Stephens B. Woodrough
Attorney at Law       

MEMORANDUM TO: The File [NOTE]

FROM: Stephens B. Woodrough

DATE: July 30, 2001

SUBJECT: FDIC Inspector General Report (Glen Garrett)

Robert L. Clarke, former Comptroller of the Currency, recently forwarded a copy of the attached FDIC Inspector General Report ("FDIC Report")¹ dated September 29, 2000 to our attention with the wry comment: "To no one's surprise, the FDIC has concluded that nothing improper was done in connection with the 1991 FDIC examination [of First State Bank of Purdy] and subsequent FDIC enforcement actions against Glen Garrett." Mr. Clarke is a modest man.² The purpose of this memorandum is to assess the accuracy and completeness of the FDIC Report.

In the interests of clarity and overall continuity, this assessment will follow the same organizational structure of the FDIC Report and will use the same headings used in the FDIC Report. The methodology will first quote the questioned or central findings and conclusions in the FDIC Report, and then provide a narrative analysis of such findings and conclusions with appropriate supporting references to the documentary exhibits and sworn testimony received into evidence at the administrative hearing of the enforcement action instituted against Glen Garrett.

Where appropriate, supporting footnote references will refer to a particular page in one of the numbered documentary exhibits offered by Glen Garrett ("Garrett") as Respondent [Respondent Exhibit ("RX at __")] and admitted to the evidentiary record of the enforcement proceeding conducted between March of 1996 and March of 1999 when the case was finally settled. References may also be made to a specific page in a numbered exhibit offered by FDIC [FDIC Exhibit ("FX at __")] admitted to the same record. Finally, supporting footnote references will also be made to the recorded hearing transcript ("Tr. at __") of the sworn testimony of various witnesses who testified at that hearing. All of these materials are available to the general public.

BACKGROUND

Summary of Matter

FDIC Report

Analysis

Garrett has never been a A100 percent shareholder" of First State Bank of Purdy, Purdy, Missouri ("Bank"). The opening sentence of the FDIC Report, therefore, is erroneous. It is also characteristically indicative of a marked and persistent cavalier attitude of the FDIC regarding the manner in which the agency has discharged its responsibilities regarding Garrett vis-à-vis the importance and need for factual accuracy.⁴  In 1991, Garrett and his wife owned 98.5% of Purdy Bancshares, Inc., which owned 100% of the stock of the Bank.⁵  Today, Garrett and his wife own 100% of the stock of Purdy Bancshares, Inc.

While it is true that the 1991 FDIC Examination Report cited violations of Regulation O, all of the cited violations in that examination report were later determined by the FDIC to be erroneous.⁶  The FDIC never made any attempt to require that the Bank "correct" any of the violations of Regulation O cited in the 1991 FDIC Examination Report; nor did the FDIC ever attempt to impose any type of sanction or penalty against the Bank or Garrett for such violations.⁷

The "Background" discussion in the FDIC Report fails to make any reference to one of the most significant events pertaining to the eight-year regulatory dispute between Garrett and that FDIC, and which spawned the agency's intensive investigation and persecution of Garrett. Based upon unfounded allegations by an anonymous informant,⁸ the FDIC conducted a special inquiry directed against Garrett during an examination of the Bank in September of 1991 to determine whether the dishonest activities alleged by the informant had merit.⁹

FDIC Report

Analysis

The FDIC Report is again factually incorrect. There was never any allegation (or even a suggestion) in the 1991 FDIC Examination Report that there was a "failure to disclose certain nominee loans involving Garrett." All six disputed loans¹¹ were fully and openly documented on the books and records of the Bank. They were never hidden; nor was any effort ever made by anyone at any time to try and conceal such loans from review by anyone, including examiners from both the Missouri Division of Finance ("State") and FDIC. More importantly, however, it has never been established, as inferred by the FDIC Report, that the disputed loans were in fact nominee or straw party loans. Although such charges were made by the FDIC, they were never proven.¹² The FDIC Report, therefore, continues to minimize the importance of factual accuracy by characterizing the loans in question as nominee loans without qualification. Such statement is incorrect, and is nothing more than a biased opinion.

FDIC Report

Analysis

The cited excerpt in the FDIC Report is factually incorrect and grossly misleading. Again, the report makes an unqualified reference to Garrett's "role in the nominee loans" as though there were uncontested and/or proven facts which demonstrated that A nominee" loans were made and that Garrett had a "role" in making such loans. Such "facts" simply do not exist. Further, the characterization of the April 1993 letter to Garrett is factually incorrect. The FDIC letter was much more than a simple "notification" that the agency was "considering an enforcement action" against him.

