# Appendix — Cousin v. Office of Thrift Supervision

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1996
- **Citation:** 519 U.S. 807

## Text

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UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Nos. 1680, 297—August Term, 1994
(Argued: June 23, 1995 Decided: January 3, 199¢

Docket Nos. 94-4206. 94-6070

MICHAEL COUSIN

OFFICE OF THRIFT SUPERVISION
Department of Treasury,

Before:

KEARSE, ALTIMARI and PARKER

( irciti jude

Appeal from denial of declaratory judgment seeking
dismissal of temporary suspension and prohibition and
petition for review of Final Decision and Order of the
Acting Director of the Office of Thrift Supervi

Department of the Treasury (Jonathan L. Fiechter), pro-
hibiting Cousin from further participating in any manner,
in the conduct of the affairs of any banking institution
regulated by the Office of Thrift. Supervision.

Petition for review of Final Decision and Order is
DENIED. Appeal of denial of declaratory judgment is
DISMISSED as moot

RAMSEY CLARK, New York, New York
(Lawrence Schilling, New York, New
York, on the brief), for petitioner.

GERALDINE R. GENNET, Office of the Chief
Counsel, Office of Thrift Supervision,
Washington, D.C. (Carolyn B. Lieber-
man, Thomas J. Segal, Elizabeth R.
Moore, Dirk S. Roberts, Office of the
Chief Counsel, Office of Thsift Super-
vision, Washington, D.C., on the brief),
for respondent.

ALTIMARI, Circuit Judge:

Petitioner Michael Cousin (“Cousin”) seeks review of
a Final Decision and Order of the Acting Director
(“AD”), Jonathan L. Fiechter, of the Office of Thrift
Supervision (“OTS”), Department of the Treasury, pro-
hibiting Cousin from further participating in any manner,
in the conduct of the affairs of any banking institution
regulated by the Office of Thrift Supervision. Cousin’s
permanent prohibition made final a temporary suspen-
sion and prohibition which had previously been issued

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by the OTS, the issuance of which Cousin had appealed
before this Court. Cousin now argues that 1) the proce-
dure by which the OTS issued a permanent prohibition
against Cousin violated his due process rights under the
Fifth Amendment to the United States Constitution; 2)
the Final Decision and Order was not supported by
substantial evidence on the record; and 3) the AD
improperly denied Cousin’s defense of entrapment and
outrageous government misconduct. Because we find
Cousin’s arguments to lack merit, we deny his petition
for review of the OTS’s Final Decision and Order. We
further dismiss Cousin’s appeal concerning the tempo
rary suspension and prohibition as moot

BACKGROUND

A. Procedural History

On August 8, 1990, Cousin, then-chairman of the
Board and chief executive officer of Cross County Fed-
eral Savings Bank (“County Federal” or “Bank” ), was
charged in federal court with several counts of bribery.
The OTS was informed of the charges and, two days
later, issued a temporary suspension and prohibition
from participation in the affairs of County Federal. After
an administrative hearing on March 1, 1991, the tem-
porary suspension and prohibition was continued until
final disposition of the criminal charges pending against

Cousin.

Cousin then sought to have the criminal indictment
against him dropped in federal court, asserting that he
was neither physically nor mentally fit to stand trial. The
district court agreed to dismiss the indictment against
Cousin because he was not physically capable of stand-

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ing trial; however, included in the order dismissing the
charges against Cousin, dated May 25, 1992, was lan-
guage—agreed to by Cousin’s attorney—to the effect
that the dismissal of the indictment did not amount to a
dismissal on the merits. See Cousin v. Office of Thrift
Supervision, 840 F. Supp. 8, 9-10 (E.D.N.Y. 1993). The
language was specifically included in the order to ensure
that the dismissal was not construed as requiring the dis-
continuation of the OTS’s temporary suspension and pro-
hibition against Cousin. /d. at 11.

Upon dismissal of the indictment for health reasons,
Cousin underwent a remarkable recovery and informed
the OTS that he was sufficiently physically and mentally
fit to reenter the banking world. Despite the explicit lan-
guage in the order dismissing his indictment, Cousin
thereafter sought a declaratory judgment in the district
court stating that his indictment had been dismissed on
its merits and that, as a matter of law, the OTS tempo-
rary suspension was required to be lifted. /d. at 8. In
light of the language in the order dismissing his indict-
ment—language which Cousin himself had agreed
upon—the district court dismissed Cousin’s suit on
waiver grounds. /d. at 11. Cousin then appealed the dis-
trict court’s dismissal of his action.

On May 13, 1993, the OTS instituted a proceeding to
permanently prohibit Cousin from further participating
in any manner, in the conduct of the affairs of any bank-
ing institution regulated by the OTS. In support of the
permanent prohibition, Cousin was charged with bribery
and aiding and abetting bribery. He responded to the
OTS claims and asserted a number of affirmative
defenses, focusing primarily upon entrapment. A hearing
of the claims was held before Administrative Law Judge
(“ALJ”) Walter J. Alprin between September 13 and 15,

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1993. On March 31, 1994, the ALJ issued his recom-
mended decision and order, disqualifying Cousin from
further participation in any federally insured banking
institution. By Order dated October 11, 1994, the AD
accepted some of the ALJ’s findings, rejected others,
and issued a permanent prohibition against Cousin’s fur-
ther participation in the banking industry.

Cousin now petitions for review of the Final Decision
and Order of the AD. Because Cousin’s previous appeal
is necessarily resolved by this petition for review of the
superseding Final Decision and Order, that appeal was
referred to this panel by order of the Court on December
30, 1994, and is resolved below.

B. The ALJ's Recommended Decision and Order

1. Findings of Fact

In his March 31, 1994, recommended ruling, ALJ
Alprin made the following specific factual findings.

While investigating criminal activities unrelated
to Cousin, IRS Special Agent Kevin McLaughlin
(“McLaughlin”) subpoenaed Cousin’s bank records in
late 1986. In response to the subpoena, Cousin contacted
McLaughlin and suggested that he was willing to meet
with him and voluntarily produce everything subpoenaed
by the government. At a meeting with McLaughlin on
May 27, 1987, Cousin offered to make a monetary con-
tribution to the charity of McLaughlin’s choice.
McLaughlin took Cousin’s offer to be an attempt at
bribery. After discussing this conversation with his supe-
riors at the IRS, McLaughlin was directed to engage in
an undercover operation to determine if Cousin would
follow through with his offered bribe. Cousin did,

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in fact, follow through with his promise; on June 9,
1987, in his office at County Federal, Cousin gave
McLaughlin $1,750 in cash and a silver bar.

In an effort to determine if Cousin would engage in
further bribery, the IRS served a grand jury subpoena on
All Queens Tudor Realty, Inc., an organization in which
Cousin had a financial interest. Cousin again met with
McLaughlin in his office at the bank, on February 10,
1988, and offered to pay him if he would quash the
subpoena. On February 18, 1988, Cousin invited
McLaughlin to his office, where he gave the IRS agent
$6,500.

A short time later, Cousin conceived of a scheme in
which McLaughlin could receive additional bribes.
According to McLaughlin’s testimony, Cousin suggested
that he “could give me some information on some indi-
viduals, that I could open up a case, and then he could
arrange for them to pay me money to kill that case that
I had opened up.” In furtherance of his plan, Cousin
arranged for an associate of his, Max Fodera (“Fodera”),
to act as an intermediary in the bribery scheme. On May
11, 1988, Cousin acquired the bank files of Joan and
John Parlante, who he believed to be engaged in tax eva-
sion. Cousin informed McLaughlin of his hunch, which
he based upon the fact that the Parlantes made their
mortgage payments in cash and under-reported their
income. To assist McLaughlin in acquiring a subpoena
of the Parlantes’ files, Cousin provided him with the
Parlantes’ social security numbers, business names,
location of houses and business, and salaries. At the time
that Cousin revealed this confidential bank information,
he had no authority to do so, nor did County Federal
inform the Parlantes that the information had been
revealed.

L, ow tite Cana

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On August 15, 1988, a subpoena was served upon
Cousin for the Parlantes’ bank files and the Parlantes
were notified of the pending tax investigation. Mrs.
Parlante instructed Cousin to provide any and all infor-
mation the IRS requested. Cousin, however, informed
Mrs. Parlante that he knew she could bribe McLaughlin
into dropping the investigation. Mrs. Parlante resisted
the idea. A short time later, however—after a second
grand jury subpoena had been served upon the Parlantes
requesting information about their business—Mr.
Parlante met with Cousin to discuss the possibility of
arranging a bribe. Cousin instructed Mr. Parlante on how
to bribe McLaughlin, using Fodera as an intermediary,
which Mr. Parlante did on October 20, 1988, paying
McLaughlin $25,000 to have the IRS investigation
ended.

2. Applicable Law

Under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (““FIRREA”), P.L. No. 101-73,
103 Stat. 183 (1989), the OTS has the authority to apply
the remedies established under FIRREA to actions taken
prior to 1989. See In re Keating, OTS Order No. AP 91-
20 at 17-23 (May 11, 1991), 1991 WL 540752, *9, *13
n.8 (O.T.S.). In doing so, the OTS must apply the stan-
dard for liability established at the time of the conduct.
Id. Because the conduct in the case at hand occurred in
1987 and 1988, it is necessary to apply pre-FIRREA law.
Specifically, pursuant to 12 U.S.C. § 1464(d)(4)(A)
(1982) (for current provision, see, 12 U.S.C. § 1818(e)
(1994)), the OTS may bar an officer from future partic-
ipation in the affairs of a federally insured banking insti-
tution if it finds that the officer has:

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[1] committed any violation of law, rule, or regu-
lation. ..,or

has engaged or participated in any unsafe or
unsound practice in connection with the asso-
ciation, or

has committed or engaged in any act, omission,
or practice which constitutes a breach of his
fiduciary duty as such director or officer,

and

[2] the Board determines that the association has
suffered or will probably suffer substantial
financial loss or other damage[,] or

that the interests of its savings account holders
could be seriously prejudiced by reason of such
violation or practice or breach of fiduciary
duty, or

that the director or officer has received finan-
cial gain by reason of such violation or practice
or breach of fiduciary duty,

and

[3] that such violation or practice or breach of
fiduciary duty is one involving personal dis-
honesty on the part of such director or officer,
or

a willful or continuing disregard for the safety
or soundness of the association.

12 U.S.C. § 1464(d)(4)(A) (1982) (emphasis and format
added). These three sub-sections of § 1464(d)(4) have
come to be known as the (1) “misconduct,” (2) “effect,”
and (3) “culpability” prongs of the prohibition test. See
Oberstar v. Federal Deposit Insurance Corporation, 987

inhi wa Stn igi ee lhe ella

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F.2d 494, 500 (8th Cir. 1993) (construing 12 U.S.C.
§ 1818(e)).

In the administrative hearing against Cousin, the
application of § 1464(d)(4) focused upon two counts of
wrongdoing: Count I concerned Cousin’s bribery of
McLaughlin in 1987 and 1988 and Count II addressed
Cousin’s disclosure of confidential bank information as
part of his aiding and abetting in the bribery of
McLaughlin in 1988.

3. Count I: Bribery

As to Count I, the ALJ found that Part (1) was met by
Cousin’s bribery, which was a violation of the law.
While Cousin argued that the OTS must show a breach
of law related to the banking industry, the ALJ deter-
mined that the breach of any law was sufficient so long
as it had “a specific nexus to direct repercussions in
banking depository institutions.” The ALJ determined
that the 1987 bribery charge was not supported by a pre-
ponderance of the evidence, but that the 1988 bribery
charge was. In his defense, Cousin asserted that the 1988
bribe was a result of entrapment. The ALJ rejected
Cousin’s claim, pointing out that the government was
responsible for initiating virtually none of the contacts
with Cousin leading up to the bribe. Thus, the ALJ
determined that because Cousin had “violated a law,” the
misconduct prong was met.

Despite finding that Cousin’s Count I constituted a
violation of the law meeting the requirements of Part (1),
the ALJ determined that the OTS could not establish the
requisite “effects” of Part (2). Under the financial loss
provision of the effects prong, the OTS was required to
demonstrate that, as a result of Cousin’s criminal act, his
financial institution “has suffered or will probably suf-

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fer substantial financial loss.” (emphasis added). While
the ALJ found that the institution might suffer some
loss, it did not find the potential for substantial loss as
required by the pre-FIRREA law (§ 1818(e)(1)(B)(i)—
FIRREA’s effects prong—requires only that the institu-
tion will probably suffer “loss” not “substantial loss”).
Therefore, the ALJ held that the effects prong was not
met and Count I was insufficient to justify permanently
barring Cousin from conducting the affairs of any fed-
erally insured banking institution.

Finally, as to Part (3), the ALJ determined that in
order to sustain a permanent prohibition, Cousin must
have acted in a manner that “evidence[d] willful or con-
tinuing disregard for the safety or soundness of [County
Federal] itself.” While the ALJ found Cousin to have
demonstrated personal dishonesty, he found the partic-
ular dishonesty in Count I did not impact upon the bank-
ing institution or upon Cousin’s dealings with the
institution. Thus, the OTS failed to meet the culpability
prong with respect to Count I as well.

