal banking agency determines that— n.7: “This is not to say that whether a sanction consti- (A) tutes punishment must be determined from the defendant's B&8 perspective. On the contrary, our cases have acknowl- (B) by reason of the violation, practice, or edged that for the defendant even remedial sanctions breach described in any clause of subparagraph carry the sting of punishment.” (A)— ; . The same is, of course, true as respects the agreed (i) such insured depository institution money penalties. It is not disputed by the defendants that or business institution has suffered or will 12 U.S.C. §§ 93, 503 give the Comptroller authority to probably suffer financial loss or other dam- assess civil money penalties for violations. It is reiterated age; here that each defendant agreed to the assessment made. (ii) the interest of the insured deposi- As noted by the government: tory institution’s depositors have been or The amounts of money that may be assessed [under could be prejudiced; Hh eatutes] is stated in terms of the number of days (iii) such party has received financial violation continues. In addition, both stat- gain or other benefit by reason of such vio- utes require the OCC to take into account the fihan- lation, practice, or breach; and cial resources and good faith of the person against ies whom sanctions are sought, the gravity of the viola- (C) such violation, practice or breach— tion, the history of previous violations, and any other (i) involves personal dishonesty on the factors that justice may require, in determining the | part of such party; or appropriate sanction to impose. | ii) demonstrates willful or continuin Government’s Consolidated Response to Defendants’ Mo- andl hake tion to Dismiss Indictment on Grounds of Double Jeop- soundness of such insured depository in- ardy, p. 10. The amounts of the agreed fines appear to DM ie eh i ee 88a In United States v. Bizzell, 921 F.2d 263, 267 n.5 a proscribed multiple punishment. See generally United States v. Broce, 781 F.2d 792 (10th Cir. 1986). See also United States v. Marcus-Schloss & Co., Inc., 724 F. Supp. 1123, 1127 (S.D.N.Y. 1989) (“I hold that the defendant by monetary sanctions, as the basis for a claim of double jeopardy.”). These conclusions make unnecessary comparison of the civil complaint and indictment for purposes of determin- ing whether the same conduct was involved. A lingly, the tosis to diemiss the indi on double jeopardy grounds, filed by all defendants, are IT IS SO ORDERED this 25th day of March, 1993. /s/ (Ilegible] United States District Judge 89a APPENDIX H To: John Hudson, Jack B. formerly of the First National Bank of Tipton, Tip- ton, Oklahoma, and the First National Bank of Ham- mon, Hammon, Oklahoma The Comptroller of the Currency of the United States of America (Comptroller) hereby assesses civil money penalties against John Hudson, Jack B. Rackley and Larry Baresel (Respondents), pursuant to the provisions of 12 U.S.C. §§ 93(b) and 504. These assessments are issued on the basis of the hereinafter described violations of 12 U.S.C. §§84, 375b and 12 CFR. §$§ 31.2(b) and 215.4(b) which occurred at the First National Bank of Tipton, Tipton, Oklahoma (Tipton), and the First Na- y require, as required by 12 U.S.C. ; (b), and after soliciting and giving full consideration to Respondents’ views with respect to ' Comptroller assesses against Respondent Hudson a penalty of one hundred thousand dollars ($100,000), and against Respondents Rackley and Baresel penalties of fifty thousand dollars COP Ln © w ~~ Cs — -~ N .. a These assessments are based on the following : | ' | 4 90a ARTICLE I (1) Tipton and Hammon were national banking asso- ciations, chartered and examined by the Comptroller pur- suant to the National Bank Act of 1864, as amended (12 U.S.C. § 1 ef seq.). (2) At all times relevant to the violations described below, Respondent Hudson was participating in the con- duct of Tipton’s and Hammon’s affairs, Respondent Rack- ley was Tipton’s president and a director at Hammon, and Respondent Baresel was a director at Tipton and Ham- mon. In their capacities as officers and directors, Re- spondents Rackley and Baresel were under a statutory and fiduciary duty to supervise Tipton’s and Hammon’s affairs in accordance with all applicable laws, rules and regula- tions. ARTICLE II (1) In the early 1980’s Respondent Hudson became the chairman of the board and controlling shareholder of Tip- ton and Hammon, as well as the First State Bank, Blan- chard, Oklahoma (Blanchard), the First State Bank, Granite, Oklahoma (Granite) and the First State Bank, Willow, Oklahoma (Willow), all of which have failed. In July 1983, Respondent Hudson borrowed approxi- mately $8.4 million from MBank, Dallas, Texas (MBank) to refinance his ownership of these institutions. The notes were secured by the banks’ stock, as well as other collate- ral. (2) In 1984, Tipton’s and Hammon’s boards of direc- tors, including Respondent Hudson, executed formal agreements with the OCC. The formal agreements ad- dressed problems in the lending area and required the cor- rection and prevention of violations of law. (3) On or about June 11, 1986, Tipton made a $25,010 loan to Respondent Hudson. On or about June 27, 1986, Tipton made a $75,010 loan to Respondent Hudson. 