First, the letter, which was dated April 22, 1993, did not indicate that the FDIC was in the process of reviewing and evaluating the appropriateness or need for regulatory enforcement action, or that the agency was otherwise engaged in the process of "considering" the initiation of such an action against Garrett. Second, the referenced letter made it clear that the FDIC had already made the decision to initiate formal action against Garrett.¹³  The most flagrant factual misrepresentation and inaccuracy, however, lies in the direct suggestion that the FDIC letter of April 1993 informed Garrett of the reason the agency intended to take action against him. Contrary to the explicit factual statement in the FDIC Report that the April 1993 letter informed Garrett that the contemplated enforcement action was for "his role in the nominee loans," the plain fact of the matter is that the FDIC letter did nothing of the kind.  There is absolutely no reference of any kind in either the FDIC letter or any of the documents enclosed therewith which indicates that the contemplated FDIC removal action against Garrett was predicated upon Garrett's activities pertaining to the disputed transactions alleged to be nominee loans.¹⁴

FDIC Report

Analysis

The FDIC Report is blatantly misleading. It fails to mention that the referenced "settlement negotiations" occurred between May and December of 1993 and were comprised solely of tentative discussions between FDIC representatives in the Kansas City Regional Office and Garrett's attorney, Ralph Mock.¹⁵ The FDIC never prepared or submitted a proposed "personal Cease and Desist Order and Civil Money Penalty against Garrett" at anytime during calendar year 1993. Such actions were not proposed until February 18, 1994 when Garrett was unrepresented by counsel.¹⁶ The most egregious omission in the cited portion of the FDIC Report is the vacuum of information regarding the events that transpired in the transition period between the discussions with Mr. Mock in the latter months of 1993 to the civil money penalty enforcement action that the FDIC Kansas City Regional Office proposed in February of 1995.

The referenced "CMP matrix" in the FDIC Report was attached to a recommendation by the FDIC Kansas City Regional Director in February of 1995;¹⁷ however, what the FDIC Report fails to mention is that such matrix was originally prepared a year earlier in February of 1994 to support the issuance of a proposed civil money penalty order against Garrett.¹⁸ Contrary to the inference in the FDIC Report, the CMP matrix was not prepared in 1995. The most critical (and flagrant) factual omission in the FDIC Report, however, is that the referenced February 1995 recommendation for a civil money penalty was part of an attempt by the FDIC and Garrett to reach a negotiated settlement.  Thus, such recommendation was not an accurate reflection of the primary regulatory objective sought by the FDIC. It was nothing more that a recommendation to support the issuance of a civil money penalty consent order for $5,000 that had been negotiated by Garrett and FDIC representatives in the Kansas City Regional Office in the preceding months.¹⁹

In this same context, the FDIC Report makes a deliberate and brazen attempt to mislead the reader into an erroneous factual conclusion. It does so by conveying the impression that during the period between May of 1993 and February of 1995, the FDIC was primarily interested in and was only attempting to negotiate the issuance of a civil money penalty order. Such impression or conclusion is absolutely false.

There are extensive records of events that occurred between May of 1993 and February of 1995 which demonstrate very clearly that the primary interest and objective of the FDIC was not the issuance of a civil money penalty order, but a permanent order of removal and prohibition banning Garrett from the banking business for the remainder of his life. There were no less than four internal FDIC memorandums written between May of 1993 and June of 1994, including two that were written in 1994, which specifically state that the FDIC was pursuing the issuance of a permanent order of removal against Garrett.²⁰ This same aggressive regulatory attitude was reiterated on July 13, 1994 when the FDIC forwarded a proposed "Notice of Intention to Remove From Office and to Prohibit From Further Participation" to be issued against Garrett.²¹ The FDIC Review Examiner responsible for the general administrative oversight of the proposed enforcement action against Garrett testified that the FDIC was actively pursuing the issuance of a removal order until at least "late August of 1994."²² Accordingly, it is both disingenuous and deceptive for the FDIC Report to suggest that the FDIC was merely seeking the issuance of a civil money penalty against Garrett during the period between May of 1993 and February of 1995.²³

FDIC Report

Analysis

Such statements convey a picture of events which is completely false. The first sentence has reference to verbal discussions that were conducted periodically between the FDIC and Garrett=s deceased counsel (Ralph Mock) between May and December of 1993. Those discussions allegedly concerned the feasibility and possible issuance of a personal cease and desist order and a civil money penalty of $10,00 against Garrett. As stated previously, Garrett never agreed to consent to such orders, and there is no evidence that Mr. Mock agreed to recommend that Garrett agree to consent to such orders.²⁴ The second sentence has reference to an entirely different proposal that was discussed in 1995. Contrary to the direct suggestion in the FDIC Report, there is no connection between the discussions in 1993 and those in 1995.