4. Count II: Aiding and Abetting Bribery

As to Count II, the ALJ determined that Cousin’s
actions violated all three subparts of the misconduct
prong; the revelation of confidential bank information
for the sake of aiding and abetting bribery 1) was a vio-
lation of law with a nexus to the banking institution, 2)
was an unsafe and unsound practice, and 3) was a breach
of fiduciary duty. The ALJ found that the OTS had
shown by a preponderance of the evidence that Cousin
had aided and abetted in the Parlantes’ act of bribery.
Looking to the record of the House hearing on the Finan-
cial Institution Supervisory Act of 1966, the ALJ con-
cluded that Cousin had committed an unsafe and

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unsound practice when he misused his position in the
Bank by revealing confidential information which he
obtained through his position. of authority. See also
Right to Financial Privacy Act, 12 U.S.C. $§ 3401 et.
seq. (1988) (conditions for providing government offi-
cials with customer’s financial records). Furthermore,
the same revelation of confidential information
amounted to a breach of Cousin’s fiduciary duty to the
Parlantes, County Federal customers.

As to Part (2), the ALJ determined that “the disclosure
and misuse of confidential bank information is integrally
related to [Cousin] and his position at [County Fed-
eral].” In light of the testimony presented at the hearing,
the ALJ concluded that the revelation of confidential
information was a sufficiently gross breach of Cousin’s
responsibilities as Bank president that an exodus of cus-
tomers might result; such an exodus would amount to
substantial harm, meeting the mandates of Part (2).

Finally, the ALJ found that Cousin met the culpability
prong when he not only acted dishonestly, but when his
dishonesty demonstrated a “willful and continuing
disregard for the safety and soundness of (County
Federal].” According'y, all of the requirements for pre-
FIRREA removal under 12 U.S.C. § 1464(d)(4) were met
by Cousin’s actions. The ALJ recommended Cousin’s
removal and prohibition from further participation in the
affairs of any federally insured financial institution.

C. The AD’s Decision and Order

Despite reaching the same conclusion as the ALJ—
namely, that Cousin should be permanently barred from
participating in the affairs of any federally insured insti-
tution—the AD disagreed with the ALJ on a number of
counts. The AD accepted the ALJ’s finding of facts, as

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recited above, in their entirety. However, when pertinent
to his evaluation of the law, the AD made additional fac-
tual determinations.

|. Count]: Bribery

Despite the ALJ’s determination that there was insuf-
ficient evidence to support a finding that Cousin’s activ-
ities in 1987 amounted to bribery, the AD held that there
was clear evidence on the record, albeit circumstantial,
to support such a finding. The AD determined that there
was sufficient evidence to show by a preponderance of
the evidence that Cousin, 1) corruptly, 2) gave $1,750
and a silver bar, 3) to McLaughlin, a government offi-
cial, 4) in order to induce him into quashing the sub-
poena. See 18 U.S.C. § 201(b)(1)(C) (1988) (elements of
bribery); United States v. Gallo, 863 F.2d 185, 189 (2d
Cir. 1988) (same), cert. denied, 489 U.S. 1083 (1989).
The AD drew further support for his determination from
the fact that Cousin presented no witnesses on his behalf
and did not testify in order to rebut the bribery charge.
See Office of Thrift Supervision v. Lopez, 960 F.2d 958,
965 (11th Cir. 1992) (adverse inference may be drawn
from failure to testify on own behalf). In addition, the
AD found that there was sufficient evidence to demon-
Strate that Cousin had illegally offered a federal official
a gratuity. See 18 U.S.C. § 201(c)(1)(A) (elements of
illicit gratuity). As to these offenses, the AD rejected
Cousin’s entrapment defense and his assertion that the
OTS was limited to punishing violations of banking law.

With respect to the effects prong, the AD rejected the
ALJ's conclusion that there was insufficient evidence of
potential substantial harm to the bank's depositors from
Cousin’s wrongdoing. The AD held that the harm to the
bank need only be potentially substantial, see Jn re

Anonymous, FDIC Docket No. FDIC-84-86g (July 30,
1984); that substantiality requirement was met, accord-
ing to the AD, by 1) the serious risk of harm to County
Federal’s reputation from its director’s actions, and 2)
the inevitable damage to the credibility of the bank offi-
cial (Cousin) with the OTS and the resultant interference
with the regulatory process that could potentially arise.
Accordingly, the AD found that Cousin’s actions satis-
fied Part (2) of the test.

Finally, in keeping with his finding as to the inten-
tional illegality of Cousin’s actions charged in Count I,
the AD determined that those actions demonstrated “per-
sonal dishonesty” on the part of Cousin. Moreover, the
AD rejected the ALJ’s conclusion that the personal
dishonesty charged need necessarily relate to banking
activity; rather, the AD held that the OTS need only
demonstrate that the individual charged has engaged
in some activity which displays dishonesty. Thus, the
AD concluded that Count I was sufficient to justify
Cousin’s prohibition and removal from engaging in
banking activity.

2. Count Il: Aiding and Abetting Bribery
As to Count II, the AD concluded:

The Acting Director affirms the ALJ’s conclusions
concerning Respondent’s liability under Count
Il. Because, however, the ALJ’s analysis regard-
ing the second and third elements of the removal/
prohibition analysis imposes standards not required
by the statute, the Acting Director does not adopt
his analysis.

Despite rejecting the ALJ’s analysis, the AD accepted
the ALJ’s conclusion that Cousin’s actions amounted to

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aiding and abetting the bribery of a federal official in
violation of federal law. See 18 U.S.C. §§ 2(a) (aiding
and abetting) and 201(b)(1)(C) (bribery); United States
v. Menesses, 962 F.2d 420, 427 (Sth Cir. 1992); United
States v. Shulman, 624 F.2d 384, 387-88 (2d Cir. 1980).
With respect to Part (2), the AD determined that Cousin
had put depositors in danger of “serious prejudice” and,
therefore, it was unnecessary to consider the ALJ's
determination that the bank faced potential substantial
harm as a result of Cousin’s actions. Because the mis-
conduct at issue in Count II involved the “use of confi-
dential customer information to orchestrate and assist
the commission of criminal activity,” the AD determined
that it was even more detrimental to the interests of the
depositors than was the activity alleged in Count I. The
AD concluded that “[dJepositors are entitled to trust the
management of depository institutions to spend their
time. . . furthering the interests of the association, not
committing illegal acts. . . . [B]y virtue of [Cousin’s]
misconduct, the interests of Cross County depositors
could be seriously prejudiced.”

With respect to Part (3), as discussed above, the AD
determined that Cousin had demonstrated personal dis-
honesty. In addition, the AD found that Cousin orches-
trated a bribery scheme over several months and that
such behavior constituted “willful and continuing dis-
regard for the safety and soundness of [the Bank].” See
12 U.S.C. § 1464(d)(4)(A) (1982). Accordingly, Count II
met all the requirements for prohibition and the AD
ordered that Cousin be removed from his office at
County Federal, and be prohibited from further partic-
ipation in any manner, in the conduct of the affairs of
any institution regulated by OTS.

;
;
:
2
‘,
FY
ia

D. The Appeal

Cousin now petitions for review of the AD’s decision
Specifically, Cousin asserts that 1) the AD’s exercise of
his “absolute discretion” violated Cousin’s right to due
process, 2) the AD’s decision was not supported by sub
stantial evidence, and 3) the AD and ALJ improperly
excluded important evidence on entrapment and outra
geous government conduct

DISCUSSION

In reviewing final orders of the OTS, the factual deter
minations of AD must be accepted if supported by sub
stantial evidence on the record. See Seidman v. Office of
Thrift Supervision, 37 F.3d 911, 924 (3d Cir. 1994). We
review the AD’s legal interpretations de novo. See 1/85
Ave. of Americas Assocs. v. Resolution Trust Corp., 22
F.3d 494, 497 (2d Cir. 1994) (deference under Chevron
U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984), inappropriate when statute admin
istered by several agencies); Wachtel v. Office of Thrift
Supervision, 982 F.2d 581, 585 (D.C. Cir. 1993) (same)

1. Due Process

Cousin asserts that the process by which he was pe
manently barred from running a federally regulated bank
violated his Fifth Amendment right to due process
According to Cousin,

[ijn the most extreme delegation of discretion yet,
arising from the savings and loan scandal which
cost Americans many tens of billions of dollars
Congress placed arbitrary power in the form of near
absolute discretion in the Director of OTS. How

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well such absolute power served the public and the
S & L industry is indicated by the tragedy which
befell both on the OTS’s watch.

Specifically, Cousin argues that his due process rights
were violated by the mixing of investigatory, prosecu-
torial, and adjudicative functions by the OTS. According
to Cousin, the AD acted with impermissible bias when
he “arbitrarily reversed the ALJ on virtually every find-
ing and ruling [the ALJ] made.” Moreover, Cousin sug-
gests that it is clear from the face of the AD’s Final
Order that the OTS had a “vendetta” against him that
dictated the outcome of the hearing.

The administrative process by which Cousin was
disciplined was mandated by statute and entirely
constitutional. While the AD had authority over the
investigative, prosecutorial and adjudicative functions
performed by his agency, and while he also had absolute
discretion to accept or reject the ALJ’s recommended
findings of fact and rulings of law when arriving at his
Final Order, such combined functions and adjudicatory
discretion fall well within the mandates of the Fifth
Amendment. See Withrow v. Larkin, 421 U.S. 35, 57-58
(1975) (risk of prejudice from joint functions of admin-
istrative agency does not rise to level of due process vio-
lation). See also Keating v. Office of Thrift Supervision,
45 F.3d 322, 327-28 (9th Cir.) (OTS procedure permis-
sible), cert. denied, 116 S.Ct. 94 (1995); Seidman, 37
F.3d at 924-26 (same).

Cousin asserts that the AD’s exercise of his discretion
demonstrated bias and was therefore a violation of his
due process rights. See, e.g., Seidman, 37 F.3d at 924. In
support of this contention, Cousin points to the numer-
ous adverse findings made by the AD, particularly those

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rejecting the recommended ruling of the ALJ. Despite
Cousin’s protestations, except his general insistence that
the AD’s Final Order demonstrates bias on its face,
Cousin cannot point to a single factor indicating the
ADs bias against him. As is clear from our discussion of
the substance of the Final Order below, there is no merit
to Cousin’s claim that the AD’s findings of fact and con-
clusions of law demonstrate bias. The process by which
Cousin was barred from future participation in any fed-
erally insured banking institution was statutorily man-
dated and entirely constitutional. See, generally,
Seidman, 37 F.3d at 924-26.

2. Substantiality of Evidence

Cousin asserts that the AD’s Final Order is not sup-
ported by substantial evidence on the record. The lack of
factual support for the AD’s prohibition order, according
to Cousin, is particularly clear from the AD’s arbitrary
rejection of the ALJ’s factual determinations and con-
clusions of law. Cousin contends that neither Count I nor
Count II of the AD’s Final Order is sufficient to justify
his prohibition from the banking industry. Because we
find that the AD’s Order was amply supported by
Cousin’s illegal actions under Count II, we need not
address Count I

A. Misconduct

The AD determined that, as to Count II, Cousin vio-
lated all three subparts of the misconduct prong—Cousin
violated a law, engaged in an unsafe or unsound banking
practice, and breached his fiduciary duties as a director
of the Bank. See 12 U.S.C. § 1464(d)(4)(A) (1982)
Specifically, the AD ruled that there was sufficient evi-
dence to prove that Cousin had aided and abetted in the

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bribery of a government official; that such aiding and
abetting, which involved the revelation of confidential
bank information, constituted a breach of his fiduciary
duty as bank president; and, that Cousin’s criminal activ-
ity, which implicated another bank employee and bank
customers, amounted to an unsafe or unsound banking
practice.

Cousin contends that the OTS does not have the
authority to punish him for an alleged crime, when the
indictment for that crime had been voluntarily dismissed
by the government. Not only does Cousin argue that
there is insufficient evidence to support a determination
that he aided and abetted in the bribery of a government
official (as is demonstrated by the dismissal of the
indictment), Cousin asserts that even if he did commit
such a crime, § 1464(d)(4) does not allow a prohibition
order to be founded upon non-banking related violations
of the law. The AD erred as a matter of law, according to
Cousin, when he rejected the ALJ’s proper determination
that such predicate violations of the law need at least
have some nexus to the banking industry.

Upon a review of the record, we find that there was
ample evidence to support the conclusion arrived at by
both the AD and ALJ, that Cousin aided and abetted in
an illegal bribe. The testimony of Agent McLaughlin,
Mr. Parlante, and Max Fodera makes clear that Cousin
conceived of a scheme in which he assisted a govern-
ment official in the investigation of the potential finan-
cial improprieties of County Federal bank customers so
that he might ultimately orchestrate the bribery of that
government official. As the AD concluded, while “it is
unclear precisely what motivated [Cousin] to perpetrate
his illegal scheme, it is clear that. . . . [Cousin’s] pur-
pose in providing confidential customer information to

A-19

McLaughlin was to facilitate a bribery scheme.” Because
the AD’s conclusion was fully supported by the record,
we find that the misconduct prong has been met.

It is disingenuous and contemptible for Cousin to
assert that the AD erred in finding a violation of the law
where the criminal indictment concerning the same mat-
ter had been voluntarily dismissed by the government.
Cousin himself sought the dismissal of the criminal
indictment for health reasons. While the government
ultimately acquiesced and dismissed the indictment, it
did so only on the condition that language preserving the
proceedings before the OTS be included in the dismissal.
Not only was Cousin aware of this language and its
intended purpose, but the language ultimately adopted
was approved by his attorney. Cousin should be grateful
for his miraculous recovery which he now asserts makes
him sufficiently fit to run a banking institution, and
thankful that he is not facing reinstated criminal charges.
This Court will not, however, give credence to such a
wrongheaded and inequitable argument.