9la (4) On or about March 8, 1984, Hammon made a $25,000 loan to Respondent Hudson. On or about De- cember 31, 1985, Hammon made a $75,020 loan to Re- spondent Hudson. (5) The OCC’s examinations of Tipton and Hammon in 1986 disclosed numerous insider violations involving Respondent Hudson, and areas of noncompliance with the formal agreements. The September 30, 1986 Report of Supervisory Activity of Tipton (1986 Tipton ROSA) cited the bank for violations of 12 U.S.C, §§ 375a and 375b, and 12 C.F.R. § 31.2. The September 30, 1968 Report of Supervisory Activity of Hammon (1986 Ham- mon ROSA) cited the bank for violations of 12 U.S.C. § 375a and 12 C.F.R. § 31.2. The details of these viola- tions are specifically set forth in the 1986 Tipton ROSA and the 1986 Hammon ROSA, which are incorporated herein by reference the same as if fully set forth. (6) In 1986, Respondent Hudson defaulted on his bank stock loans at MBank. On August 8, 1986, Re- spondent Hudson resigned as a director of Tipton. Re- spondent Hudson also resigned as a director of Hammon during the September 30, 1986 examination and was re- placed by Respondent Rackley. In October 1986, Rack- ley became Tipton’s president. (7) In the fall of 1986, Respondent Hudson contacted Claude Cypert, an Oklahoma businessman, to solicit his interest in representing a group of investors known as Macao Investment Company (Macao) who were allegedly interested in purchasing Respondent Hudson’s bank stock notes at MBank. Macao’s corporate records indicate that Respondent Hudson is Macao’s president and a major shareholder. Respondent Hudson did not disclose the name of the group or his involvement in it to Cypert. In ex- change for an option to purchase a five percent interest in Tipton and Hammon, and a bus to be donated to the Southern Nazarene University, Cypert agreed to represent the group in its dealings with MBank. 92a (8) On or about December 1, 1986, Respondent Hud- son and MBank entered into a settlement agreement whereby MBank was given the right to sell the bank stock securing Respondent Hudson’s notes. The settlement agreement provided that after the sale of the bank stock, Respondent Hudson would be liable to MBank for any de- ficiency up to $2.75 million. The agreement further pro- vided that Respondent Hudson would sell his interest in Blanchard to his father-in-law, Jack Marshall, and resign as a director of all the banks and their holding companies. (9) In December 1986, MBank agreed to sell Tipton and Hammon notes, with an underlying interest in the bank stock, to Cypert for $400,000. The deal was sched- uled for closing on December 30, 1986 in Dallas. (10) Between December 29 and 31, 1986, Tipton, Hammon and Blanchard made a total of eight unsecured loans to various nominee borrowers listed under subpara- graphs (a)-(h) below. Except where noted, the proceeds of these loans, totaling $540,000, were deposited in an ac- count of SKL, Inc. (SKL) at the Century National Bank, Oklahoma City, Oklahoma (Century). $400,000 of the proceeds were subsequently transferred by cashier’s check to Macao. The remaining $140,000 was transferred back to Tipton, along with the proceeds of a $60,000 loan from Hammon to Hurley Financial Corporation (Hurley), to reimburse Tipton for $100,000 loans to Hurley and SKL which were not booked. The amounts, granting banks, borrowers’ names and dates of the nominee loans are as follows: (a) $20,000 loan from Tipton to Respondent Rack- ley on or about December 29, 1986; (b) $90,000 loan from Tipton to SKL on or about December 30, 1986; (c) $100,000 loan from Tipton to Hurley on or about December 3, 1986 (not booked); 93a (d) $100,000 loan from Tipton to SKL on or about December 30, 1986 (not booked); (e) $90,000 loan from Hammon to Respondent Rackley on or about December 31, 1986 (only $40,000 was deposited in SKL’s account at Century) ; (f£) $90,000 loan from Hammon to SKL on or about December 31, 1986; (g) $60,000 loan from Hammon to Hurley on or about December 31, 1986 (proceeds were trans- ferred back to Tipton, to partially reimburse the bank for the $100,000 loans to Hurley and SKL which were not booked) ; (h) $100,000 loan from Blanchard to SKL on or about December 29, 1986. (11) The loans set forth in paragraph (10) above were made on the basis of virtually no credit information or other documentation from the borrowers. Respondent Rackley was the loan officer for all the nominee loans at Tipton and Hammon, except for the loans to himself. As directors, Respondents Rackley and Baresel approved the loans at Tipton and Hammon, although Respondent Rackley abstained from voting on his own notes. (12) On or about December 30, 1986, Respondent Baresel delivered a $400,000 cashier’s check from Macao, payable to