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Blanton v. Office of Comptroller of Currency

United States Court of Appeals, District of Columbia Circuit

December 7, 2018

William R. Blanton, Petitioner
v.
Office of the Comptroller of the Currency, Respondent

          Argued April 3, 2018

          On Petition for Review of an Order of the Final Decision and Order of the Office of the Comptroller of the Currency.

          Craig E. Bertschi, pro hac vice, argued the cause for petitioner. On the briefs were Mary C. Zinsner and Syed M. Reza.

          Amber N. Melton, Attorney, Office of the Comptroller of the Currency, argued the cause for respondent. With her on the brief were Charles M. Steele, Deputy Chief Counsel, and Gregory F. Taylor, Douglas B. Jordan, and Daniel Prieve, Attorneys.

          Before: Tatel, Srinivasan and Millett, Circuit Judges.

          OPINION

          SRINIVASAN, CIRCUIT JUDGE.

         The Comptroller of the Currency assessed a $10, 000 civil money penalty against William Blanton, the former Chief Executive Officer of a Georgia bank. The penalty was based on two distinct sets of allegations against Blanton. First, the Comptroller found that Blanton engaged in unfair and unsound banking practices by allowing the bank to honor repeated overdrafts in the accounts of a frequent customer. Second, the Comptroller determined that Blanton caused the bank to file materially inaccurate reports concerning the bank's financial condition.

         Blanton seeks review of the Comptroller's decision. We uphold the Comptroller's determination concerning Blanton's involvement in honoring the overdrafts. But we set aside the Comptroller's decision with regard to the financial reports.

         I.

         United Americas Bank, chartered in the late 1990s, aimed to serve the growing Hispanic community in Atlanta, Georgia. In 2007, William Blanton acquired a shareholder interest in the Bank. He assumed a seat on the Bank's Board of Directors and served as the Bank's Vice Chairman.

         In 2009 and 2010, the Bank underwent an examination by the Office of the Comptroller of the Currency (OCC), the federal agency tasked with supervising national banks. The OCC determined that the Bank was in "an unsafe and unsound condition" and that its management was "critically deficient." ALJ Decision, William R. Blanton, AA-EC-2015-24 (Office of the Comptroller of the Currency Jan. 19, 2017) at 2, J.A. 137.

         At Blanton's behest, the Board asked the Chief Executive Officer to resign, and the Board chose Blanton to serve as interim CEO during the search for a permanent replacement. The OCC authorized the arrangement, permitting Blanton to serve in the interim position until September 2010. At that time, the Board sought to retain Blanton as the permanent CEO, but Blanton neglected to submit the proper paperwork to secure the OCC's approval. In September 2010, he resigned as CEO and Vice Chairman, and, one month later, resigned from the Board. Despite efforts by the OCC and the Bank to revive its financial condition, the Bank closed its doors in December 2010 and went into receivership.

         In June 2015, the OCC issued a Notice of Assessment of a civil money penalty against Blanton. The OCC can assess a civil money penalty of up to $25, 000 per day if it determines, as relevant here, that a federal bank affiliate violated any law or regulation or recklessly engaged in an unsafe or unsound banking practice, and that the violation or practice is part of a pattern of misconduct. See 12 U.S.C. § 1818(i)(2)(B). In this case, the OCC's assessment arose from Blanton's involvement while interim CEO in two sets of bank transactions. The facts of each set of transactions were as follows.

         A.

         First, the OCC asserted that Blanton recklessly engaged in unsafe and unsound banking practices by allowing the Bank to honor several overdrafts in the accounts of a longstanding customer without adequate controls.

         By the time Blanton became interim CEO, the Bank had developed a longstanding relationship with a local businessman, Alex Campos. Campos had over thirty personal and business accounts with the Bank. Over the years, Campos made numerous transfers that caused substantial overdrafts in some of his accounts, and the Bank always honored the overdrafts.

         In 2003, the OCC became aware of the Bank's practices concerning Campos's overdrafts. At the time, Campos had incurred a $5.4 million overdraft at the Bank. The OCC decided against taking action after Campos corrected the 2003 overdrafts and paid attorney's fees to the Bank.