Finally, the AD’s determination that the misconduct
prong may be met by violations of any law, banking-
related or otherwise, is clearly supported by the statute.
The plain language of the statute empowers the regula-
tory authority to prohibit a bank director from further
participating in the conduct of the affairs of any regu-
lated banking institution if that officer “has committed
any violation of law. . . .” 12 U.S.C. § 1464(d)(4)(A)
(1982); see Himes v. Shalala, 999 F.2d 684, 688 (2d Cir.
1993) (court must effectuate plain meaning of statute).
Had Congress intended for only banking-related viola-
tions to trigger § 1464(d)(4), it could have limited the
language of the misconduct prong accordingly. See, e.g.,
12 U.S.C. § 1829 (1989) (“any person who has been con-

A-20

victed of any criminal offense involving dishonesty or a
breach of trust may not participate. . . in the conduct
of the affairs of any insured depository institution”)
(emphasis added). The AD properly determined that
Congress intended no such limitation.

Because the AD’s determination that Cousin aided and
abetted in the bribery of a federal official is fully sup-
ported by the record, the misconduct prong is met. We
need not, therefore, address Cousin’s objections to the
AD’s alternative findings concerning breach of fiduciary
duty and unsafe or unsound business practices.

B. Effects

Cousin also argues that the AD failed to support, with
substantial evidence, his finding that Cousin’s actions
had harmful effects meeting the requirements of Part (2).
Pointing to the fact that, since his indictment for bribery,
County Federal has suffered no actual loss nor experi-
enced an exodus of depositors, Cousin contends that the
AD could not possibly find the requisite harmful effects
of Cousin’s alleged wrongdoing.

Despite Cousin’s contentions, however, the AD stated:

[I reject] the argument that the “effects” test
requires more immediate or direct impact upon the
association than establishment of the possibility of
serious prejudice to the interests of the institution’s
depositors. Congress simply did not draft section
1464 to impose such a requirement.

The plain language of the statute makes clear that the
AD’s interpretation is proper. Section 1464(d)(4)(A)
requires that the “interests of [the Bank’s] savings
account holders could be seriously prejudiced by reason

ik Bl he er ea, ge ‘

of such violation. . . .” (emphasis added). In light
of this language, it would be irrational to require actual
and immediate prejudice before a prohibition order
may issue. See In re Anonymous, FDIC Docket
No. FDIC-84-86g (regulation ineffective if regulator is
unable to anticipate injury to depositors and act in
advance of harmful impact); Van Dyke v. Bd. of Gover-
nors of Fed. Reserve Sys., 876 F.2d 1377, 1380 (8th Cir.
1989) (“we think it unrealistic. . . to suggest the Board
is powerless to respond to an officer’s [wrongdoing]
until actual harm to the Bank occurs”). The AD need
only show sufficient evidence on the record to demon-
strate the possibility of serious prejudice resulting from
Cousin’s illegal activities for the effects prong to be met.

In support of his finding of potential serious prejudice,
the AD points to two factors: 1) Cousin’s illegality could
potentially injure depositor confidence in County Fed-
eral and lead to an exodus of depositors; and 2) Cousin’s
illicit conduct injured his credibility with the banking
regulatory authority (namely the OTS), thus impairing
his ability to effectively represent the Bank’s interests.
Both of these propositions were fully supported by the
testimony of Michael Simone, an Assistant Director for
the OTS in its Northeast Region. While we think that
basing an effects determination on Cousin’s credibility
with the OTS alone would be insufficient, the AD’s
determination that there was a possibility of serious prej-
udice from the combination of the two factors cited
above is appropriate and supported by substantial
evidence.

C. Culpability

Cousin also challenges the AD’s determination that
Part (3) was met by his alleged wrongdoing. Cousin

A-22

points to the ALJ’s conclusion that “the third prong of
the statute ... clearly intend[s] the Respondent’s
actions to relate to the financial institution directly, and
not merely indirectly or in some peripheral manner.”
Contrary to the ALJ’s interpretation of the statute, the
AD determined that there need only be some knowing
act of “personal dishonesty” to meet the requirements of
the culpability prong. As the AD notes, while the second
subcategory of Part (3) explicitly requires misconduct
directed at the association, see 12 U.S.C. § 1464(d)(4)(A)
(1982) (“willful or continuing disregard for the safety or
soundness of the association”), no such requirement
exists with respect to “such violation[s]. . . involving
personal dishonesty,” id. Accordingly, the OTS need
only demonstrate “a degree of culpability well beyond
mere negligence.” Kim, 40 F.3d 1050, 1054 (9th Cir.
1984). The evidence of Cousin’s bribery and breaches of
confidentiality clearly support such a finding of inten-
tional wrongdoing.

3. Entrapment and Outrageous Government Misconduct

Finally, Cousin argues that the AD improperly
excluded evidence concerning the allegedly outrageous
government conduct to which Cousin had been subjected
and incorrectly denied his entrapment defense as a mat-
ter of law. We note only that the evidence credited by the
ALJ and AD clearly established that Cousin conceived
of the bribery scheme of his own volition and presented
it, unsolicited, to Agent McLaughlin. Under such cir-
cumstances, Cousin’s entrapment defense—regardless of
the outrageous government conduct Cousin asserts—
necessarily fails as a matter of law. See Jacobson v.
United States, 503 U.S. 540, 549 (1992) (“the prosecu-
tion must prove beyond reasonable doubt that the defen-

Na 1S Dita REAR PI EET he ge

dant was disposed to commit the criminal act prior to
first being approached by Government agents”).

CONCLUSION

The AD’s prohibition order was fully supported by the
evidence on the record and is proper as a matter of law.
Accordingly, Cousin’s petition for review of the final
decision and order of the AD is denied. Because the
OTS’s Final Decision and Order stands, Cousin’s appeal
concerning the temporary suspension and prohibition is
dismissed as moot.

UNITED STATES OF AMERICA
before the
OFFICE OF THRIFT SUPERVISION
DEPARTMENT OF THE TREASURY

IN THE MATTER OF:
CASE NO. OTS AP 93-38

MICHAEL COUSIN, DATED: MAY 13, 1993

a Person Participating in the OTS ORDER NO. AP 94-48
Conduct of the Affairs of Cross DATED: OCTOBER 11, 1994
County Federal Savings Bank,

Queens, New York

DECISION AND ORDER

A25

TABLE OF CONTENTS

lo ine te 1 ae ace ee pail

I. INTRODUCTION AND SUMMARY OF
CONCLUSIONS

i ERE ig coe ore Se a
A. Description of the Charges and
Summary of Administrative Proceedings . . .
1. The Prior Suspension Order
and Related Proceedings

ee ee eee

2. The Instant Proceedings

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B. Summary of the ALJ’s Recommended
Decision

C. Exceptions to the Recommended Decision

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A. The 1987 Bribe

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B. The 1988 Bribe

72S 8-2. 6. £2 eto. 8 © 6-8 @ th 6b S

C. The Aiding and Abetting of a Bribe in 1988 ...

IV. ISSUES

V. DISCUSSION

B. Count I: Respondent’s 1987 & 1988 Bribe
of a Federal Official

1. Misconduct

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A26

i. The Bribery Charge ....... a
ii. The Illegal Gratuity Charge .
b. The 1988 Conduct .......... 27

c. Respondent's Defenses to the
Violations of Law . er 28

Effect of Respondent's Misconduct on
the Association ........ ; 3]

3. Respondent's Culpability .. 39

C. Count II: Respondent's Aiding and Abetting

the Bribery of a Federal Official 41
1. Musconduct : 4]
a. Respondent Violated the Law 4]

b. Respondent's Defenses to the
Violations of Law .. 43

c. Respondent Committed an Unsafe or
Unsound Banking Practice .. 43

d. Respondent Breached his Fiduciary
Duties to the Association ...... 46

2. Effects of Respondent's Misconduct on
the Association .... ' 47

3. Respondent's Culpability ~ 48
D. RESPONDENT'S REMAINING EXCEPTIONS 50

E. RESPONDENT'S REQUEST FOR ORAL
REPUTE bucesecdes nee (ene .

bo ie ee eg in Ne RE EE

ORDER

A28

DECISION
I. INTRODUCTION AND SUMMARY OF CONCLUSION

This case arises from a criminal indictment on multiple
counts of bribery and conspiracy brought in 1990 against Michael
Cousin ("Respondent"), former chief executive officer and
chairman of the board of directors of Cross County Federal
Savings Bank, Queens, New York ("Cross County” or the

Association’). As a result of Respondent’s arrest, the Office of

Thrift Supervision ("OTS") issued an order on August 10, 1990,
suspending Respondent from his positions with Cross County.
Due to Respondent's incapacity to stand trial, the criminal

indictment was later dismissed without prejudice. A condition of

the dismissal, negotiated with Respondent, specified that the
dismissal did not affect the pending OTS suspension order.

The OTS thereafter instituted this action, secking an
order of permanent removal and prohibition against Respondent
based on two counts: (1) for bribing a federal official in 1987 and
1988 and (2) for aiding and abetting a bribe of a federal official
in 1988. Respondent used his position with, and the facilities of,
Cross County to commit a bribery offense, set up a bank

customers to engage in illegal activities and induce a member of

Cross County's Board of Directors to commit a criminal act. All
of these activities could seriously prejudice the interests of the
depositors, and all evidence personal dishonesty.

The gravity of Respondent's misconduct was precisely
what concerned Congress when it provided that an individual
convicted of certain types of criminal offenses should be
automatically prohibited from the banking industry. Here, on the
grounds of physical incapacity, Respondent was able to avoid trial
on the merits in a criminal forum. The allegations have been
adjudicated in this administrative proceeding, however. The
Acting Director concludes that Respondent’s misconduct
demonstrating personal dishonesty was established by a
preponderance of the evidence. The Acting Director also
concludes that such misconduct could seriously prejudice the
interests of Cross County's depositors. Accordingly, the sanction

ew a

A29

of removal and prohibition is appropriately ordered here pursuant
to 12 U.S.C. Sec 1464(d)(4)(A) (1982) and 12 US.C. Sex
1818(e) (Supp. v 1993)

Il. BACKGROUND

A. DESCRIPTION OF THE CHARGES AND
SUMMARY OF ADMINISTRATIVE
PROCEEDINGS

1. The Prior Suspension Order And Related Proceedings

Respondent was charged on August 8, 1990, with multiple
counts of bribery. Cousin v, OTS, 840 F.Supp. 8, 9 (E.D.N.Y
1993). On August 10, 1990, after the OTS learned of
Respondent’s arrest, the District Director of the New York
District office of the OTS issued and served upon Respondent a
Notice of Suspension and Prohibition from Participation in
Association Affairs under 12 U.S.C. Sec. 1818(g)(1), suspending
Respondent from his positions with Cross County and prohibiting
him from further participation in any manner in the conduct of
the affairs of Cross County. Id. On September 9, 1990, a grand
jury indicted Respondent on eight counts of bribery and
conspiracy. Id

Pursuant to Respondent's request, an administrative
hearing on the suspension was conducted on March 1. 1991. The
President Officer subsequently issued a Recommended Decision
that the Director continue the suspension and prohibition until
final disposition of the criminal case. The Director of OTS
adopted this recommendation on July 15, 1991. OTS AP 91-42

On May 25, 1992, the criminal indictment was dismissed
at Respondent's motion on the ground that he was not physically
capable of standing trial. Cousin, 840 F.Supp. at 9. The OTS
requested and obtained language in the dismissal order that the
dismissal "does not constitute a final disposition of the indictment
for purposes of 12 U.S.C. Sec. 1818(g), [and] is not a dismissal on
the merits.” Id. at 10. Respondent stated at the time that he had
no objection to this provision. Id.

A30

In February 1993, Respondent filed a civil action in
federal district court for the Eastern District of New York against
the OTS seeking a declaratory judgment that the OTS suspension
order had been terminated as a matter of law by the district
court's dismissal of the indictment. See Cousin v. Office of Thrift
Supervision, Civ. No. 93-0548 (EHN). In dismissing
Respondent's suit, the district court concluded that Respondent -

having negotiated the language of the dismissal -- waived his
right to have the suspension order jerminate when the criminal
charges against him were dismissed. ! Cousin, 840 F Supp. at 11.
Accordingly, the suspension order remains in effect.“

2. The Instant Proceeding

On May 13, 1993, Enforcement instituted the instant
removal and prohibition proceeding against Respondent. The
Notice of Charges alleges three incidents, under two independent
counts, giving rise to the enforcement action. These three events
also served as the basis for Respondent's arrest and criminal
indictment in 1990. Count I charges that on two occasions in
1987 and 1988 Respondent bribed an IRS agent to terminate a
grand jury investigation while on bank premises and using bank
facilities. Count II charges that Respondent aided and abetted
the crime of bribery, by disclosing confidential information

| That action is presently on appeal before the U.S. Court
of Appeals for the Second Circuit. Cousin v. OTS, Dkt. No. 94-
6070 (argued September 14, 1994).

2 ‘The district court also noted that Respondent has recourse
under 12 U.S.C. Sec. 1818(g) to apply to the OTS for
reinstatement. 840 F.Supp. at 11. By letter dated September 30,
1992, Respondent requested, through counsel, acknowledgment
by the OTS that the suspension order terminated by virtue of the
dismissal. By letter dated November 25, 1992, the OTS notified
Respondent that it considered the suspension order to continue
in effect

A311

concerning the affairs of Cross County customers to an IRS agent
in orchestrating a bribe of the agent by Cross County customers.