Cypert. The check represented the proceeds of the nominee loans made at Tipton, Hammon and Blan- chard set forth in paragraph (10) above. Cypert ex- changed the cashier’s check from Macao for his own $400,000 cashier’s check payable to MBank and, on De- cember 30, flew to Dallas with Respondent Baresel where they met with MBank officials. Cypert exchanged the $400,000 cashier’s check for the Tipton and Hammon notes and underlying stock interest. Shortly thereafter, Cypert assigned his interest in the notes and stock to ‘ . ye i —— 94a Macao and gave the assignment, notes and stock to Re- spondent Baresel. (13) In February 1987, MBank agreed to sell the Willow and Granite notes, with an underlying interest in the bank stock, some additional corporate stock and a real estate mortgage held as collateral, to Cypert for $750,000. The deal was scheduled for closing on Febru- ary 27, 1987 in Dallas. (14) Between February 23 and 27, 1987, Tipton, Hammon, Blanchard and the First National Bank of Del City, Del City, Oklahoma (Del City) made a total of ten unsecured loans to various borrowers listed under sub- paragraphs (a)-(j) below. Except where noted, the pro- ceeds of these loans, totaling $520,000, were deposited in SKL’s account at Century and subsequently transferred by cashier’s check to Macao. The amounts, granting banks, borrowers’ names and dates of the nominee loans are as follows: (a) $60,000 loan from Tipton to Tom Lucas on or about February 23, 1987; (b) $93,000 loan from Tipton to Jack Marshall on or about February 24, 1987 (only $65,351 was deposited in SKL’s account at Century; the re- maining $27,649 was used to make a payment on one of Respondent Hudson’s loans at the Peoples State Bank, Claremore, Oklahoma (Peoples) ) ; (c) $30,000 loan from Tipton to David Tuck on or about February 25, 1987; (d) $92,000 loan from Hammon to Jack Marshall on or about February 24, 1987 (only $64,649 was deposited in SKL’s account at Century; the remaining $27,351 was used to make a payment on one of Respondent Hudson’s loans at Peoples) ; 95a (e) $20,000 loan from Hammon to David Tuck on or about February 27, 1987; (f) $10,000 loan from Hammon to Sharon Mat- thews on or about February 27, 1987; (g) $40,000 loan from Blanchard to Tom Lucas on or about February 26, 1987; (h) $60,000 loan from Blanchard to Respondent Rackley on or about February 26, 1987; (i) $100,000 loan from Blanchard to Partridge Capital Corp., on or about February 26, 1987; (j) $70,000 loan from Del City to SKL on or about February 25, 1987. (15) In addition to the loans set forth in paragraph (14) above, Tipton made a $50,000 loan to H.H. Clifford on or about February 25, 1987. The proceeds of this loan were transferred to Executive Bank Management Services, Inc., a company controlled by Respondent Hudson. Re- spondent Hudson used the proceeds to purchase a $50,000 cashier’s check payable to Macao. (16) Tipton also made a $90,000 loan to Cypert on or about February 19, 1987, and Hammon made a $90,000 loan to Cypert on or about February 27, 1987. (17) The loans set forth in paragraphs (14) through (16) above were made on the basis of virtually no credit information or other documentation from the borrowers. Respondent Rackley was the loan officer for all of the nominee loans at Tipton and Hammon, except for the $92,000 loan from Hammon to Jack Marshall. As di- rectors, Respondents Rackley and Baresel approved the loans at Tipton and Hammon, although Respondent Rack- ley abstained from voting ci his own notes. (18) On or about February 27, 1987, Respondent Baresel delivered a $570,000 cashier’s check from Macao, 96a payable to Cypert. The check represented the proceeds of the nominee loans made at Tipton, Hammon, Blanchard and Del City set forth in paragraphs (14) and (15) above. Cypert exchanged the $570,000 cashier’s check and the proceeds of the two $90,000 loans from Tipton and Ham- mon for a $750,000 cashier’s check payable to MBank. On February 27, 1987, Cypert and Respondent Baresel flew to Dallas where they again met with MBank officials. Cypert exchanged the $750,000 cashier’s check for the Willow and Granite notes, underlying stock interests, and assignment of the real estate mortgage. At the request of Respondents Hudson and Baresel, Cypert reassigned the real estate mortgage to Blanchard where it was used to provide security for one of Respondent Hudson’s loans. (19) Respondent Hudson directly benefited from the nominee loans at Tipton and Hammon that were used to purchase his bank stock notes at MBank. Respondent Hudson also directly benefited from the portions of the Jack Marshall loans from Tipton and Hammon that were used to make a payment on one of his loans at Peoples. Those loans are therefore attributable to him for lending limit purposes pursuant to 12 C.F.R. § 32.5(a)(i). At Tipton, the $2,000 advance to Respondent Rackley on December 29, 1986, when combined with Respondent Hudson’s existing advances, first caused the line to exceed the bank’s legal lending limit set forth at 12 U.S.C. § 84(a)(1). Total advances attributable to Respondent Hudson equaled $533,020 at Tipton, which exceeded the lending limit by $437,509. At Hammon, the $60,000 ad- vance to Hurley and the $90,000 advances to SKL and Respondent Rackley on December 31, 1986, when com- bined with Respondent Hudson’s existing advances, first caused the line to exceed the bank’s lending limit. Total advances attributable to Respondent Hudson equaled $502,020 at Hammon, which exceeded the lending limit by $407,792. 