The referenced May 1995 withdrawal of a settlement offer by Garrett in the FDIC Report pertains to a letter dated May 19, 1995²⁵ that Garrett addressed in response to a letter he received from the FDIC dated May 16, 1995 which advised that the FDIC Washington Office had rejected a settlement agreement that had been negotiated and executed by Garrett and FDIC representatives in the FDIC Kansas City Regional Office. The May 1995 letter contains the following "time-line" of events leading up to Garrett=s "withdrawal" which are not reflected in the FDIC Report:

As indicated, Garrett and the FDIC had entered into a "Stipulation and Consent Agreement for the Issuance of an Order to Pay a Civil Money Penalty" which was executed by an authorized FDIC representative in the FDIC Kansas City Regional Office on January 30, 1995 and forwarded to the FDIC Washington Office for review and approval on February 9, 1995.³¹ Notwithstanding favorable recommendations by the FDIC Kansas City Regional Director, the FDIC Kansas City Regional Counsel, and the FDIC Assistant General Counsel for Enforcement in the FDIC Legal Division in Washington, the FDIC Director of Supervision in Washington rejected the agreement. None of the foregoing events are reflected in the "Background" section of the FDIC Report.

FDIC Report

Analysis

The FDIC Report continues to disregard the importance of truth and accuracy through the devices of interposition³² and omission. The FDIC Report fails to mention that all of the charges in the "Notice of Assessment for Civil Money Penalty" issued in September 1995 are verbatim replicas of the allegations in the draft "Notice of Intention to Remove from Office and to Prohibit From Further Participation" forwarded to Garrett by the FDIC on July 13, 1994.³³ The only difference between the two Notices is the legal caption. One is styled as a civil money penalty action while the other is styled as a removal and prohibition action.³⁴ The FDIC Report also fails to mention that all of the charges in both Notices were predicated totally upon the alleged violations of Regulation O that were cited in the 1991 FDIC Examination Report. In short, the FDIC had put "all of its eggs in one basket" by seeking a civil money penalty against Garrett for alleged violations of Regulation O.

But the FDIC had a problem which is also omitted from the FDIC Report. In October of 1994,³⁵ the General Counsel of the Board of Governors of the Federal Reserve System issued and published two letter opinions which indicated very clearly that Garrett had not violated any of the requirements and limitations of Regulation O in effect in 1989 and 1990 when the disputed loans in question were made.³⁶ In an effort to counteract the effect of the letter opinions issued by the General Counsel of the Federal Reserve Board, the FDIC Legal Division decided to amend the Notice of Assessment for a Civil Money Penalty.³⁷

The amended charges were filed on April 8, 1996 and alleged that Garrett breached his fiduciary duties. If proven, such charges would authorize the assessment of a so-called "Second Tier" civil money penalty of $25,000 for each breach of duty.³⁸ The FDIC enforcement policies and procedures regarding the assessment of civil money penalties that were in effect in 1996 required that a civil money penalty matrix, or a separate memorandum covering the same criteria reflected in the matrix, must be completed in order to demonstrate the appropriateness of the imposition of a penalty at such level and the amount of such penalty.³⁹ The FDIC Report does not indicate that the FDIC never prepared a penalty matrix or separate memorandum to justify the assessment of a "Second Tier" civil money penalty against Garrett. In short, the FDIC Report fails to mention that the agency violated its own internal policies and procedures when it amended the charges against Garrett to provide for the assessment of a "Second Tier" civil money penalty. The FDIC Report should have recognized that the action of amending the charges against Garrett on April 8, 1996 was illegal⁴⁰ and contravened the established policies and procedures of the FDIC in effect at that time.

FDIC Report

Analysis

The FDIC Report is technically correct, but it hides the central truth of the settlement, namely, the complete vindication of Garrett vis-à-vis the charged violations of law and breaches of fiduciary duty. The FDIC Report also obscures several significant aspects of the settlement. The FDIC Report fails to mention the fact that the order issued against Garrett to settle the action was unprecedented in the 65-year history of the agency. Even though the order was issued pursuant to section 8(b) of the Federal Deposit Insurance Act which authorizes the FDIC to issue cease and desist orders, the phrase "cease and desist" never appears in the settlement order issued against Garrett. That order does not require Garrett to cease and desist from doing anything.⁴¹  Further, the settlement order does not contain a single finding or determination by the agency that Garrett violated any law, rule or regulation (including Regulation O), or that Garrett engaged or participated in any course of conduct that constituted a breach of his fiduciary duties, as charged by the FDIC.⁴² Further, and perhaps most significant, the settlement order issued by the FDIC not only "dismissed, with prejudice," all of the charges against Garrett, it also formally "withdrew" such charges.⁴³  Finally, the settlement order acknowledges that Garrett charged the FDIC with prejudicial misconduct.⁴⁴ Even though the inclusion of such provisions in a personal cease and desist order issued by consent was unprecedented, they were not mentioned in the FDIC Report.⁴⁵