Respondent answered the charges on June 2, 1993, and
asserted six affirmative defenses. Respondent also requested a
private hearing. This request was Opposed by Enforcement and
denied by the Acting Director on August 6, 1993.

On July 18, 1993, Respondent moved to dismiss this
proceeding. Enforcement opposed the motion and on August 9,
1993, the ALJ denied the request.

On September 13-15, 1993, a hearing was held in New
York City, New York before the ALJ. At the hearing,
Enforcement argued that Respondent also committed the
additional offense of giving an illegal gratuity to a federal official
in 1987. The parties filed post-hearing proposed findings of fact,
conclusions of law, memoranda of law, briefs and reply briefs

The ALJ issued a Recommended Decision and Order on
March 31, 1994. Both parties filed exceptions thereto as well as
additional memoranda and replies. On June 27, 1994, the parties
were notified that the ALJ’s Recommended Decision had been
Submitted to the Acting Director for final decision. On
September 26, 1994, the Acting Director extended the deadline

lor issuing the final decision to October 11. 1994 OTS Order
No. Ap 94-43

B. Summary of the ALJ’s Recommended Decision

The ALJ determined that Enforcement had not sustained
its burden of proof under Count I for several reasons. First, he
found that the evidence was insufficient to conclude that
Respondent violated any law in 1987. Second, while he
determined that Respondent’s 1988 activity violated the anti-
bribery statute, the ALJ concluded generally that Enforcement
did not prove that the actual or potential loss or harm caused by
Cousin’s activities to the institution was “substantial”, or that the
interests of the depositors could be seriously prejudiced in light
of the existence of federal deposit insurance. The ALJ also

A32

concluded that Respondent’s acts -- while evidencing personal
dishonesty -- were not directed towards the Association. Nor did
the ALJ find that Respondent acted with willful or continuing
disregard for the safety or soundness of Cross County. Thus, the
ALJ did not recommend removal or prohibition on Count I.

On Count II, however, the ALJ found against
Respondent. The ALJ concluded that Respondent’s involvement
in the Cross County customers’s bribe of an IRS agent
constituted: a) a violation of law, per 18 U.S.C. Sec. 2 (treating
aiders and abettors as principals); b) an unsafe and unsound
banking practice; and c) a breach of fiduciary duty to Cross
County. The ALJ also determined that the disclosure and misuse
of confidential bank information was integrally related to
Respondent’s position at Cross County, and conclude that the
Association suffered or will probably suffer substantial financial
loss or other damage. Similarly, he concluded that Respondent's
display of personal dishonesty was sufficient to warrant removal
and prohibition because Respondent's misconduct related to
activities concerned with the Association and that Respondent
acted with willful and continuing disregard for the safety and
soundness of the Association.

c. Exception to the Recommended Decision

Respondent has entered exceptions to most of the ALJ's
Recommended Decision, reasserting arguments he raised before
the ALJ. Respondent raises a number of factual exceptions, but
the only significant one is his claim that he did not offer to pay
the IRS agent to terminate the IRS investigation in 1988 or aid
and abet the commission of bribery in 1988. Respondent also
raises several evidentiary issues, summarized as follows: (1) that
he was not permitted to adequately cross-examine witnesses on
matters relating to the grand jury, IRS matters or his entrapment
defense; (2) that certain discovery requests were improperly
denied, including a request for issuance of a subpoena to the
IRS; and (3) that OTS’s expert testimony should not be accorded
any deference. Finally, Respondent asserts a number of legal
arguments, essentially denying that the elements for removal
and/or prohibition have been met and claiming that Respondent

A33

was entrapped and is the victim of government misconduct.

Enforcement excepted to the ALJ’s Recommended
Decision concerning Count I. First, Enforcement took exception
to several factual issues relating to details concerning the bribes.
Second, Enforcement excepted to the ALJ"s standard for removal
and prohibition to the extent that the ALJ's interpreted each
element to require Respondent's misconduct to be integrally
related to the Association. Enforcement also argued that the
ALJ, having failed to accord appropriate deference to the OTS’s
expert testimony, improperly concluded that there was insufficient
evidence of actual or potential prejudice to the interests of the
depositors.

iil. FINDINGS OF FACT

The Acting Director generally accepts the facts relied on
by the ALJ in his Recommended Decision. The Acting Director
believes, however, that the record reflects additional facts
relevant to a determination of this action. These facts are
included in the following discussion of the three incidents giving
rise to this proceeding.

A. The 1987 Bribe

The events underlying the bribery charge commenced in
late 1986 or early 1987, when Kevin McLaughlin ("McLaughlin"),
a Special Agent with the Internal Revenue Service ("IRS")
Criminal Investigation Division, served a grand jury subpoena on
European American Bank ("EAB") for records relating to
Respondent. Respondent was contacted by EAB and thereafter
initiated a meeting with McLaughlin in February 1987 to review
documents at Cross County responsive to the EAB subpoena.
When McLaughlin began to question Respoudent about the
documents, Respondent terminated the meeting on the grounds
that he desired legal representation.

Several months later, Respondent called McLaughlin,
complained of the cost of retaining an attorney and inquired
whether it was necessary to do so. Respondent mentioned that

A34

he donated a lot of money to charity, and offered to donate
money to McLaughlin’s favorite charity. Because McLaughlin
believed that Respondent had offered him a bribe, he reported
the incident to the U.S. Attorney’s office and his supervisors, who
directed him to enter into an undercover operation to accept any
bribes offered by Respondent. All of Respondent’s conversations
with McLaughlin thereafter were monitored by means of a
recording device.

On May 27, 1987, at Respondent’s request, McLaughlin
met with Respondent at Cross County. Respondent told
McLaughlin that he did not need an attorney and that he would
give McLaughlin half the money that it would have cost to retain
an attorney. He also inquired whether McLaughlin "had a tape
on" and later stated, "I hope#ou ain’t taping it" and "you're not
taping what we did,” asking McLaughlin to raise his right hand to
swear to it. (OTS Exhibit 1 at 6; 13).

On June 8, 1987, Respondent telephoned McLaughlin to
schedule a meeting. McLaughlin asked if they "still got a deal"
and Respondent replied, "of course." (OTS Exhibit 2 at 3). The
next day, Respondent and McLaughlin met in Respondent’s
office at Cross County. During the meeting, Respondent
inquired how McLaughlin knew his telephone weren't
wiretapped. Respondent gave McLaughlin $1,750 in cash in an
envelop and a Swiss silver bullion bar. When McLaughlin started
to count the money, Respondent cautioned him to put it away.

B. The 1988 Bribe

In 1988, a grand jury subpoena was served on All Queens
Tudor Realty ("AQTR"), located in Queens, New York, an entity
in which Respondent had a financial interest. Within days after
service of the subpoena, Respondent tried to contact
McLaughlin.

On February 10, 1988 McLaughlin and Respondent,
meeting at Cross County, discussed the subpoena issued to
AQTR. McLaughlin understood that Respondent wanted the
agent to "kill" the investigation of AQTR and "make the

Subpoena go away" in return for $5,000 from Respondent and
another party. (Transcript Vol. I at 96-97; OTS Exhibit 13).
McLaughlin understood that Respondent would pay him $5,000
because Respondent used hand signals, indicated that figure and
then wrote the amount on a piece of paper. Respondent and
McLaughlin agreed to meet the following week to effectuate the
payment to McLaughlin and later scheduled that meeting for
February 18, 1988, at Cross County.

The meeting on February 18, took place in Respondent's
office at Cross County. Respondent gave McLaughlin an
envelope with $6,500° and repeatedly told McLaughlin he
“wanted this stopped" and didn’t “want to hear" anymore about
the investigation (OTS Exhibit 5 at 9). McLaughlin understood
from the discussion that Respondent wanted McLaughlin to "kill
the investigation" and that Respondent "didn’t want to be
bothered with it anymore." (Transcript Vol. I at 101, 103, 105,
106, 108).

C. The Aiding and Abetting of a Bribe in 1988

In March of April 1988, Respondent -- on his own
initiative -- contacted McLaughlin and scheduled a meeting on
April 26, 1988. They met at Cross County and proceeded to a
restaurant for lunch. During their meeting, Respondent
suggested that McLaughlin open an investigation of certain Cross
County customers for possible federal tax evasion and
-Respondent would arrange for the customers to bribe
McLaughlin to close the _ investigation. According to
Respondent’s plan, Respondent would provide McLaughlin
sufficient information on these individuals to enable McLaughlin
to commence an investigation of them. Then, Respondent would
arrange for the individuals to bribe McLaughlin to "kill" the case.
(Transcript Vol. I at 109-10; OTS Exhibit 6). Respondent

3 Respondent originally told McLaughlin that Respondent
was paying $5,000 and his partner in AQTR the remaining
$1,500; however, Respondent later admitted to McLaughlin that
it was all Respondent’s money.

A36

arranged for Max Fodera ("Fodera"), a friend of Respondent's
and a member of the Cross County Board of Directors, to serve
as an intermediary in Respondent’s scheme. As part of his
undercover operation, McLaughlin agreed to Respondent's plan.

At a meeting at Cross County on May 11, 1988 at
Respondent’s request, Respondent identified the individuals he
mentioned on April 26, 1988, as a Mr. and Mrs. Parlante. John
and Joan Parlante were borrowers who had obtained a mortgage
from Cross County on their personal residences through
Respondent. McLaughlin identified the information he would
need about the Parlantes to open in investigation. Respondent
thereafter provided McLaughlin with the Parlantes’ social security
numbers and information concerning the location of houses,
business, and income as reported on their Cross County mortgage
application.

In August 1988, McLaughlin served a grand jury subpoena
on Cross County for the Parlantes’ bank records, and McLaughlin
and Respondent then discussed how they would proceed with the
investigation of the Parlantes. McLaughlin testified that, during
a meeting at Cross County, he and Respondent also considered
"how to go about it, when to subpoena them, whether I should
wait or do it sooner, do it later .. How we should proceed."
(Transcript Vol. I at 128). Subsequent to this mecting,
Respondent advised McLaughlin that Respondent believed the
Parlantes would pay $425,000 bribe to McLaughlin.

Thereafter, at Respondent’s direction, Fodera advised the
Parlantes that Cross County had received a subpoena for the
Parlantes’ bank records. Fodera also told the Parlantes that they
“were in a lot of trouble;" that Respondent wanted to talk with
them; and that Respondent could “take care of everything."
(Transcript Vol. II at 414). Following Fodera’s meeting with the
Parlantes, Respondent informed McLaughlin that the Parlantes
were very concerned about the subpoena and Respondent
advised McLaughlin that McLaughlin “will have some winner
there." (OTS Exhibit 8 at 3, 8; Transcript Vol. I at 130).

Approximately one week later, Fodera advised the

- -

A37

Parlantes that Respondent wanted to talk with John Parlante at
Cross County. John Parlante was not inclined to meet with
Respondent but Mrs. Parlante agreed to meet with Respondent
at Cross County. At that meeting, Respondent advised Mrs.
Parlante that Cross County had been served with a subpoena and
that the bank would have to give all the information Cross
County maintained on the Parlantes to the IRS agent. Mrs.
Parlante told Respondent that he should provide any information
the IRS requested in the subpoena.

Respondent advised Mrs. Parlante that he had previous
problems with the IRS, that the agent identified on the subpoena
for the Parlantes’ records was the same agent responsible for
Respondent’s case, and that Respondent "knew how to deal with
this agent." (Transcript Vol. II at 382). Respondent further
explained that the IRS agent would take a bribe and that "you
have to bribe the agent.” Id. Mrs. Parlante initially opposed any
bribe plan and Respondent, disturbed with her resistance, told
Fodera and Mrs. Parlante that he did not want to deal with her
anymore and that he wanted to schedule a meeting with her
husband at Cross County.

On September 26, 1988, Respondent and McLaughlin
discussed when McLaughlin should serve the subpoenas on the
Parlantes at their place of business. Respondent told
McLaughlin that Respondent was dispatching Fodera to meet
with the Parlantes the next day and that McLaughlin should delay
serving the subpoenas until after Fodera met with them. Fodera
was instructed to tell the Parlantes that Respondent knew
McLaughlin. On the following day, Respondent telephoned
McLaughlin and advised him that Fodera had met with the
Parlantes and that Mrs. Parlante was concerned, but that her
husband was not. McLaughlin and Respondent then agreed on
the date and time that McLaughlin would serve the subpoena on
the Parlantes.

As advised by Respondent and in furtherance of the plan
conceived by Respondent, McLaughlin served a subpoena on the
Parlantes at their place of business. John Pariante instructed
McLaughlin to leave and to contact the Parlantes’ lawyer. Mr.

A38

Parlante then decided to meet with Respondent after his wife
relayed Respondent’s assertions that Respondent knew the agent
and that "he could be taken case of." (Transcript Vol. II at 416).

John Parlante later met with Respondent at Cross
County. During the meeting Respondent informed Mr. Parlante
that Respondent knew McLaughlin from past investigations.
Respondent also advised Mr. Parlante that McLaughlin would
accept a bribe to terminate the IRS mvestigation of the Parlantes.
Respondent encouraged Mr. Parlante to pay McLaughlin to
terminate the investigation and gave Parlante specific instructions
on how to effectuate the bribe, including use of a code phrase to
signal that McLaughlin and Mr. Parlante could continue their
discussions in private.