97a (20) The nominee loans at Tipton and Hammon are also attributable to Respondent Hudson for purposes of 12 U.S.C. § 375b, and 12 C.F.R. §§ 31.2(b) and 215.4(b), pursuant to 12 U.S.C. §§ 31.3 and 215.3(f). At Tipton, the loans to Clifford, Cypert, Lucas, Marshall, SKL and Tuck were made at a time when Respondent Hudson’s aggregate indebtedness exceeded five percnt of capital and surplus, but did not receive prior board approval, in viola- tion of 12 U.S.C. §375b(2) and 12 CFR. §$§ 31.2 (b)(1) and 215.4(b)(1)(i). At Hammon, the loans to Cypert, Marshall, Matthews and Tuck were made at a time when Respondent Hudson’s aggregate indebtedness exceeded five percent of capital and surplus, but did not receive prior board approval, in violation of 12 U.S.C. roitieen and 12 C.F.R. §§31.2(b)(1) and 215.4 )(1) (i). (21) The violations set forth in paragraphs (19) and (20) above were uncorrected at the close of the May 31, 1987 examination of Tipton and the June 30, 1987 exami- nation of Hammon. The violations resulted in losses of approximately $456,000 at Tipton and $437,000 at Ham- mon. The losses contributed to the banks’ failures on September 3, 1987. Further details of the violations are specifically set forth in the Report of Supervisory Activity of Tipton dated May 31, 1987 (1987 Tipton ROSA) and the Report of Supervisory Activity of Hammon dated June 30, 1987 (1987 Hammon ROSA). The 1987 Tipton ROSA and 1987 Hammon ROSA are incorporated herein by reference the same as if fully set forth. WHEREFORE, the Comptroller, through his authorized representative whose hand appears below, hereby assesses the above-described penalties, effective immediately. TAKE NOTICE, Respondents are hereby afforded the opportunity for a hearing before the Comptroller concern- ing these assessments, pursuant to 12 U.S.C. §§ 93(b) (3) and 504(c), if @ request for such a hearing is made within sai eau a eee 98a ten (10) days after service of this Notice of Assessment. Any request for such hearing shall be filed with the Hear- ing Clerk, Office of the Chief Counsel, Office of the Comp- troller of the Currency, Washington, D.C. 20219, and such hearing shall be conducted pursuant to 12 C.F.R. § 19.23 which requires Respondents to file an answer to this Notice of Assessment. If Respondents fail to request a hearing within the above ten (10) day period, these assessments shall consti- tute final and unappealable orders against them, pursuant to 12 U.S.C. §§ 93(b)(3) and 504(c). Remittance of these civil money penalties shall be pay- able to the Treasurer of the United States and delivered to the Hearing Clerk, Office of the Chief Counsel, Office of the Comptroller of the Currency, Washington, D.C. 20219. Please note that, pursuant to 12 C.F.R. § 7.5217(b), the banks may not pay any civil money penalty or ex- penses or other payments, including legal fees, incurred with respect to the civil money penalty actions against the Respondents and the Respondents may not seek such reimbursement. Pursuant to 12 C.F.R. § 19.10(c), the Comptroller may, in his discretion, order that a public hearing be held if he determines that it is necessary to protect the public interest. Respondents are hereby afforded an opportunity to submit their views as to whether a public hearing would be in the public interest in this case. IN WITNESS WHEREOF, my hand this 13 day of Feb., 1989. /s/ Dean S. Marriott DEAN S. MARRIOTT Senior Deputy Comptroller for Bank Supervision UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY OFFICE OF THE COMPTROLLER OF THE CURRENCY IN THE MATTER OF JoHN HUDSON First NATIONAL BANK OF TIPTON, TIPTON, OKLAHOMA First NATIONAL BANK OF HAMMON, HAMMON, OKLAHOMA NOTICE OF INTENTION TO PROHIBIT FURTHER PARTICIPATION To: John Hudson, formerly of the First National Bank of Tipton, Tipton, Oklahoma, and the First National Bank of Hammon, Hammon, Oklahoma TAKE NOTICE, that on the 2nd day of October, 1989, a hearing will commence at 10:00 a.m. in the United States Courthouse for the Western District of Oklahoma, Oklahoma City, Oklahoma, pursuant to the Federal Deposit Insurance Act, as amended, 12 U.S.C. § 1818(e), (i) concerning the charges set forth herein to determine whether an Order should be issued against John Hudson (Respondent ) prohibiting him from further par- ticipation, in any manner, in the conduct of the affairs of any insured-depository institution. After examination and investigation into the affars of the First National Bank of Tipton, Tipton, Oklahoma (Tipton) and the First