The most extraordinary aspect of the settlement order which is not discernable from the FDIC Report is the fact that the order only contains a single affirmative action requirement that was never in dispute. The only requirement in the order is that Garrett comply with the disclosure requirements contained in section 215.5(d)(1) of Regulation O⁴⁶ which was not applicable to Garrett or the Bank in 1989 and 1990 when the disputed loans in question were made.⁴⁷  In effect, therefore, the settlement order is comparable to being ordered by a traffic court to comply with a speed limit which was not in effect when the alleged offender was first charged with speeding. Stated differently, the settlement order does nothing more than require Garrett to comply with a regulation the agency had never charged him with violating. The FDIC Report totally fails to convey the bizarre nature of such an ending to a dispute that consumed (wasted?) thousands of man-hours and millions of dollars over an eight year period.

The Allegations

FDIC Report

Analysis

The FDIC Report totally misrepresents the chronology of events pertaining to the inquiry made by the National Ombudsman for the SBA Regulatory Enforcement Fairness Board as well as the FDIC responses to such inquiry.

In a letter dated February 22, 1999 (and contrary to the FDIC Report), the FDIC General Counsel conceded to the National Ombudsman of the SBA Regulatory Enforcement Fairness Board that the SBA National Ombudsman has jurisdiction to monitor regulatory enforcement fairness issues involving financial institutions subject to the supervisory authority of the FDIC.⁴⁸ It should be noted that the FDIC General Counsel's letter was published in an Appendix to the 1999 Annual Report of the SBA National Ombudsman to Congress.  Unfortunately, such letter also included an intentional falsehood when the FDIC General Counsel advised the SBA National Ombudsman and Congress as follows:

The cited statement makes the unmistakable assertion that the named target of a regulatory enforcement action initiated by the FDIC has the option of addressing their "concerns" regarding such action to either the FDIC Inspector General or to the FDIC Ombudsman. In making such statement, the FDIC General Counsel made the direct suggestion to the SBA National Ombudsman and Congress that the FDIC Inspector General and/or the FDIC Ombudsman stand ready to provide responsive assistance to the target of a regulatory enforcement action initiated by the FDIC. Such suggestion is flat wrong and tantamount to a deliberate lie designed to mislead. Regrettably, the deception was ignored in the FDIC Report.

Notwithstanding the foregoing declaration by the FDIC General Counsel, the FDIC Ombudsman and the FDIC Inspector General both refused to become involved with or to take any action in connection with specific allegations of serious regulatory misconduct by FDIC personnel in respect of the FDIC enforcement action initiated against Garrett.⁴⁹  By letter dated September 9, 1998, the FDIC Ombudsman informed Garrett that due to certain limitations imposed on the operations of that office, an investigation of the allegations of regulatory misconduct could not be conducted by the FDIC Ombudsman.⁵⁰ Specifically, the FDIC Ombudsman advised Garrett:

By letter dated September 29, 1998,⁵¹ Garrett was advised by a representative of the FDIC Inspector General that no action would be taken in respect of the allegations of fraud and regulatory misconduct that had been made in the inquiries forwarded by the SBA National Ombudsman to the FDIC Chairman.⁵² Accordingly, there is a clear record of correspondence pertaining to the allegations of regulatory abuse and misconduct by the FDIC in the Garrett enforcement action. Such record shows that serious concerns regarding such allegations of regulatory misconduct were first forwarded to the FDIC Chairman by the SBA National Ombudsman; such concerns were then forwarded by the FDIC Chairman to the FDIC General Counsel, who then referred them to the Office of the FDIC Ombudsman, who in turn referred them to the FDIC Inspector General, who declined to take any action until more than four (4) years had elapsed after being notified of such abuses and regulatory misconduct because of the pendency of the Garrett enforcement proceeding. Such bureaucratic "paper-pushing" and ineptitude betrays the shameful hollowness of the FDIC General Counsel's statement to the SBA National Ombudsman and Congress on February 22, 1999 that persons who are targeted by the FDIC in a regulatory enforcement action can "voice their concerns" regarding the prosecution of such actions to the FDIC Inspector General.