Respondent and McLaughlin thereafter spoke on the
phone to discuss the subpoena involving the Parlantes and the
possibility of payments from the Parlantes. Respondent also gave
McLaughlin instructions on how to accept the payment from
John Parlante, including instructions "to be careful what [he] said
with him" and not to leave any evidence of a bribe amount on
paper. (Transcript Vol. I at 146-148). On October 20, 1988,
McLaughlin met with Mr. and Mrs. Parlante to discuss the IRS
subpoenas. During the meeting, John Parlante, following
Respondent’s specific ir.structions, offered to pay McLaughlin
$25,000 in cash to terminate the IRS investigation of the
Parlantes. At the same meeting, Mr. Parlante paid McLaughlin
$20,000 in cash. On October 27, 1988, Mr. Pariante paid
McLaughlin an additional $5,000 in cash to terminate the IRS
investigation.

Following the October 20, 1988, payment by the
Parlantes, McLaughlin spoke bv phone with Respondent on
several occasions. Respondent was advised by McLaughlin of the
payment by the Parlantes and encourage McLaughlin to ask the
Parlantes for more money. He took credit for advising John
Parlante how to effectuate the bribe, stating, "I coached him
everything that he did to you today." (OTS Exhibit 12 at 14).
Respondent also encouraged McLaughlin to pay Fodera $2,500
in cash for Fodera’s role in obtaining the payment from the

F
i
E

A39

Parlantes.

On November 2, 1988, McLaughlin telephoned
Respondent and agreed to meet Respondent and Fodera. At the
meeting, Respondent, Fodera and McLaughlin discussed the
Parlante payment, and McLaughlin paid $2,500 to Fodera.

IV. ISSUES

This proceeding raises severai issues, including: (1)
whether the violation of a criminal statute may serve as the basis
for a removal and prohibition order under 12 U.S.C. Sec.
1464(d)(4)(A) and if so, whether the evidence adduced in this
action demonstrates a violation of law; (2) to what extent the
“violation of law" provision in the removal and prohibition statute
requires misconduct relating to the specific institution; and (3)
whether the ALJ properly interpreted the phrase “that the
interest of [the] savings account holders could be seriously
prejudiced by reason of such violation . . . .," and properly
evaluated Enforcement’s evidence of potential or actual prejudice
based on Respondent’s 1990 arrest and indictment.

V. DISCUSSION
A. Statutory Background

The OTS’s authority to bring this action against
Respondent is founded on provisions existing both prior to the
enactment of, as well as those included in, the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 .
("FIRREA"), P.L. No. 101-73, 103 Stet. 183 (1989).4 The:
current version of the removal and prohibition statute appears in
section 8(e) of the Federal Deposit Insurance act ("FDIA"), 12
U.S.C. Sec. 1818(e) (Supp. v. 1993). The remedies established by
FIRREA may be applied to conduct that occurred before the

4 The OTS is the “appropriate Federal banking agency" with
regard to Cross County and Cousin. 12 U.S.C. Sec. Sec. 1813(q),
1818(1)(3).

A40

Statute was passed, but the substantive standards for judging
Respondent's conduct are those found in the law in effect during
the time of the conduct complained of, that is, former 12 U.S.C.
Sec. 1464(d)(4)(A) (1982). See In re Keating, OTS order No.
AP 91-20 (May 11, 1991) at 17-23; In re O'Keeffe, OTS order
No. AP 90-661 (April 26, 1990) at 13-15.

Before turning to the analysis of the removal and
prohibition charges at issue, the Acting Director notes that the
statutory scheme for removal and prohibition involves additional
provisions necessary for an understanding for this proceeding.
The provisions appear in the enforcement statutes applicable to
the agency existing both before and after the enactment of
FIRREA.

Under section 8(g)(1)(A) of the FDIA, an institution-
affiliated party charged with (1) a crime involving dishonesty or
a breach of trust which is punishable by imprisonment for a term
exceeding one year under state or federal law, or (2) a criminal
violation of certain enumerated provisions of Titles 18 or 31 of
the United States Code, may be summarily suspended and/or
prohibited by the OTS if the agency determines that such
individual's continued service or participation may pose a threat
to the interests of the depositors or may threaten to impair publig
confidence in the association. 12 U.S.C. Sec. 1818(g)(1)(A).
Such suspension or prohibition remains in effect until the final
disposition of the charge or until terminated by the agency. 12
U.S.C. Sec. 1818(g)(1)(B).

Similarly, if an institution-affiliated party is convicted of
a crime involving dishonesty or a breach of trust which is
punishable by imprisonment for a term exceeding one year under
state or federal law, the OTS, upon a finding that continued
service or participation by the individual may pose a threat to the

> The institution-affiliated party may request a hearing after
the issuance of the notice of suspension or prohibition. 12 U.S.C.
Sec. 1818(g)(3)

A4l

interests of the association's depositors or may threaten to impair
public confidence in the association, may issue without prior
hearing, an order of removal or prohibition. 12 U.S.C. Sec.
1818(g)(1)(C)(i). In the event of a conviction for a violation of
the enumerated provisions of Titles 18 and 31, the agency is
required to order summarily the individual's removal or
prohibition. 12 U.S.C. Sec. 1818(g)(1)(C)(ii).

The statute also provides that the fact that an individual
is found not guilty of the charge, or the charge is otherwise
disposed of, does not preclude the OTS from thereafter
instituting a proceeding seeking the individuals’s permanent
removal and prohibition under section 8(e) of the FDIA. 12
U.S.C. Sec. 1818(g)(1)(D)(ii).

For conduct that occurred prior to the passage of the
FIRREA, the OTS is authorized to issue a removal and
prohibition order where an officer or director has, in pertinent
part:

(a) committed any violation of law or regulation;
or

(b) engaged or participated in an unsafe or
unsound practice in connection with the
institution; or

(c) committed or engaged in any act, omission, or
practice which constitutes a breach of his
fiduciary duty as such officer or director.

;
|

© The statute authorizes a post-order hearing at the request
of the individual. 12 U.S.C. Sec. 1818(g)(3)

y Substantially similar provisions were in effect pre-FIRREA
under 12 U.S.C. Sec. 1464(d)(5).

A42

Second, as a result of such misconduct, the institution
must either:

(a) have suffered or will probably suffer
substantial financial loss or other damage, or

(b) the interests of its savings account holders
could be seriously prejudiced by reason of the

misconduct; or

(c) respondent received financial gain from the
misconduct.

Finally, the misconduct must evidence either:

(a) personal dishonesty on the part of
respondent; or

(b) a willful or continuing disregard for the safety
or soundness of the institution.

12 U.S.C. Sec. 1464(d)(4)(A) (1982)(repealed).8 The first

8 The current standard for removal and prohibition is set
forth in 12 U.S.C. Sec. 1818(e). In most respects it is similar,
although not identical, to the standard contained in sec.
1464(d)(4)(A).

Section 1818(e)(1) presently provides that the appropriate
federal banking agency may serve a notice of removal/prohibition
whenever it determines that any (I) institution-affiliated party has,
directly or indirectly, (a) violated (1) any law or regulation; (2)
any cease-and-desist order which has become final; (3) any
condition imposed in writing by the appropriate Federal banking
agency in connection with the grant of any application or other
request by such depository institution; or (4) any written
agreement between such depository institution and such agency;
(b) engaged or participated in any unsafe or unsound practice in
connection with any insured depository institution or business
institution; or (c) committed or engaged in any act, omission, or

A43

element identifies three independent types of misconduct, the
latter two of which contemplate misconduct relating directly to
the institution at issue. The second element identifies three
alternative effects of the misconduct, including potential serious
harm to the association. Finally, the last element identifies two
separate aspects of culpability, the latter of which relates to the
subject institution. These three categories of requirements may
be referred to respectively as "misconduct," “effects” and
culpability." See Oberstar v. FDIC, 987 F.2d 494, 500 (8th Cir.
1993) (construing substantially identical language in 12 U.S.C.
Sec. 1818(e)).

B. Count I: Respondent’s 1987 and 1988 Bribes of a
Federal Official

1. Misconduct
a The 1987 Conduct
i The Bribery Charge
With regard to the first clement, the underlying
misconduct, Enforcement charged that Respondent twice bribed
McLaughlin in 1987 and 1988 in violation of 18 U.S.C. Sec.

201(b)(1)(C). Section 201(b)(1)(C) imposes criminal penalties on
whoever:

practice which constitutes a breach of such party's fiduciary duty;
(II) by reason of such violation. Practice or breach, (a) such
insured depository institution or business institution has suffered
or will probably suffer financial loss or other damage; (b) the
interests of the insured depository institution's depositors have
been or could be prejudiced: or (c) such party has received
financial gain or other benefit: and (III) such violation, practice
or breach either involves personal dishonesty on the part of such
party or demonstrates willful or continuing disregard by such
party for the safety or soundness of such insured depository
institution or business institution. 12 U.S.C. Sec. 1818(e)( 1).

A44

(1) directly or indirectly, corruptly gives, offers or
promises anything of value to any public official
or person who has been selected to be a public
official, or offers or promises any public official or
person selected to be a public official to give
anything of value to any other person or entity,
with intent -- ...

(c) to induce such public official or such person
selected to be a public official to do or omit to do
any act in violation of the lawful duty of such
official or person; . ..

18 U.S.C. Sec. 201(b)(1)(C). See United States v. Gallo, 863
F.2d 185, 189 (2d Cir. 1988), cert. denied, 489 U.S. 1083 (1989)
(bribery has been committed where something of value is offered
or promised with intent to influence any official act). A bribe is
distinguishable from an otherwise lawful expenditure to foster
goodwill insofar as a bribe is made with "criminal intent that the
benefit be received by the official as a guid pro quo for some
official act, pattern of acts, or agreement to act favorably to the
donor when necessary.” United States v. Head, 641 F.2d 174,

180 (4th Cir. 1981), quoting United States v, Arthur, 544 F.2d

730, 735 (4th Cir. 1976).

The element of criminal or "corrupt" intent that must be
proved for a bribe is a higher degree of intent than that which is
required under the provision that prohibits illegal gratuities.

United States v. Hsich Hui Mei Chen, 754 F.2d 817, 822 (9th
Cir.), cert. denied, 471 U.S. 1139 (1985), citi ited States v.

Strand, 574 F.2d 993, 995 (9th Cir. 1978).” A defendant’s
awareness of the illegality of the transaction is evidence of
corrupt intent. Id.

The Acting Director rejects the ALJ's conclusion that the

9 Section V.B.1.a.ii infra discusses the lesser included offense
of giving an “illegal gratuity."

— ee

A45

evidence fails to establish that Respondent violated 18 U.S.C.
Sec.201(b)(1)(c). While the evidence concerning the 1987 bribe
is largely circumstantial, it is nonetheless clear that Respondent
paid McLaughlin to terminate the IRS investigation in 1987. The
evidence meets each of the four elements of a bribe -- (i)
corruptly (ii) giving something of value (iii) to a government
official (iv) to induce the official to act or omit to act in violation
of his lawful duty. Respondent gave something of value -- $1,750
in cash, as well as a bar of silver bullion -- to McLaughlin, a
government official.

Additionally, the evidence in the record, and
Respondent's failure to rebut such evidence, also demonstrates
that Respondent acted with the intent to induce McLaughlin to
breach his lawful duty."” Respondent's statement to
McLaughlin -- an IRS agent with whom he had no previous
dealings -- that Respondent did not need an attorney and that he
would give McLaughlin half the money that it would have cost

10 The evidence relating to the bribery charge is primarily
based on McLaughlin's testimony and transcripts of the taped
conversations between McLaughlin and Respondent. The ALJ
found McLaughlin to be a credible witness. R.D. at 13 n.7.
Given the ALJ's first-hand observations of the witness’ demeanor,
the Acting Director defers to the ALJ’s determination.

Respondent failed to provide any witnesses on his own
behalf, including himself. The Acting Director is entitled to draw
an adverse inference from Respondent’s failure to testify on his
own behalf. See Director oO ift ision Vv. Zz
960 F.2d 958, 965 (11th Cir. 1992); N. Simms Organ & Co. v.
Securities and Exchange Commission, 293 F.2d 78, 80-81 (2d Cir.

1961), cert. denied, 368 U.S. 968 (1962).

The Acting Director also notes that Respondent's
repeated factual cites in his pleadings to the "totality of the
evidence” is neither probative nor illuminating and fails to
comport with the requirements of specificity set forth in 12
C.F.R. Sec. 509.39(b).

A46

for an attorney, and his later affirmative response to
McLaughlin’s question whether they "still got a deal," admit of
only one interpretation: Respondent wanted McLaughlin not to
execute the subpoena, as McLaughlin’s duty required him to do.
The next day, Respondent gave an envelope full of money to
McLaughlin. It was McLaughlin’s uncontroverted testimony that
he comprehended that Respondent’s offer to donate money to
McLaughlin’s favorite charity (instead of retaining an attorney)
was in exchange for abandoning the subpoena. Indeed,
Respondent understood that he had offered McLaughlin a bribe,
as he later admitted to John Parlante that he had previously
bribed McLaughlin and advised John Parlante that “you have to"
bribe the agent. (Transcript Vol. II at 417).

Further, Respondent’s repeated efforts to conceal his
communications with McLaughlin establish that he acted
corruptly. Respondent was careful not to express the terms of
the bribe more clearly, given his oft-stated concerns that the IRS
might be surreptitiously recording his conversations with
McLaughlin. Similarly, Respondent cautioned McLaughlin to not
count the money in the envelope openly. Respondent's concerns
and attempts to avoid surveillance demonstrate that he was aware
of the illegal nature of his actions and was acting corruptly.

