On May 29, the FDIC published a list of administrative enforcement actions taken in April, which included an adjudicated decision reimposing a prohibition order and $125,000 civil money penalty against the former president, CEO, and chairman of a Michigan state-chartered bank. The FDIC commenced the case in 2013, alleging that the respondent approved a series of unsafe and unsound transactions with the bank’s largest group of borrowers and concealed the nature of those transactions from the bank’s board and regulators. The FDIC originally imposed the same sanctions in 2020, the respondent subsequently challenged the decision, and the 6th Circuit affirmed. In May 2023, however, the U.S. Supreme Court reversed, holding that the 6th Circuit should have remanded the case to the FDIC after finding the agency failed to apply a “proximate-causation” standard when assessing the “effects” of misconduct under the FDI Act, rather than upholding the sanctions on its own review of the record.

On remand, the FDIC reaffirmed its misconduct findings. Specifically, the FDIC found that the respondent violated the bank’s commercial loan policy by approving a transaction without required financial analyses or personal guarantees, provided false information on an FDIC examination questionnaire, and arranged for the sale of problem loans to affiliate banks before an examination, repurchasing them afterward. The FDIC found that the respondent’s conduct proximately caused a $30,000 charge-off, an unwarranted dividend that personally benefited the respondent, and all or some portion of $6.443 million in losses on the loan portfolio. The agency rejected the respondent’s argument that broader economic conditions severed the causal chain, finding the misconduct was a “direct, substantial, and foreseeable” cause of losses to the bank.

The FDIC also rejected the respondent’s argument that he was entitled to a jury trial, concluding that prohibition orders are equitable remedies and that the enforcement action concerns public rights, distinguishing the Supreme Court’s 2024 decision in SEC v. Jarkesy (covered by InfoBytes here) on the grounds that the FDIC’s enforcement actions involve a different agency, a different statute, and regulate a federally created deposit insurance program rather than private market transactions. The FDIC found that the respondent’s conduct demonstrated “personal dishonesty” and “willful and continuing disregard” for the safety and soundness of the bank, thereby satisfying the culpability requirement for both the prohibition order and the civil money penalty.