         The Bank then implemented two controls designed to mitigate the risk caused by the Campos overdrafts. First, the Bank decided to honor overdrafts only in amounts less than the total funds available in Campos's accounts. Second, the Bank instituted a practice of transferring funds between Campos's accounts (with his permission) to cover overdrafts.

         The overdrafts nonetheless continued through 2010. Between June and October 2010, for instance, there were at least thirty instances in which one of Campos's accounts was overdrawn by more than $50, 000. At times, the overdrafts in his accounts reached amounts exceeding 50% of the Bank's overall Tier 1 capital, i.e., its most reliable aggregation of assets.

         In early 2010, OCC examiners asked the Bank to place additional controls on the Campos overdrafts. Blanton assured the examiners that he would resolve the problem by expelling Campos's accounts from the Bank, by securing a formal contract enabling the Bank to transfer funds between his accounts at will, or by refusing to honor Campos's overdrafts altogether. Although Blanton did not specify when he would take action, the OCC examiners expected that he would enact the controls "immediately," which they took to mean within thirty to sixty days. Lawrence Dep. 30, Mar. 2, 2016, J.A. 955. Blanton delegated the task of implementing the controls to the Bank's Chief Credit Officer, Robert Beal.

         The Bank, though, continued to honor the Campos overdrafts, and Blanton continued to assure the OCC that he was taking steps to enact the promised controls. In April 2010, Blanton emailed the OCC, vowing that the Bank had the issue "close to resolution," although there were "still some parts left." Blanton Email to Lawrence, Apr. 30, 2010, J.A. 966. The next month, at a meeting with Blanton, OCC examiners provided him a draft report of examination discussing "the risks involved with allowing a customer to make large and frequent intra fund transfers that result in overdrafts." Final Decision, William R. Blanton, AA-EC-2015-24 (Office of the Comptroller of the Currency July 10, 2017) at 7, https://www.occ.gov/static/enforcement-actions/ea2017-064.pdf [hereinafter Final Decision]. In June 2010, the Bank's Chief Financial Officer, Charles Knight, notified Blanton that Campos continued to overdraw his accounts, but the Bank's position, according to a Bank employee, still was to "pay everything." Id. at 8. After sending Blanton a second draft report of examination warning against authorization of the Campos overdrafts, the OCC issued a final report stating that the Bank's practice was unsafe and unsound, posing an "unwarranted and excessive credit risk" to the Bank. OCC Report of Examination 35, Dec. 31, 2009, J.A. 420.

         In August 2010, Blanton met with Campos to discuss the overdrafts, and they orally agreed to three additional controls: first, the overdrafts would be limited to ten percent of the total balance of Campos's accounts; second, the Bank would have a written right to make transfers between his accounts to offset any overdrafts; and third, Campos and his companies would guarantee any overdrafts. None of the controls took effect, however, and Campos continued to overdraw his accounts. Ultimately, after Blanton's resignation and shortly before the Bank's failure, Beal notified Campos that the Bank would no longer honor overdrafts on his accounts.

         B.

         Second, the OCC alleged that Blanton had violated the National Bank Act by causing the Bank to file three materially inaccurate "call reports." Those reports describe a bank's financial condition and enable banking agencies to "monitor the condition, performance, and risk profile" of banks and the financial industry as a whole. 12 C.F.R. § 304.3(a); see 12 U.S.C. § 161(a). When preparing call reports, a bank must adhere to Generally Accepted Accounting Principles (GAAP) and "accurately reflect" the bank's capital. 12 U.S.C. § 1831n(a)(1)(A), (2)(A).

         The OCC's allegations about the Bank's call reports stem from the Bank's valuation of loans issued to two property developers. In May 2006, the Bank loaned $2.1 million to Brooks Avenue for acquisition and rehabilitation of an apartment complex in Atlanta. In 2007 and 2008, the Bank made two loans totaling $2.2 million to AH&H Property for the purchase of land and construction of single-family homes in the city. All three loans were secured by the targeted property and guaranteed by each debtor-company's principal.

         The properties securing the loans failed to develop as planned. The Bank attempted to salvage the loans by amending the companies' loan agreements. The companies, however, were ...


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