Respondent provides no_ creditable, alternative
explanation of his behavior and the Acting Director is unable to
discern one. The only apparent purpose was to obtain favorable
treatment from McLaughlin in the course of the IRS
investigation. Based on a preponderance of the evidence, the
Acting Director concludes that Respondent believed he would
not need an attorney because he would be able to successfull;
bribe McLaughlin; that the giving of money to McLaughlin was
an effort to terminate the IRS inquiry; that the “deal”
Respondent negotiated was the classic quid pro quo contemplated
by section 201(b)(1)(C) and that Respondent acted corruptly.

The ALJ’s statement that the evidence was insufficient to
find a violation of law for the 1987 conduct appears to be based
largely upon the weight he gave to the testimony of Ronald
Fanelli ("Fanelli"), McLaughlin’s supervisor. Fanelli testified that

A47

: he believed the evidence was "iffy" to support a criminal

: prosecution based on the bribery statute. Although it is unclear
i whether the ALJ was relying on Fanelli’s legal or factual
: conclusions, or both, the ALJ’s determination is flawed for
several reasods.

First, the ALJ should not have relied on Fanelli’s legal
conclusions because, other than expert testimony, it is
inappropriate to take evidence on the legal significance of
particular facts. Here, Fanelli was not called to provide expert
testimony on whether a criminal prosecution could be sustained
against Respondent. Moreover, since Fanelli was discussing the
possibility of criminal prosecution, the ALJ wrongfully applied the
standard of proof required by a criminal proceeding -- beyond a
reasonable doubt -- to a civil administrative action, which only
requires a preponderance of the evidence.

Second, as a factual matter, Fanelli’s individual opinion
that the evidence was "iffy" to support a criminal bribery
prosecution is wholly irrelevant because Respondent was in fact
ultimately charged and indicted by a grand jury for bribery on
these facts. Furthermore, Fanelli’s opinion is not direct evidence
of what transpired.

To the extent the ALJ's finding of insufficient evidence
of a bribe in 1987 was based on evidence other than Fanelli’s
testimony, the Recommended Decision does not identify such
evidence. Based on the Acting Director's independent review of
the evidence, summarized above, he concludes that it was error
for the ALJ to determine that no bribe had occurred, and that
the evidence is compelling that Responden: bribed McLaughlin
in 1987.

ii. The Illegal Gratuity Charge

The evidence also demonstrates that Respondent
committed the additional offense of offering a federal official an

A48

illegal gratuity in 1987.1! Section 201(c)(1)(A) imposes criminal
penalties on whoever:

directly or indirectly gives, offers or promises
anything of value to any public official, former
public official or person selected to be a public
official for or because of any official act
performed or to be performed by such public
official, former public official or person selected
to be such public official.

18 U.S.C. Sec. 201(c)(1)(A). Unlike bribery, the crime does not
require corrupt intent. United States v. Strand, 574 F.2d at 995.

The Acting Director concludes that Respondent violated
section 201(c)(1)(A) as well. There are essentially three
elements of the offense of giving an illegal gratuity: (i) the giving
of something of value (ii) to a government official (iii) for or
because of an official act. The first two elements are clear. It is
undisputed that Respondent gave something of value -- $1750 in
cash and the bar of silver bullion -- to McLaughlin, a government
official.

1 Although not alleged in the Notice of Charges, at hearing
Enforcement offered evidence that Respondent's conduct also
violated the section of the statute prohibiting the giving of an
illegal gratuity. Under 12 C.F.R. Sec. 509.20(b), the Notice is
automatically amended to encompass the proof at hearing.
Enforcement’s alternative argument that if the misconduct in
June 1987 did not constitute a bribe, it did constitute an illegal
gratuity, was not challenged at the hearing. Rule 20(b) states
"[w]hen issues not raised in the notice or answer are tried at the
hearing by express or implied consent of the parties, they will be
treated in all respects as if they had been raised in the notice or
answer, and no formal amendments are required." See
Recommended Decision at 16 n.12.. The ALJ correctly
determined that the pleadings are deemed to conform to the
proof offered at hearing.

A49

All of the record evidence indicates that Respondent did
so because of an official act McLaughlin was to perform --
execution of the subpoena. Prior to service of the EAB
subpoena, McLaughlin and Respondent were not friends or even
acquaintances. The interaction between Respondent and
McLaughlin arose solely as a result of the IRS’s investigation.
After a handful of contacts -- ail concerning Respondent’s
compliance with the investigation -- Respondent suddenly gave
McLaughlin a substantial amount of cash. McLaughlin was not
entitled to these gifts in the course of his duties as an IRS agent.
The elements of an illegal gratuity have thus been proven.
Again, based on his independent review of the evidence, the
Acting Director concludes that it was error for the ALJ to
determine that no illegal gratuity had been given, and that the
evidence demonstrates that Respondent provided McLaughlin
with an illegal gratuity. !

b. The 1988 Conduct

Respondent again violated the anti-bribery statute in
1988 in his attempts to circumvent the subpoena issued to
AQTR. In a meeting at Cross County, Respondent gave
McLaughlin an envelope with $6,500! and repeatedly told

12 The Acting Director rejects the ALJ’s deference to
Fanelli’s testimony on this element as well, in light of the
infirmities discussed above.. Furthermore, Fanelli did not opine
specificaliy on whether Respondent’s conduct constituted the
giving of an illegal gratuity, other than to indicate that in his
opinion Respondent’s conduct was more in the nature of an
illegal gratuity than a bribe.

13 Respondent originally told McLaughlin that Respondent
was paying $5,000 and his partner in AQTR the remaining
$1,500; however, Respondent later admitted to McLaughlin that
it was all Respondent’s money.

ASO

McLaughlin he "wanted this stopped" and "didn’t want to hear
anymore" about the investigation. McLaughlin understood from
the discussion that Respondent wanted McLaughlin to "kill the
investigation” and that Respondent “didn’t want to be bothered
with it anymore." It was McLaughlin’s official duty to pursue the
investigation and compliance with the subpoena.

Under the standards discussed above -- corruptly giving
something of value to a government official to induce a violation
of the official’s duty -- the evidence demonstrates that
Respondent gave McLaughlin $6,500 to terminate the
investigation attendant to the AQTR subpoena. As Respondent
did so, he took steps to communicate the proposed amount of the
bribe in a concealed manner, that is, corruptly. From these facts,
the Acting Director finds that Respondent violated 18 U.S.C. sec.
201(b)(1)(C).

The evidence also demonstrates that Respondent thereby
committed the additional offense of giving an illegal gratuity to
a government official. Respondent gave $6,500 to McLaughlin
for the stated purpose of "stopping" the investigation. The Acting
Director thus finds that Respondent violated 18 U.S.C. sec.
201(c)(1)(A) as well.

c. Respondent’s Defenses to the Violations of Law

The Acting Director rejects Respondent's argument that
the statute is intended to reach violations of banking law only,
and that this case raises this as a question of first impression.

It is a well settled principle of statutory construction that
the plain language of the statute controls its interpretation. See
American Tobacco Co. v. Patterson, 456 U.S. 63, 68 (1982). This
statute provides expressly that removal and/or prohibition may be
predicated in part on “any violation of law, rule OF regulation..."
12 U.S.C. Sec. 1464(d)(4)(A) (emphasis added). !4 By its plain

14 The post-FIRREA version of section 1818(e) contains
identical language; accordingly, this reasoning applies to the
Statute as amended by FIRREA as well.

AS1

language, the scope of this provision is not limited to violations
of banking-related laws.

Had Congress intended to so limit the reach of this
provision to only certain types of offenses, it could have easily
done so. Indeed, Congress had, prior to the enactment of
FIRREA, provided for the prohibition of bank officials who had
been convicted of crimes involving dishonesty or a breach of
trust. pec 12 U.S.C. Sec. 1464(d)(12)(B); 12 U.S.C. Sec. 1229
(1982)"" Congress has since enumerated additional specific
types of crimes thai would subject an institution-affiliated party
to suspension, removal or prohibition. See 12 U.S.C. Sec.
1818(e)(2). It is thus clear that when Congress wanted to limit
particular suspension or removal provisions based on certain types
of misconduct, it identified such misconduct specifically.

The Acting Director does not sit as a criminal tribunal
competent to order criminal sanctions and here, no criminal
penalties are sought or imposed. The OTS, however, is
statutorily empowered to impose a remedy pursuant to Sec.
1464(d)(4) and Sec. 1818(e), which permit the Acting Director to
order removal and/or prohibition based upon any violation of law,
whether civil or criminal. Accordingly, the violation of a criminal
statute -- albeit evaluated under civil standards for a civil remedy
~- May serve as the basis for a removal and prohibition order
under 12 U.S.C. Sec. 1464(d)(4)(A). See Van Dyke v. Board f

IS As discussed below, of course, Respondent's violation of
law could seriously prejudice the interests of Cross County’s
depositors and thus satisfies the "effects" test of section
1464(d)(4)(A).

16 The first statutory provision applied solely to Savings and
loans; the latter applied to banks. See also 12 U.S.C. Sec.
1464(d)(4)(C)(suspension or removal/prohibition for violations of
the Depository Institutions Management Interlocks Act).

AS2

Governors of the Federal Reserve System, 876 F.2d 1377 (8th
Cir. 1989)(bank president removed under 12 U.S.C. Sec.
1818(€)(1) based on check kiting violation under 18 U.S.C. Sec.
1344).

The Acting Director also rejects Respondent’s claim that
he was entrapped into committing bribery. A valid entrapment
defense contemplates: (1) inducement by law enforcement
officers and (2) lack of predisposition by the defendant to commit

the crime. See e.g., Matthews v. United States, 485 U.S. 58, 63
(1988). Respondent has not established either element here.

While the government may use undercover operations to
enforce the law, it may not "originate a criminal design, implant
in an innocent person’s mind the disposition to commit the act,
and then induce the commission of the crime so the government
may prosecute." See Jacobson v. United States, U.S. , 112
S.Ct. 1535, 118 L.Ed.2d 174, 184 (1992). The record is clear that
the idea to bribe McLaughlin originated with Respondent, not
with McLaughlin. Here, the chain of events was commenced by
the proper issuance of a subpoena. It was Respondent’s
improper response to that subpoena, ie., the bribe overture to
McLaughlin, that caused the IRS to conduct the undercover
operation. As part of such operation, McLaughlin agreed to
Respondent’s plan. McLaughlin did not initially solicit, propose,
initiate, broach or suggest that he would be amenable to
accepting a bribe. See United States v. Dunn, 779 F.2d 157, 158
(2d Cir. 1985). The record does not reflect that Respondent
lacked predisposition, or was induced by McLaughlin, to commit

17 The Acting Director’s findings do not expose Respondent
to additional criminal liability. Clearly, the Acting Director’s
findings herein could not be used against Respondent in a
criminal proceeding because of the different standards of proof.

See e.g., United States v. Konovsky, 202 F.2d 721 (9th Cir. 1953).

In any event, the statute of limitations has apparently
expired on most if not all of the crimine! claims filed against
Respondent. Cousin, 840 F.Supp. at 11.

A53

the crime as the entire bribery scheme was caused by his design
and overtures.

Finally, Respondent claims that he was the victim of
Outrageous government conduct. Having considered the
submissions of the parties and the ALJ’s Recommended Decision
on this point, the Acting Director dismisses this claim as baseless.

2. Effects of Respondent’s Misconduct on the
Association

The ALJ found generally that Enforcement did not prove
the "effects" requirement because he concluded the testimony of
Michael Simone ("Simone"), an Assistant Director in the OTS
Northeast Region, was insufficient to show that the actual or
potential harm caused by Respondent’s activities to the institution
was "substantial.”! Although it is unclear whether the ALJ was
focusing on financial loss or other harm, the record reflects
sufficient evidence that by virtue of Respondent’s attempted
bribes, the interests of the depositors could be seriously
prejudiced.

An interpretation of this provision must commence with
the plain language of the statute. See American Tobacco Co.,
456 U.S. at 68. This prong of the second element requires that
the "interests of [the depositors] could be seriously prejudiced.:
12 U.S.C. sec. 1464(d)(4)(A)(emphasis added). ! Congress, by

18 The Acting Director notes that the ALJ did not fail to
credit Simone’s testimony, nor did he find it outweighed by other
witnesses’ testimony. Accordingly, in assessing Simone’s
testimony, the Acting Director believes it is a straightforward
matter to compare the testimony and the supporting evidence to
the appropriate legal standard.

19 The corresponding post-FIRREA statute reads: "the
interests of the depositors have been or could be prejudiced.” 12
U.S.C. Sec. 1818(e)(1)(B).

AS4

including the word "could," clearly intended that the statute reach
not only immediate but also potential harm. As the Federal
Deposit Insurance Corporation ("FDIC") noted in the context of
a proceeding to uphold a suspension order:

Were it otherwise, the [FDIC] would have to wait

until loss or damage to a bank or its depositors

had occurred, or confidence had been impaired, and
would not be able to act to prevent such loss or damage,
or impairment of confidence. Such would be ineffective
regulation and was not the intention of Congress.

In re Anonymous, FDIC Docket No. FDIC-84-86g (July 30,
1984), reprinted in FDIC Enforcement Decisions and Orders,
Vol. 1 (bound) para 5027 (Prentice Hall). Accord Van Dyke v.
Board of Gov. of the Fed. Reserve, 876 F.2d at 1377 (banking
agencies are not powerless to respond to official's illegal activity
until actual harm to institution occurs). Cf. Saratoga Savings and
Loan v. Federal Home Loan Bank Board, 879 F.2d 689, 693 (9th
Cir. 1989)(cease-and-desist provision of statute was intended to
authorize federal Banking agencies to curtail abuses before they
harm institution).