National Bank of Hammon, Ham- mon, Oklahoma (Hammon), the Comptroller of the Cur- rency of the United States of America (Comptroller) is . | 7 d | ; 4 THEREFORE TAKE NOTICE of the Comptroller's intention to prohibit Respondent from further participa- tion, in any manner, in the conduct of the affairs of any insured depository institution, pursuant to 12 U.S.C. § 1818(e), (i). In support of this Notice of Intention to Prohibit Further Participation (Notice), the Comp- troller charges the following: ciations, chartered and examined by the Comptroller pur- suant to the National Bank Act of 1864, as amended (12 U.S.C. § 1 et seq.). (2) At all times relevant to the violations described below, Respondent was participating in the conduct of Tipton’s and Hammon’s affairs. (3) Tipton and Hammon were declared insolvent by the Comptroller on September 3, 1987. The Comptroller has jurisdiction to issue this Notice under 12 U.S.C. § 1818(i)(3), which provides the Comptroller with au- thority to prohibit an individual who has become sepa- pating in the affairs of any depository institution. ARTICLE II (1) In the early 1980's, Respondent became the chair- man of the board and shareholder of Tipton and Hammon, as well as the First State Bank, Blanchard, ownership of these institutions. The notes were secured by the banks’ stock, as well as other collateral. (2) In 1984, Tipton’s and Hammon’s boards of di- (3) On or about June 11, 1986, Tipton made a $25,010 loan to Respondent. On or about June 27, 1986, Tipton made a $75,010 loan to Respondent. (4) On or about March 8, 1984, Hammon made a $25,000 loan to Respondent. On or about December 31, 1985, Hammon made a $75,020 loan to Respondent. (5) The OCC’s examinations of Tipton and Hammon in 1986 disclosed numerous insider violations involving visory Activity of Tipton (1986 Tipton ROSA) cited the bank for violations of 12 U.S.C. §§ 375a and 375b, and 12 C.F.R. § 31.2. The September 30, 1986 Report of Supervisory Activity of Hammon (1986 Hammon ROSA) cited the bank for violations of 12 U.S.C. §375a and 12 C.F.R. Lb ws The details of these violations are set forth in the 1986 Tipton ROSA and the 1986 Hammon ROSA, which are incorporated herein by reference the same as if fully set forth. (6) In 1986, Respondent defaulted on his bank stock loans at MBank. On August 8, 1986, Respondent re- signed as a director of Tipton. Respondent also resigned as a director of Hammon during the September 30, 1986 102a examination and was replaced by Jack B. Rackley. In October 1986, Rackley became Tipton’s president. involvement in it to Cypert. In exchange an to purchase a five percent interest in Tipton and N ar Stay the bank stock, to Cypert for $400,000. The deal was scheduled for closing on December 30, 1986 in Dallas. (10) Between December 29 and 31, 1986, Tipton, Hammon and Blanchard made a total of eight unsecured loans to various nominee borrowers listed under subpara- graphs (a)-(h) below. Except where noted, the proceeds of these loans, totaling $540,000, were deposited in an account of SKL, Inc. (SKL) at the Century National Bank, Oklahoma City, Oklahoma (Century). $400,000 103a of the proceeds were subsequently transferred by cashier's check to Macao. The remaining $140,000 was transferred back to Tipton, along with the proceeds of a $60,000 loan from Hammon to Hurley Financial Corporation (Hurley), to reimburse Tipton for $100,000 loans to Hurley and SKL which were not booked. The amounts, granting banks, borrowers’ names and dates of the nominee loans are as follows: (a) $20,000 loan from Tipton to Rackley on or about December 29, 1986; (b) $90,000 loan from Tipton to SKL on or about December 30, 1986; (c) $100,000 loan from Tipton to Hurley on or about December 30, 1986 (not booked) ; (d) $100,000 loan from Tipton to SKL on or about December 30, 1986 (not booked); (¢) $90,000 loan from Hammon to Rackley on or about December 31, 1986 (only $40,000 was deposited in SKL’s account at Century); (f) $90,000 loan from Hammon to SKL on or about December 31, 1986; (g) $60,000 loan from Hammon to Hurley on or about December 31, 1986 (proceeds were trans- ferred back to Tipton, to partially reimburse the bank for the $100,000 loans to Hurley and SKL which were not booked); (h) $100,000 loan from Blanchard to SKL on or about December 29, 1986. the loan officer for all of Hammon, except for the loans to himself. As directors, 104a Rackley and Larry Baresel approved the loans at Tipton and Hammon, although Rackley abstained from voting on his own notes. (12) On or about December 30, 1986, Baresel de- livered a $400,000 cashier’s check from Macao, payable to Cypert. The check represented the proceeds of the nominee loans made at Tipton, Hammon and Blanchard set forth in paragraph (10) above. Cypert exchanged the cashier’s check from Macao for his own $400,000 cashier’s check payable to MBank and, on December 30, flew to Dallas with Baresel where they met with MBank officials. Cypert exchanged the $400,000 cashier’s check for the Tipton and Hammon