The freedom of a targeted person to express a concern regarding a regulatory enforcement action initiated by the FDIC has never been the issue. The central problem has been (and is) the languid attitude and insipid unresponsiveness of the FDIC to such expressed concerns. The FDIC Ombudsman and Inspector General perform certain worthwhile functions and responsibilities. But the clear and unassailable fact remains that they do not respond in any meaningful or effective manner to targeted persons who have expressed serious concerns (including documented concerns such as a falsified criminal referral) regarding regulatory misconduct in respect of enforcement actions that have been initiated by the FDIC. The FDIC Report totally fails to mention the foregoing historical record of correspondence involving the SBA National Ombudsman, the FDIC Chairman, the FDIC General Counsel, the FDIC Ombudsman and the FDIC Inspector General, or to make any assessment regarding the accuracy of representations made by FDIC officials or the rationality and purpose of policies followed.

OBJECTIVE, SCOPE, AND METHODOLOGY

FDIC Report

Analysis

All of the cited reasons in the FDIC Report for its primary reliance upon the hearing record in the administrative action against Garrett are self-serving excuses to justify the decision of the FDIC Inspector General to rely solely upon documentary information⁵⁴ and not conduct any type of independent investigation by interviewing witnesses.⁵⁵ For example, the cited reasons of a "more contemporary record" and a record of "ensured veracity" are totally transparent when compared to a record comprised of sworn statements of witnesses⁵⁶ that could have been compiled by the FDIC Inspector General between April and August of 2000 when the investigation for the FDIC Report was conducted.

Similarly, the cited reason of relying upon the testimony of "FDIC employees implicated by the allegations" is duplicitous on its face vis-à-vis the need for veracity and credibility. In this same context, the cited reasoning regarding the use of the testimony of bank employees and borrowers of the disputed loans is largely irrelevant to any investigative inquiry focused on the alleged regulatory abuses and misconduct.⁵⁷ Accordingly, it must be recognized and concluded that the rationalization in the FDIC Report for primary (if not total) reliance upon documentary information to the exclusion of any personal interview of anyone who may (or may not) have testified at the administrative hearing is nothing more than a labored contrivance.⁵⁸

REVIEW RESULTS

Allegation 1

A. Examiners ignored and suppressed evidence regarding Mr. Garrett.

FDIC Report

Analysis

The FDIC Report fails to cite at least one other series of related instances that were alleged to reflect an effort by FDIC to suppress evidence. The then Assistant Regional Director of the FDIC Kansas City Regional Office admitted⁵⁹ that he was responsible for suggesting that the Office of the FDIC Executive Secretary address letters to former FDIC examiners who had been subpoenaed to provide sworn testimony on behalf of Garrett at the administrative hearing. Such letters were highly intimidating and essentially threatened such persons with criminal prosecution if they decided to testify at the hearing on behalf of Garrett.⁶⁰

The FDIC Report totally misses the point regarding the reason for Garrett's objection to the efforts of FDIC to suppress evidence. It is not based upon any type of belief that due consideration of such regulatory misconduct by the FDIC would have served to "clear" Garrett of his alleged wrongdoing, as contended in the FDIC Report. On the contrary, Garrett's purpose in introducing evidence at the hearing that FDIC representatives suppressed material, exculpatory evidence which was favorable to Garrett, was to demonstrate to the presiding administrative law judge that the FDIC acted in bad faith by engaging in arbitrary and capricious misconduct that was prejudicial to Garrett. Such evidence was admitted to the hearing record (over the objection of the FDIC) to support one or more of the "affirmative defenses" raised by Garrett in his Answer and Amended Answer.⁶¹

Garrett further believes that if the FDIC Inspector General finds credible evidence which supports his contention that the FDIC engaged in arbitrary and capricious activities designed to suppress material information pertaining to the issues in dispute,⁶² a factual basis would then be established for an investigative finding that the FDIC acted in bad faith, or otherwise engaged in regulatory misconduct that was prejudicial to Garrett.⁶³

B. The FDIC ignored a power of attorney.

FDIC Report

Analysis

The FDIC Report is wrong again. First, it fails to recognize that the FDIC examiners questioned the signatures on the promissory notes to Garrett's son, not just the loan proceeds checks for those loans.  Second, and most importantly, the FDIC Report fails to grasp the significance of the failure of the FDIC examiners to recognize the existence of a power of attorney from Garrett's son. Garrett has never argued that the FDIC should have treated the loans to Garrett's son as though the FDIC examiners had, in fact, made a personal review of the power of attorney document itself.⁶⁴ There has never been an issue or contention by Garrett that the FDIC acted in error or in bad faith by raising the question of signature deficiencies on the loans to Garret's son.  Rather, the primary focus of Garret's objection is centered of the abject failure of the FDIC to take any cognizance of the fact that there were clear evidentiary indicators that a power of attorney may have been executed by Garrett's son authorizing his father to execute his signature.