The removal and prohibition provision does not identify
specifically what constitutes "serious prejudice" to the interests of
the depositors. As a matter of statutory interpretation, “serions
prejudice” must contemplate something in addition to “substantial
financial loss or other damage"“" or the second element of this
provision would be redundant. Such an interpretation is
inconsistent with the principle that statutes should be read to give
meaning to each independent statutory provision. See, ¢.g.,
United States v. Nordic Village, =» ~U.S.__, 112 S.Ct. 1011,
1015, 117 L.Ed.2d 181 (1992).

20 ‘This alternative element of the "effects" test appears in
Sec. 1464(d)(4)(A). Section 1818(e) is identical except it omits
the word “substantial.”

se ntl? te dah da

ASS

The Acting Director notes that the FDIC has indicated
that "serious prejudice" to the interests of the depositors may be
caused by inter alia, engaging in conduct that harms the
reputation of the institution, causing loss of confidence to

depositors, among others. See In re James G. Welk, FDIC
Docket No. 91-20le (October 13, 1992),

reprinted in FDIC.

Enforcement Decisions and Orders, Vol. 1, para 5186 (Prentice
Hall). The Acting Director similarly concludes that Congress,
intending this section to have broad coverage, drafted the phrase
to include conduct whose consequences, even if not immediate,
could seriously harm the financial institution or its depositors.
That is, conduct that injures the reputation of the institution or
that otherwise would persuade a depositor that his or her funds
were subject to a substantial risk is conduct within the "serious
prejudice" standard, even if an immediate dollar effect cannot be
quantified.

Enforcement’s evidence satisfies this standard in two
respects. First, Simone’s testimony established that Respondent's
conduct harmed the institution’s reputation, with the potential for
serious risk to the interests of the depositors. OTS officials, such
as Simone, possess the requisite expertise and familiarity with the
thrift industry to make such predictive judgments. See Franklin
Savings Ass’n v. Director, Office of Thrift Supervision, 934 F.2d
1127, 1146 (10th Cir. 1991), cert. denied, U.S. , 112S.Ct.
1475 (1992).*!

21 “Administrative agencies are afforded wide deference in

predicting the likelihood of future events." Michigan Pub. Power

vy. Federal Energy Regulatory Comm'n, 963 F.2d 1574,

1580 (D.C. Cir. 1992). Evidence reflecting the basis for the

OTS'’s predictive judgment concerning the potential for harm to

the Association is entitled to weight as a matter particularly
within the expertise of the agency.

The Acting Director finds Respondent's citation to
United States v. Sette, 334 F.2d 267 (2d Cir. 1964) inapposite, as
Sette involved expert testimony by the same agents who
conducted the investigation; was rendered prior to the adoption
of the Federal Rules of Evidence; and did not involve an

A56

Here, the misconduct involved bribery, which arose as an
illegal response to a legitimate law enforcement inquiry. Simone
testified that serious charges like bribery against a bank officer
have a significant impact on public confidence in financial
institutions, and that depositors have concerns about leaving
money in an institution where questions have been raised
regarding that institution’s management -- particularly where, as
here, Respondent committed the unlawful conduct on the
Association’s premises. A loss in public confidence could result
in a run on the institution and losses to the association and
ultimately to the deposit insurance fund. As the FDIC has noted:

Ordinary bank customers «sid the general public
must be able to view a bank’s vice president and
director as a trustworthy person without doubt or
uncertainty. Where charges of dishonesty and the
submission of false statements involving money
have been preferred [sic] by a Grand Jury against
a bank official there is an obvious potential for
doubt and uncertainty. Such may impair public
confidence and damage a bank. It is not too
much to require that a bank’s officers and
directors be above suspicion.

In re Anonymous, FDIC Docket No. FDIC-84-86g (July 30,
1984), reprinted in FDIC Enforcement Decisions and Orders,
Vol. 1, para.5027 (Prentice Hall). Moreover, as Simone testified,
criminal conduct by banking officials damages the public's
perception of the integrity of the entire banking system, because
customers tend to relate what happens at one institution to all
other types of institutions.

Second, Respondent’s illegal conduct damages the bank
official’s credibility with its regulator and interferes with the
federal regulatory process, with the consequence that no
depositor can be confident that his or her deposits enjoy the
safeguards the regulatory system provides. (Transcript Vol. II at

adjudicatory proceeding such as this.

AS7

487). The need for honest and accurate communications between
a thrift and its regulator is paramount to the proper operation of

the industry. See 12 C.F.R. Sec. 563.180(b); OTS Statement

reprinted in Federal Guide, para
36,485 (November 18, 1992) [hereinafter "Statement of Directors
and Officers Responsibilities"]. Effective communication is
seriously jeopardized by the efforts of an association's chief
executive officers to obstruct a lawful government inquiry. In this
case, the evidence is compelling that Respondent intended to do
exactly that. In the Acting Director's judgment, Respondent's
interference with a lawful IRS investigation could destroy
whatever confidence depositors might have that Respondent
would communicate with regulators with the requisite candor.
Their deposits would be subject to a substantially greater risk
than at an institution where the management cooperated with
government oversight. This prejudice to the interests of the
depositors is underscored where, as here, Respondent was directly
running the Association and illegal activities attribyted to him
could have a significant impact on Cross County.“* Thus, the
interests of Cross County’s depositors could be seriously
prejudiced by Respondent's wrongful acts.

Accordingly, the Acting Director concludes that the ALJ
erred when he found the Enforcement had not met the "effects"
test for Count I. Simone’s testimony was sufficient to show that
the potential effect of Respondent's unlawful conduct could
seriously prejudice the depositors’ interests. Additionally, it is
clear to the Acting Director that an officer and director who
undertakes to impede a government investigation erodes the
confidence that depositors are entitled to have in the institution,
and threatens the kind of honest and accurate communications
that regulators require.

The presence or absence of demonstrable significant loss
is not dispositive since this element also encompasses potential

22 Respondent himself contended that "Cross County is the
lengthened shadow of Michael Cousin.” Answer at pg. 4.

AS8

serious harm. In fact, where the statutory scheme is operating
most efficiently, wrongdoers may be removed before they cause
losses to the association and the federal insurance fund. Here
Respondent was suspended before his misconduct was permitted
to cause an immediate financial loss to the Association, on the
grounds that the attendant loss of public confidence in the
management of Cross County would, if left unremedied,
ultimately result in detriment to the institution and to some
extent the industry as a whole.

There is some evidence that significant loss would have
resulted from Respondent's misconduct. During the period 198-
1992, the Association had generally experienced an increase in
assets and deposits. During the period June-December 1990,
which includes the time when Respondent was arrested and
suspended in August 1990, Cross County experienced a decline
in assets in the amount of $900,000 and a decline in deposits in
the amount of $350,000. (Transcript Vol. III at 685-686).
Respondent presented no evidence to rebut the inference that
this sudden decline was due to the publicity surrounding the
charges lodge against Respondent. It was reasonable to expect
that had Respondent not been suspended at that point, the
deterioration of public confidence in the Association would have
been more severe and the withdrawals could have been
significant. The fact that the statutory scheme was effective in
this instance, Le., that it prevented substantial financial loss or
other damage to the Association by the immediate suspension of
Respondent, does not counsel permitting Respondent to continue
his association with the institution.

The ALJ erroneously concluded that "serious prejudice"
to the interests of depositor could not be demonstrated in light
of the existence of federal deposit insurance, which is intended
to protect deposits up to a designated amount in the event the
institution becomes insolvent. Federal deposit insurance,
however, existed in 1966 when Congress amended section 1464
to include removal and/or prohibition authority. Following the
ALJ's logic, “serious prejudice" to the interests of the depositors
could thus never be proven. Surely the statute should not be
interpreted to render the amendment meaningless. See Montana

AS9

Vv » 472 U.S. 237, 249-
50 (1985). Accordingly, the Acting Director concludes that the
existence of deposit insurance does not eliminate the possibility
of "serious prejudice."

The Acting Director rejects the argument that the
"effects" test requires more immediate or direct impact upon the
association than establishment of the possibility of serious
prejudice to the interests of the institution's depositors. Congress
simply did not draft section 1464 to impose such a requirement.

Moreover -- and contrary to Respondent's assertions --
bank officials who have engaged in illegal activities not directed
at the association with which they were employed have been
relieved of their responsibilities under analogous statutory
provisions. See, e¢.g., In re Anonymous, FDIC Docket No. FDIC-
84-86 (July 30, 1984), i fe) nt isio
and Orders, Vol. 1 para 5027 (Prentice Hall)(suspension order
based on criminal indictment for personal income tax evasion);
Van Dyke, 876 F.2d 1377 (removal and prohibition order based
on Official’s participation in criminal check kiting scheme
involving his and another institution).

3. Respondent’s Culpability

The Acting Director also concludes that Respondent’s
illegal conduct involves "personal dishonesty." _ Personal
dishonesty encompasses a broad range of conduct, including
"disposition to lie, cheat[,] or defraud: untrustworthiness; lack of
integrity; . . . misrepresentation of facts and deliberate deception
by pretense and Stealth[;]. . . for] want of fairness and
[straightforwardness].". Van Dyke, 876 F.2d at 1379. See also
Financial Institutions Supervisory and Insurance Act of 1966:
Hearing on S.3158 and $.3695 Before the Committee on Bankin
and Currency, House of Representatives, 89th Cong., 2d Sess. 53
(1966) (statement of Chairman Horne and Kenneth E. Scott,
General Counsel of the Federal Home Loan Bank
Board)("personal dishonesty” encompasses primarily, but not
exclusively, conduct actionable under state and federal criminal
Statutes).

A60

Bribery of a government official demonstrates, among
other things, a lack of integrity. As discussed above, banking
officials are placed in a position of trust and responsibility over
the finances and affairs of their depositors and customers.
Respondent's attempts to illegally thwart a law enforcement
investigation demonstrate untrustworthiness and a want of
integrity. See Van Dyke, 876 F.2d 1377. The Acting Director
concludes that such activity evidences "personal dishonesty" under
12 U.S.C. sec. 1464(d)(4)(A).

The ALJ concluded that the “personal dishonesty"
element must be related to activities concerning the association,
and determined that in this case it was not. The ALJ erred in
concluding that the statutory requirement of "personal dishonesty”
was not met here. His requirement that the misconduct must
evidence personal dishonesty towards the association is not
founded in the statute. While the latter prong of this element (as
well as other aspects of the removal and prohibition statute)
contemplates misconduci directed at the association,“ the
former does not. The Acting Director defers to the plain
language of sec. 1464(d)(4)(A) and interprets “personal
dishonesty” as not limited to conduct directed at the association.

C. Count II: Respondent’s Aiding and Abetting the Bribery of
a Federal Official

The Acting Director affirms the ALJ’s conclusions
concerning Respondent’s liability under Count II. Because,
however, the ALJ’s analysis regarding the second and third
elements of the removal/prohibition analysis imposes standards
not required by the statute, the Acting Director does not adopt
his analysis.

23 The alternative prong focuses on a “willful or continuing
disregard for the safety or soundness” of the institution. 12
U.S.C. Sec. 1464(d)(4)(A).

A6l

1. Misconduct

The Acting Director finds that Respondent is culpable on
each independent section of the misconduct element.

A. Respondent violated the law

Respondent violated the law by aiding and abetting the
Parlante bribe of McLaughlin. Under 18 U.S.C. Sec. 2(a),
"[w]hoever commits and offense against the United States, or
aids, abets, counsels, commands, induces or procures its
commission, is punishable as a principal.” Liability as an aider
and abettor will lie where one has associated himself with a
criminal venture, participated in the venture, and sought by his
action to make the venture succeed. See United States v.

Menesses, 962 F.2d 420, 427 (Sth Cir. 1992), citing Nye & Nissen

v. United States, 336 U.S. 613 (1949); United States v. Teffera,
985 F.2d 1082, 1086 (D.C. Cir. 1993).

The record demonstrates that John Parlante gave
McLaughlin $25,000 in cash to stop the IRS investigation. John
Parlante testified that he has pled guilty to a charge of bribery,
and Fodera pled guilty to aiding and abetting the bribery of a
public official. The Acting Director concludes that the evidence
established that John Parlante committed bribery of McLaughlin
and that Respondent aided and abetted the Parlantes’ bribe. It
was Respondent who suggested the plan whereby the Parlantes
would bribe McLaughlin. Respondent gave McLaughlin
confidential information concerning the Parlantes. Respondent
arranged for Fodera to serve as an intermediary in the bribery
scheme. Respondent plotted with McLaughlin on numerous
occasions "how to go about it, when to subpoena them, whether
I should wait or do it sooner, do it later ...how we should
proceed." (Transcript Vol. 1 at 128). Respondent advised Joan
Parlante to offer a bribe to McLaughlin. Respondent instructed
John Parlante on how to offer a bribe and instructed McLaughlin
on how to accept it. Respondent encouraged McLaughlin to ask
the Parlantes for more money and encourage McLaughlin to pay
Fodera $2,500 in cash for Fodera’s role in the bribery scheme.