notes and underlying stock interest. Shortly thereafter, Cypert assigned his interest in the notes and stock to Macao and gave the assignment, notes and stock to Baresel. (13) In February 1987, MBank agreed to sell the Willow and Granite notes, with an underlying interest in the bank stock, some additional corporate stock and a real estate mortgage held as collateral, to Cypert for $750,000. The deal was scheduled for closing on Febru- ary 27, 1987 in Dallas. (14) Between February 23 and 27, 1987, Tipton, Hammon, Blanchard and the First National Bank of Del City, Del City, Oklahoma (Del City) made a total of ten unsecured loans to various borrowers listed under sub- paragraphs (a)-(j) below. Except where noted, the pro- ceeds of these loans, totaling $520,000, were deposited in SKL’s account at Century and subsequently transferred by cashier’s check to Macao. The amounts, granting banks, borrowers’ names and dates of the nominee loans are as follows: (a) $60,000 loan from Tipton to Tom Lucas on or about February 23, 1987; (b) $93,000 loan from Tipton to Jack Marshall on or about February 24, 1987 (only $65,351 was (f) $10,000 loan from Hammon to Sharon Mat- thews on or about February 27, 1987; (g) $40,000 loan from Blanchard to Tom Lucas on or about February 26, 1987; (h) $60,000 loan from Blanchard to Rackley on or about February 26, 1987; (i) $100,000 loan from Blanchard to Partridge Capital Corp., on or about February 26, 1987; (j) $70,000 loan from Del City to SKL on or about February 25, 1987. (15) In addition to the loans set forth in paragraph (14) above, Tipton made a $50,000 loan to H.H. Clifford on or about February 25, 1987. The proceeds of this loan were transferred to Executive Bank Management Services, Inc., a company controlled by Respondent. t used the proceeds to purchase a $50,000 cashier’s check (16) Tipton also made a $90,000 loan to Cypert on or about February 19, 1987, and Hammon made a $90,000 loan to Cypert on or about February 27, 1987. 106a (17) The loans set forth in paragraphs (14) through (16) above were made on the basis of virtually no credit information or other documentation from the borrowers. Rackley was the loan officer for all of the nominee loans at Tipton and Hammon, except for the $92,000 loan from Hammon to Jack Marshall. As directors, Rackley and Baresel approved the loans at Tipton and Hammon, al- though Rackley abstained from voting on his own notes. (18) On or about February 27, 1987, Baresel de- livered a $570,000 cashier’s check from Macao, payable to Cypert. The check represented the proceeds of the nominee loans made at Tipton, Hammon, Blanchard and Del City set forth in paragraphs (14) and (15) above. Cypert exchanged the $570,000 cashier’s check and the proceeds of the two $90,000 loans from Tipton and Hammon for a $750,000 cashier’s check payable to MBank. On February 27, 1987, Cypert and Baresel flew to Dallas where they again met with MBank officials. Cypert exchanged the $750,000 cashier’s check for the Willow and Granite notes, underlying stock interests, and assignment of the real estate mortgage. At the request of Respondent and Baresel, Cypert reassigned the real estate mortgage to Blanchard where it was used to provide secu- rity for one of Respondent's loans. (19) Respondent directly benefited from the nominee loans at Tipton and Hammon that were used to purchase his bank stock notes at MBank. Respondent also directly benefited from the portions of the Jack Marshall loans from Tipton and Hammon that were used to make a pay- ment on one of his loans at Peoples. Those loans are therefore attributable to him for lending limit purposes pursuant to 12 C.F.R. § 32.5(a)(1). At Tipton, the $20,000 advance to Rackley on December 29, 1986, when combined with Respondent’s existing advances, first caused the line to exceed the bank’s legal lending limit set forth at 12 U.S.C. § 84(a)(1). Total advances attribut- able to Respondent equaled $533,020 at Tipton, which 107a exceeded the lending limit by $437,509. At Hammon, the $60,000 advance to Hurley and the $90,000 advances to SKL and Rackley on December 31, 1986, when combined with Respondent’s existing advances, first caused the line to exceed the bank’s lending limit. Total advances attributable to Respondent equaled $502,020 at Hammon, which exceeded the lending limit by $407,792. (20) The nominee loans at Tipton and Hammon are also attributable to Respondent for purposes of 12 U.S.C. § 375b, and 12 C.F.R. §§ 31.2(b) and 215.4(b), pursu- ant to 12 U.S.C. §§ 31.3 and 215.3(f). At Tipton, the loans to Clifford, Cypert, Lucas, Marshall, SKL and Tuck were made at a time when Respondent’s aggregate in- debtedness exceeded five percent of capital and surplus, but did not receive prior board approval, in violation of 12 U.S.C. § 375b(2) and 12 C.F.R. §§ 31.2(b)(1) and 215.4(b)(1)(i). At Hammon, the loans to Cypert, Marshall, Matthews and Tuck were made at a time when Respondent’s aggregate indebtedness exceeded five percent of capital and surplus, but did not