The FDIC examiners repeatedly ignored factual (even though inconclusive) indicators that Garrett had been given a power of attorney. What were the "indicators" of the possible existence of a power of attorney?  The Bank's President provided detailed sworn testimony regarding a special occasion when she was specifically approached and questioned by the FDIC examiners during the course of the 1991 FDIC examination of the Bank.  She testified that she recalled her belief at the time that the examiners wanted to test her knowledge of the signature of Garret's son and possibly set a "trap" to induce her to tell the examiners that the signatures on the notes and loan proceeds checks were made by Garrett's son. The Bank's President testified that she immediately recognized the signatures as being made by Garrett and so informed the examiners.  In the same breath, she advised the FDIC examiners that Garrett had a power of attorney from his son, and that the signatures question were made by Garrett under such power of attorney.

The Bank's President also testified that the FDIC examiners appeared to accept her explanation and did not request to see a copy of the power of attorney.  Nevertheless, she also informed the FDIC examiners where the power of attorney was stored⁶⁵ if they wanted to review it.⁶⁶ The FDIC examiners did not make any further inquiry about the matter during the 1991 FDIC examination of the Bank.

The most compelling and reliable "indicator" of the existence of a power of attorney from Garrett's son to his father is an explicit written reference to the document contained in a Report of Examination of the Bank dated July 13, 1992 prepared by the Missouri Division of Finance ("1992 State Report of Examination").⁶⁷ The first page of the confidential "Supervisory Section" of the 1992 State Report of Examination of the Bank contains the following comment by the State Examiner-in-Charge of that report:

Garrett has never argued that the FDIC examiners were derelict in their responsibilities for not believing or for not placing a higher level of credibility on such indicators; however, Garrett believes very strongly that the FDIC acted in bad faith by suppressing the existence of such indicators from their supervisors and (most significantly) from the U.S. Attorney in a formal "Report of Apparent Crime" prepared by FDIC examiners which included specific comments suggesting that Garrett forged the signatures of Garret's son on the loan documents pertaining to the Bank's loans to Garret's son.  The FDIC examiners told the U.S. Attorney:

Garrett vigorously contends that the FDIC examiners acted in bad faith when they deliberately suppressed evidence (viz., the detailed explanatory statements provided by both the President and Head Bookkeeper of the Bank)⁷⁰ which indicated the possible existence of a power of attorney from Garret's son that would explain the signature discrepancy noted in the criminal irregularity report sent by the FDIC to the U.S. Attorney.

Finally, it is important to understand that Garrett does not argue or take the position that the FDIC examiners should not have made the cited comment regarding the questioned signatures on the loans to Garrett's son. Such comments were proper under the circumstances - particularly since the FDIC examiners had not actually received any hard evidence that fully explained the discrepancy.⁷¹ Rather, Garrett argues that the FDIC examiners demonstrated more than poor judgment when they deliberately suppressed their knowledge of factual information (albeit unverified with tangible proof) that would serve to fully explain the discrepancy if such information proved to be true. The FDIC examiners should have included a comment in the criminal irregularity report to the U.S. Attorney to the effect that they had received unverified information from two apparently credible officers in the Bank⁷² which (if true and verified by further investigation) would explain the discrepancy.

C. FDIC ignored borrower affidavits.

FDIC Report

Analysis

The FDIC Report continues to state serious factual inaccuracies. First, the borrower affidavits in question⁷³ were not provided to the FDIC in 1992.⁷⁴ They were submitted to the FDIC on May 26, 1994.⁷⁵  Second, the affidavits executed in 1992 were not submitted to the FDIC by Garrett=s attorney; they were submitted by the Bank's President.⁷⁶ Third, the 1992 affidavits did not state that the borrowers used the proceeds of their loans to repay debts owed to Garrett.  Fourth, Garrett has never alleged that the FDIC "willfully ignored" the affidavits. Fifth, Garrett has never claimed that the FDIC "suppressed evidence regarding the nature of the loans."⁷⁷

The FDIC Report essentially argues that since there were inconsistencies between some of the statements in the borrower affidavits and "information that had been gathered [by FDIC] during the [1991 FDIC] examination,"⁷⁸ and because the alleged pre-existing debts owed to Garrett were not documented, the FDIC did not give much (if any) weight to the affidavits. Garrett does not dispute such prerogative of the FDIC. As mentioned, while Garrett disagrees with the FDIC decision to discount the evidentiary value of the affidavits, Garrett has never alleged that the FDIC "willfully ignored" or "suppressed" such affidavits.