The record reflects that Respondent conceived and

A62

developed the bribery scheme. Afterwards, he was an active
participant in its execution and worked diligently toward its
success. While it is unclear precisely what motivated Respondent
to perpetrate his illegal scheme, it is clear that Respondent was
not motivated by a patriotic desire to report suspected income tax
evasion because it would not have been necessary to commit a
crime merely in order to report one. Nor did Respondent notify
the Association or the OTS of his suspicions. The record shows
that Respondent’s purpose in providing confidential customer
information to McLaughlin was to facilitate a bribery scheme.
The Acting Director thus finds that substantial evidence
demonstrates that Respondent committed a violation of law
within the meaning of 12 U.S.C. sec. 1464(d)(4)(A).

b. Respondent’s Defenses to the Vioiations of Law

For the reasons discussed above, the Acting Director
rejects Respondent’s argument that the statute does not reach
criminal violations of non-banking laws; that this case raises a
question of first impression; and that Respondent was entrapped,
and was the victim of government misconduct.

c. Respondent Committed an Unsafe or Unsound
Banking Practice

Respondent's actions also constitute an unsafe or unsound
practice. An unsafe or unsound practice is understood to have:

a central meaning which can and must be applied
to constantly changing factual circumstances.
Generally speaking, an “unsafe or unsound
practice" embraces any action, or lack of action
with is contrary to generally accepted standards of
prudent operation, the possible consequences of
which, if continue would be loss or damage to an
institution, its shareholders, or the agencies
administering the insurance fund.

Financia! Institutions Supervisory Act of 1966: Hearings on
S.3158 Before the House Committee on Banking and Currency,

A63

89th Cong., 2d Sess. at 49-50 (1966)(statement of Chairman

Horne), ci Vv
Treasury, 568 F.2d 610, 611 (8th Cir. 1978).
a ise, OTS Order No. Ap 94-23 at 29

n.47 (May 17, 1994)(appeal pending); ,
OTS Order No. AP 93-85 at 34-35 (October 22, 1993)(appeal

pending).

The evidence in this proceeding establishes that
Respondent abused his official position at Cross County to obtain
and improperly disclose confidential information from Cross
County’s files on the Parlantes, Exposing the Association to
abnormal risk of loss or damage.“ It is reasonable to expect
that bank customers will cease to conduct business with an
association that improperly publicizes confidential customers data.
As discussed above, withdrawal of deposits may cause a run on
the association which could in turn endanger the federal deposit
insurance fund. By his misconduct, Respondent put the interests
of the depositors and the insurance fund at risk.

Indeed, Congress enacted a statute with the express
purpose of protecting the confidentiality of bank customers. See
Right to Financial Privacy Act, 12 U.S.C. Sec.Sec. 3401 et seg.
("RFPA"). The RFPA permits release of personal financial
records to the federal government only in accordance with its
terms. Generally, the RFPA requires that customers notice be
given when a federal agency solicits an individual’s records from
a financial institution.” Respondent disregarded the

24 As with the "effects" test, it is significant that Congress did
not require proof of actual loss but rather intended the statute to
address the risk of, or potential for, loss.

25 The RFPA further requires such individuals to be given
opportunity to oppose the government's request for information.
There are a number of enumerated exceptions to these
requirements, including disclosure pursuant to a subpoena or
court order respecting grand jury proceedings, 12 U.S.C. Sec.
3413(i), or an administrative subpoena issued by an administrative

A64

requirements of RFPA in providing the Parlantes’ financial
information to McLaughlin. Respondent's disclosure does not
fall within the exceptions identified in the statute. Respondent
did not provide the information to McLaughlin in April 1988 in
response to an administrative subpoena, search warrant or judicial
subpoena. Nor did Respondent provide the information pursuant
to a lawful investigation directed at Cross County. Moreover, the
Parlantes neither consented to nor authorized the disclosure of
such information Consequently, the Acting Director accepts the
conclusion of the ALJ that the violation of a law designed to
protect bank customers is an unsafe or unsound practice.

The evidence on Count II also establishes that it was
Respondent, the chief executive officer of the institution, who
hatched the complicated bribery scheme and who drew Fodera,
a director, and the Parlantes, bank customers, into it. The
instigation of an unlawful scheme by the head of an insured
institution and his efforts to involve another director and bank
customers is exceptionally imprudent. The weaknesses in
management that such conduct reveals poses an abundant risk of
loss to the institution. For this reason as well, the Acting
Director concludes that Respondent committed an unsafe or
unsound practice.

Repeated violations of law constitute an unsafe or

unsound banking practice. See, e.g., In the Matter of Ronald
J.Grubb, FDIC Docket Nos. FDIC-88-282k and FDIC-89-1le

(August 25, 1992), reprinted in FDIC Enforcement Decisions and
Orders, Vol. 1 para 5181 (Prentice Hall). Here, Respondent’s
misconduct escalated over time in 1987 and 1988, culminating in
the Parlantes’ bribe. Respondent’s misuse of his official position
and his disregard for the proper use of bank information also
violated prudent standards of operation and were unsafe and
unsound. Furthermore, Respondent -- who essentially controlled
Cross County -- endangered the institution by placing his personal
interests before the interests of the depositors. By his

law judge. 12 U.S.C. Sec. 3413(f).

A65

misconduct, Respondent put the interests of the depositors and
the insurance fund at risk. The Acting Director thus concludes
that Respondent’s activities under Count II constituted an unsafe
or unsound banking practice.

d. Respondent Breached his Fiduciary Duties to the
Association

Officers and directors of an insured depository institution
owe fiduciary duties to that association. See, ¢.g., Bowerman v.
Hamner, 250 U.S. 504, 510 (1919); Briggs v. Spaulding, 141 U.S.
132, 146, 152 (1891); Brickner v ._ Ins. Corp., 747
F.2d 1198, 1202 (8th Cir. 1984); In re Neil Bush, OTS Order No.
AP 91-16 (April 18, 1991). Officers and directors of thrifts must
discharge duties owed to depositors, shareholders and creditors
of the institutions they serve, and comply with federal and state
Statute, rules and regulations. Statement of Directors and
Officers Responsibilities at para. 36,485.

Respondent's fiduciary duties include the duty of loyalty
and duty of care. Id. The duty of care requires officers and
directors to act as prudent and diligent business persons in
conducting the affairs of insured institutions. Id. Respondent
violated his fiduciary duty of care by ignoring the interests of
depositors when he illegally disclosed confidential information to
further a bribery scheme, drew a director and customers into his
scheme and committed unlawful acts.

The duty of loyalty requires officers and directors to
administer the affairs of the institution with candor, personal
honesty and integrity. Id. Respondent violated his duty of loyalty
because the entire bribery arrangement with McLaughlin was "set
up so that [Respondent] would benefit, for whatever reason he
thought was necessary, at the expense of the institution, and that
expenses being the business of the institution going forward."
(Transcript Vol. II at 501). Respondent endangered the
institution by placing his personal interests in the success of his
illegal scheme before the interests of the depositors.

Accordingly, the Acting Director concludes that

A66

Respondent committed violations of law, engaged in an unsafe or
unsound practice and breached his fiduciary duties to Cross
County by orchestrating and participating in a scheme to bribe a
government official.

2. Effects of Respondent’s Misconduct on the Association

The ALJ also determined that the disclosure and misuse
of confidential bank information was integrally related to
Respondent’s position at Cross County, and concluded that the
Association suffered or will probably suffer substantia! financial
loss or other damage. The Acting Director does not reach this

prong because the alternative prong, contemplating the possibility
of "serious prejudice’ to the interests of the depositors, has been
met here.

The adverse effects upon Cross County resulting from
Respondent’s misuses of bank records to orchestrate a bribery
scheme are even more detrimental than those effects accruing
from the conduct charged under Count I. Here, the misconduct
involved use of confidential customer information to orchestrate
and assist the commission of criminal activity. In addition,
Respondent encouraged another member of Cross County’s
Board of Directors to engage in such activity.

Depositors are entitled to trust the management of
depository institutions to spend their time in the office furthering
the interests of the association, not committing illegal acts. The
Acting Director finds that by virtue of Respondent’s misconduct,
the interests of Cross County depositors could be seriously
prejudiced.

3. Respondent’s Culpability

The Acting Director accepts the conclusion of the ALJ

26 The ALJ did not make findings or conclusions under the
"serious prejudice" standard on Count II.

ND SE SOAS Oe SOY CEOS ELE. SE

Eo eS eee ee

A67

that Respondent’s aiding and abetting of a bribe involves
"personal dishonesty." Here, Respondent believed that he had
successfully bribed McLaughlin twice. Emboldened by his
apparent success, Respondent concocted the scheme whereby the
Parlantes would bribe McLaughlin. Orchestration of a scheme to
bribe a government official demonstrates, among other things, a
lack of integrity. Moreover, Respondent lied to Cross County
customers about the circumstances surrounding the IRS subpoena
and counseled Fodera, a Board member, to not only lie to the
Parlantes as well, but also to accept part of the bribe. As
discussed above, banking officials are placed in a position of trust
and responsibility over the finances of their depositors and
customers. Respondent has demonstrated untrustworthiness and
a want of integrity in abusing his official position and violating
the RFPA as part of a large illegal scheme to engineer a bribe by
Cross County customers. See Van Dyke, 876 F.2d 1377. The
Acting Director concludes that such activity evidences "personal
dishonesty” under 12 U.S.C. Sec. 1464(d)(4)(A).

The ALJ concluded that Respondent’s activities
demonstrated "personal dishonesty." He construed the statute,
however, to require a demonstration of personal dishonesty
directed towards the Association. As discussed above, this
requirement is not founded in the statute.

The ALJ also found that Respondent demonstrated a
willful and continuing disregard for the safety and soundness of
Cross County because he ignored the proper affairs of the
institution in pursuing his own illegal objectives and, as a result,
exposed Cross County to serious risks that could threaten the
safety and soundness of the institution. Based on the record, the
Acting Director concludes that Respondent’s orchestration of the
Parlantes’ bribe was intentional and continued over a period of
months -- furthering the misconduct that Respondent commenced
in 1987. Therefore, the evidence also supports a finding of willful
and continuing disregard for the safety and soundness of Cross
County. The Acting Director finds that each alternative prong of

the culpability element of 12 U.S.C. Sec. 1464(d)(4)(A) has been
met for Count II.

A68

D. Respondent's Remaining Exceptions

Respondent has asserted various discovery and evidentiary
exceptions, as well as exceptions raised carlicr by means of
affirmative defenses. Having carefully considered the rulings of
the ALJ and the submissions of the parties, the Acting Director
rejects these exceptions.

All other exceptions lodged by the partics and not
otherwise addressed herein are denied.

E. Respondent's Request for Oral Argument

In Respondent's May 10, 1994 cover letter transmitting
his exceptions, he requests oral argument before the Acting
Director pursuant to 12 C.F.R. Sec. 509.40(b). Enforcement
opposes this request. Under Rule 40(b) of the Rules of Practice
and Procedure, the Director has the discretion to order and hear
oral argument.

A party seeking oral argument, however, has the burden
of demonstrating good cause for such argument and establishing
that arguments cannot be adequately presented in writing. Upon
consideration of Respondent's request for oral argument, the
Acting Director finds that: (1) the factual and legal arguments are
fully set forth in the parties’ written submission; (2) the Acting
Director will not be aided in deciding this matter by oral
argument; (3) Respondent will not be prejudiced by the lack of
oral argument; and (4) Respondent has not shown good cause for
oral argument. Therefore, the Acting Director declines to
exercise his discretion under Rule 40(b) and denies Respondent's
request for oral argument.

VL CONCLUSION

Based on the record with regard to Count I, the Acting
Director finds that Respondent: (i) committed violations of law
in bribing an agent of the IRS in 1987 and 1988; (ii) as a result
of these violations, the interests of the Association's depositors
could be seriously prejudiced; (iii) such violations evidence

A69

personal dishonesty. Based on the record with regard to Count
II, the Acting Director finds that Respondent: (i) committed a
violation of law in aiding and abetting and additional bribe of an
IRS agent in 1988, breached his fiduciary duty to the Association
and committed unsafe or unsound banking practices by disclosing
confidential customer information; (ii) as a result of this
misconduct, the interests of the Association's depositors could be
seriously prejudiced; and (iii) such misconduct evidenced personal
dishonesty and willful and continuing disregard for the safety and
soundness of the Association. Accordingly, the Acting Director
issues herein a final order removing Respondent from his former -
positions with Cross County and prohibiting further participation
by Respondent in any manner in the conduct of the affairs of any
insured depository institution.

ORDER

Upon consideration of the entire record in this matter,
including the Recommended Decision of the Administrative Law
Judge, the exceptions and replies to exceptions filed by the
parties, and for the reasons set forth in the accompanying
Decision:

The Acting Director, pursuant to his authority under
Section 5(d)(1)(A) of the Home Owners’ Loan Act, 12 U.S.C.
Sec. 1464(d)(1)(A)(Supp. v 1993), and Section 8(e) of the
Federal Deposit Insurance Act, 12 U.S.C. Sec. 1818(e)(Supp. v.
1993), and former Section 1464(d)(4) of the Home Owners’ Loan
Act of 1933, 12 U.S.C. Sec. 1464(d)(4)( 1982), finds that Michael
Cousin (“Cousin” or "Respondent”), in his former capacity as the
Chief Executive Officer and Chairman of the Board of Directors
of Cross County Federal Savings Bank, Queens, New York
(“Cross County”), a federal Savings association, was an institution-
affiliated party participating in the conduct of the affairs of Cross
County who violated laws, engaged in unsafe or unsound
practices in connection with Cross County and committed acts
and practices which constitute breach

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386004_1686%3A2. Public record. Not legal advice.