receive prior board approval, in violation of 12 U.S.C. §375b(2) and 12 C.F.R. §§ 31.2(b) (1) and 215.4(b) (1) (i). (21) The violations set forth in paragraphs (19) and (20) above were uncorrected at the close of the May 31, 1987 examination ot Tipton and the June 30, 1987 ex- amination of Haminon. The violations resulted in losses of approximately $456,000 at Tipton and $437,000 at Hammon. The losses contributed to the banks’ failures on September 3, 1987. Further details of the violations are specifically set forth in the Report of Supervisory Activity of Tipton dated May 31, 1987 (1987 Tipton ROSA) and the Report of Supervisory Activity of Hammon dated June 30, 1987 (1987 Hammon ROSA). The 1987 Tipton ROSA and 1987 Hammon ROSA are may rated herein by reference the same as if fully set 0 108a ARTICLE III (1) The actions of Respondent described in Article II, paragraphs (1) through (21) above demonstrate that Respondent has engaged in conduct or practice with re- spect to Tipton and Hammon which resulted in substantial financial loss or other damage, has evidenced his personal dishonesty and a willful and continuing disregard for such banks’ safety and soundness and, in addition, has evi- denced his unfitness to participate, in any manner, in the conduct of the affairs of any insured depository institu- tion. THEREFORE, Respondent is directed to file an answer in writing to the charges contained herein with the Hear- ing Clerk, Office of the Chief Counsel, Office of the Comptroller of the Currency, Washington, D.C. 20219, within twenty (20) days from the date of service of this Notice, in accordance with 12 C.F.R. Part 19. Pursuant to 12 U.S.C. § 1818(h)(1) and 12 CFR. § 19.10(c), the Comptroller may, in his discretion, order that a public hearing be held if he determines that it is necessary to protect the public interest. Respondent is hereby afforded an opportunity to submit his views as to whether a public hearing would be in the public interest in this case. WITNESS, my hand on behalf of the Office of the Comptroller of the Currency, given at Washington, D.C. the 31st day of August, 1989. 109a APPENDIX J UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY OFFICE OF THE COMPTROLLER _OF THE CURRENCY IN THE MATTER OF LARRY BARESEL First NATIONAL BANK OF TIPTON, TIPTON, OKLAHOMA, First NATIONAL BANK OF HAMMON, HAMMON, OKLAHOMA NOTICE OF INTENTION TO PROHIBIT FURTHER PARTICIPATION To: Larry Baresel, formerly of the First National Bank of Tipton, Tipton, Oklahoma, and the First Na- tional Bank of Hammon, Hammon, Oklahoma TAKE NOTICE, that on the 2nd day of October, 1989, a hearing will commence at 10:00 a.m. in the United whether an Order should be issued against Larry Baresel (Respondent) prohibiting him from further participation, in any manner, in the conduct of the affairs of any insured After examination and investigation into the affairs of the First National Bank of Tipton, Tipton, Oklahoma (Tipton) and the First National Bank of Hammon, Hammon, Oklahoma (Hammon), the Comptroller of the Currency of the United States of America (Comptroller) is of the opinion that Respondent has committed violations 110a of law and engaged in unsafe and unsound practices at such banks which resulted in substantial financial loss or other damage and serious prejudice to the interests of the depositors. The Comptroller has further determined that the violations and practices involve personal dishonesty on Respondent’s part and demonstrate a willful and continu- ing disregard for the banks’ safety and soundness. THEREFORE TAKE NOTICE of the Comptroller’s intention to prohibit Respondent from further participa- tion, in any manner, in the conduct of the affairs of any insured depository institution, pursuant to 12 U.S.C. § 1818(e), (i). In support of this Notice of Intention to Prohibit Further Participation (Notice), the Comptroller charges the following: ARTICLE I (1) Tipton and Hammon were national banking asso- ciations, chartered and examined by the Comptroller pur- suant to the National Bank Act of 1864, as amended (12 U.S.C. § 1 et seq.). (2) At all times relevaet to the violations described below, Respondent was a duector of Tipton and Hammon. In his capacity as a director, Respondent was under a statutory and fiduciary duty to supervise the banks’ affairs in accordance with all applicable laws, rules and regula- tions. (3) Tipton and Hammon were declared insolvent by the Comptroller on September 3, 1987. The Comptroller has jurisdiction to issue this Notice under 12 US.C. § 1818(i)(3), which provides the Comptroller with au- thority to prohibit an individual who has become sepa- rated from a national banking association from icipat- ing in the affairs of any depository institution. — ARTICLE I (1) In the early 1980’s, John Hudson became the chairman of the board and controlling shareholder of lila Tipton and Hammon, as well as the First State Bank, Blanchard, Oklahoma (Blanchard), the First State Bank, Granite, Oklahoma (Granite) and the First State