FDIC Report

Analysis

The emphasized portion of the foregoing excerpt from the FDIC Report is instructive and graphically illustrates the twisted regulatory attitude or "mind set" that permeated the persecution of Garrett by the FDIC. In addition, it also reflects a subliminal characteristic of excessive prosecutorial zeal by requiring the accused to prove lack of guilt.  The FDIC Report adopts the same flawed thesis as the FDIC Senior Review Examiner who testified at the hearing regarding the significance of the information developed by OCC national bank examiners which showed that one of the alleged nominee borrowers used his own funds to repay his loans to the Bank.  His testimony was that such evidence was essentially discounted by the FDIC since it did not disprove the possibility of a secret cash payment to the borrower by Garrett.⁸⁰ The plain and unassailable fact of the matter is that it is absolutely impossible to document or otherwise prove by any type of physical evidence that a surreptitious event did not occur.

The FDIC Report makes the same fundamental error when it adopts the premise that the purpose of the borrower affidavits was to prove a negative, namely, that "insider abuse had not occurred."  The FDIC Report clearly adopts the biased precept that Garrett, having been accused of insider abuse in respect of the alleged nominee loans, was guilty of the charge and that it was therefore incumbent upon Garrett to prove the negative, namely, that "insider abuse had not occurred."  Such thinking, of course, it totally wrong.⁸¹ The sole purpose of the borrower affidavits was to provide evidence that the six loans in question satisfied all of the characteristics of bona fide loan transactions, including the pivotal characteristic regarding the named borrower=s acknowledged legal responsibility to repay the loans.⁸²

D. Information gathered by the OCC at the request of FDIC was not sent to the FDIC= s Washington Office

FDIC Report

Analysis

The FDIC Report accurately identifies the information in question, namely, an investigative report prepared by an OCC examiner which indicated that all of the funds used by one of the alleged nominee borrowers to repay his loans at the Bank were obtained by the borrower from loans he obtained at a national bank, and that such loans at the national bank were repaid by the borrower with funds received from a relative and businesses owned by the borrower.⁸³ In addition, the FDIC Report accurately concludes that the OCC investigative report was not sent to the FDIC Washington Office. Nevertheless, the FDIC Report demonstrates a remarkable ineptitude regarding an understanding of the legal significance of the information in question and Garrett=s argument regarding the suppression of exculpatory evidence.

In view of the significance of the subject matter, it is important to appreciate the degree of detail reflected in the investigative summary of the OCC report.  The subpart styled "Conclusion" in the OCC investigation report states:

Supporting Facts

$10,000 from [name of relative of borrower omitted] UMB of Monett
    2,738 from [name of business owned by borrower omitted] UMB of Monett
    2,668 from [business owned by borrower omitted] Pleasant Hope Bank
$18,073

The significance of the information reflected in the OCC investigative report is not that it proves that Garrett was not the source of funds used by the alleged nominee borrower to repay his loans.⁸⁵ Garrett has never argued that the OCC report proves the negative, namely, that Garrett was not the source of funds for the repayment of the named borrower's loans. Rather, Garrett has always argued that the crucial significance of the information in the OCC report lies in the positive conclusions it supports, namely, that the alleged nominee borrower repaid his loans with funds withdrawn from checking accounts owned by businesses owned by such person, and that all of the deposits made into those checking accounts were made by businesses or a relative of his. The key factual question that needs to be answered is whether the named borrower, who is suspected of being a nominee or straw party, used his own funds to repay the loans that were made to him.⁸⁶ The information and supporting documentation contained in the OCC report in question clearly answers that question in the affirmative.