Bank, Willow, Oklahoma (Willow), all of which have failed. In July 1983, Hudson borrowed approximately $8.4 million from MBank, Dallas, Texas (MBank) to refinance his ownership of these institutions. The notes were secured by the banks’ stock, as well as other collateral. (2) In 1984, Tipton’s and Hammon’s boards of direc- tors, including Hudson, executed formal agreements with the OCC. The formal agreements addressed problems in the lending area and required the correction and preven- tion of violations of law. (3) On or about June 11, 1986, Tipton made a $25,010 loan to Hudson. On or about June 27, 1986, Tipton made a $75,010 loan to Hudson. (4) On or about March 8, 1984, Hammon made a $25,000 loan to Hudson. On or about December 31, 1985, Hammon made a $75,020 loan to Hudson. (5) The OCC’s examinations of Tipton and Hammon in 1986 disclosed numerous insider violations involving Hudson, and areas of noncompliance with the formal agreements. The September 30, 1986 Report of Super- visory Activity of Tipton (1986 Tipton ROSA) cited the bank for violations of 12 U.S.C. §§ 375a and 375b, and 12 C.F.R. § 31.2. The September 30, 1986 Report of Supervisory Activity of Hammon (1986 Hammon ROSA) cited the bank for violations of 12 U.S.C. § 375a and 12 C.F.R. § 31.2. The details of these violations are specifi- cally set forth in the 1986 Tipton ROSA and the 1986 Hammon ROSA, which are incorporated herein by refer- ence the same as if fully set forth. Hammon during the September 30, 1986 examination and 112a was replaced by Jack B. Rackley. In October 1986, Rackley became Tipton’s president. (7) In the fall of 1986, Hudson contacted Claud Cypert, an Oklahoma business, to solicit his interest in representing a group of investors known as Macao Invest- ment Company (Macao) who were allegedly interested in purchasing Hudson’s bank stock notes at MBank. Macao’s corporate records indicate that Hudson is Macao’s presi- dent and a major shareholder. Hudson did not disclose the name of the group or his involvement in it to Cypert. In exchange for an option to purchase a five percent inter- est in Tipton and Hammon, and a bus to be donated to the Southern Nazarene University, Cypert agreed to repre- sent the group in its dealings with MBank. (8) On or about December 1, 1986, Hudson and MBank entered into a settlement agreement whereby MBank was given the right to sell the bank stock securing Hudson’s notes. The settlement agreement provided that after the sale of the bank stock, Hudson would be liable to MBank for any deficiency up to $2.75 million. The agreement further provided that Hudson would sell his interest in Blanchard to his father-in-law, Jack Marshall, and resign as a director of all the banks and their holding companies. (9) In December 1986, MBank agreed to sell the Tipton and Hammon notes, with an underlying interest in the bank stock, to Cypert for $400,000. The deal was scheduled for closing on December 30, 1986 in Dallas. (10) Between December 29 and 31, 1986, Tipton, Hammon and Blanchard made a total of eight unsecured loans to various nominee borrowers listed under subpara- graphs (a)-(h) below. Except where noted, the proceeds of these loans, totaling $540,000, were deposited in an account of SKL, Inc. (SKL) at the Century National Bank, Oklahoma City, Oklahoma (Century). $400,000 of the proceeds were subsequently transferred by cashier’s check to Macao. The remaining $140,000 was transferred are as follows: (a) $20,000 loan from Tipton to Rackley on or about December 29, 1986; (b) $90,000 loan from Tipton to SKL on or about December 30, 1986; (c) $100,000 loan from Tipton to Hurley on or about December 30, 1986 (not booked): (d) $100,000 loan from Tipton to SKL on or about December 30, 1986 (not booked); (e) $90,000 loan from Hammon to Rackley on or about December 31, 1986 (only $40,000 was deposited in SKL’s account at Century): (f) $90,000 loan from Hammon to SKL on or about December 31, 1986; (g) $60,000 loan from Hammon to Hurley on or about December 31, 1986 (proceeds were trans- ferred back to Tipton, to partially reimburse the bank for the $100,000 loans to Hurley and SKL which were not booked; (h) $100,000 loan from Blanchard to SKL on or about December 29, 1986. (11) The loans set forth in paragraph (10) above were made on the basis of virtually no credit information enenirtes fam Go tomewen. Rackley was of Hammon, except for the loans to himself. As directors, (13) In February 1987, MBank agreed to sell the Willow and Granite notes, with an underlying interest in the bank stock, some additional corporate stock and a real estate mortgage held as collateral, to Cypert for $750,000. The deal was scheduled for closing on Febru- ary 27, 1987 in Dallas. (14) Between February 23 and 27, 1987, Tipton, Hammon, Blanchard and the First National Bark of Del City, Del City, Oklahoma (Del City) made a total of ten unsecured loans to various borrowers listed under [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0045%3A03. Public record. Not legal advice.