Garrett argues that the information and detailed documentation contained in the OCC investigative report should have been forwarded (or at the least, mentioned) in the recommendation sent by the FDIC Kansas City Regional Director on June 19, 1995 to the FDIC Washington Office for the assessment of a civil money penalty against Garrett based upon the alleged nominee loans.⁸⁷ The FDIC Kansas City Regional Office acted arbitrarily and in bad faith when it suppressed that information and misled the FDIC Washington Office into the mistaken belief (as stated in the recommendation) that there was insufficient documentation to "verify" the contentions in the sworn affidavit of the alleged nominee borrower that he used his own funds to repay his loans at the Bank and that he was therefore the "true" borrower regarding such loans.⁸⁸

FDIC suppressed examination information in the KCRO and did not follow normal policies and procedures by communicating with Washington

FDIC Report

Analysis

The FDIC Report is both confusing and erroneous. The first sentence cited above states that Garrett alleged that "examination information" was suppressed; the second sentence states that a "recommendation" was suppressed.  Since the FDIC Report does not make any supporting reference to the administrative hearing record, it is impossible to decipher its meaning as to exactly what records were alleged to have been suppressed. While it is true that the former FDIC Assistant Regional Director of the Kansas City Regional Office was questioned⁸⁹ about an apparent discrepancy regarding the distribution of a recommendation made on November 21, 1991 by FDIC Examiner-in-Charge of the 1991 FDIC examination of the Bank for the issuance of a cease and desist order against the Bank,⁹⁰ the hearing record does not show that Garrett made any allegation or charge that the FDIC Kansas City Regional Office "suppressed" such recommendation, or that such office "suppressed" bank "examination information."

Allegation 2

The FDIC made false statements in a written report to the U.S. Attorney

FDIC Report

Analysis

The FDIC Report is dead wrong.  At the outset, it is curious that the FDIC Report limited itself to only two of the statements made in the FDIC criminal referral that Garrett alleged were false.⁹³ Garrett alleged that six false factual statements were made in the FDIC criminal referral.  Accordingly, the discussion of the two statements reviewed in the FDIC Report will be evaluated in addition to the other four false statements that were omitted from the FDIC Report.

The FDIC Report engages in an extended discussion of the statement of fact in the FDIC criminal referral that the "known amount of loss" to the Bank was "estimated [at] $200,000."⁹⁴  Virtually all of the discussion in the FDIC Report is focused upon the FDIC examiner=s reasons and basis of the estimated figure of $200,000.  The FDIC Report again misses the point. While Garrett strongly disagrees with the basis of the stated estimate, the issue is not whether the FDIC examiner=s estimate or opinion of the dollar amount of loss is accurate. The issue is whether there was, in fact, a "known loss" to the Bank, not whether the estimated dollar amount of loss was accurate or reasonably based. The FDIC criminal referral states without equivocation that the Bank incurred a "known loss" estimated to be $200,000. Such statement had absolutely no foundation in fact and was, in fact, false.

The best "proof" of the falsity of the statement that the Bank sustained a "known loss" of approximately (estimated) $200,000 is the 1991 FDIC Report of Examination of the Bank which was completed at about the same time the FDIC criminal referral was completed.⁹⁵ The 1991 FDIC Examination Report does not include any finding or reference to the fact that the Bank sustained a "known loss" of approximately $200,000.  If, in fact, the FDIC examiners had determined that the Bank had actually sustained a known loss of such an amount, there would have been an appropriate finding and discussion in the 1991 FDIC Report of Examination (RX 17) regarding the impact of such a loss upon the financial condition of the Bank. The 1991 FDIC Report of Examination does not include any such finding or discussion.  In the absence of any such finding or discussion in the 1991 FDIC Report of Examination, it must be concluded that the FDIC examiners were not, in fact, aware of any "known loss" in the approximate or estimated amount of $200,000.  Such statement of fact in the FDIC criminal referral was therefore false.⁹⁶

The FDIC criminal referral includes the factual averment that Garrett made "restitution" to the Bank in the amount of $117,000 with the statement: "Garrett paid [off] some of the nominee loans."⁹⁷  In this instance, the FDIC Report accurately finds and concludes that the FDIC examiner=s statement was not factual, but was merely an "inference" or an opinion based upon assumptions.  The FDIC Inspector General consoles himself with the conclusion that the FDIC examiner=s inference "did not appear to be unreasonable" under the circumstances.⁹⁸ Again, the FDIC Inspector General misses the point. The issue is not whether the FDIC examiner=s inference or assumption was reasonable, but whether the statement he made in the FDIC criminal referral was factually accurate. Given the clear determination in the FDIC Report and the sworn testimony of the responsible FDIC examiner that the statement was not factual or accurate, it must be concluded that Garrett=s contention is validated.⁹⁹

Although they are ignored in the FDIC Report, the FDIC criminal referral also includes the following unqualified factual statements: (1) a criminal violation (defalcation) in the amount of $500,000 had occurred,¹⁰⁰ (2) Garrett falsified a loan application at another bank,¹⁰¹ (3) Garrett forged the borrower=s signature on two of the alleged nominee loans,¹⁰² and (4) Garrett sold collateral out of trust that was pledged to secure a loan at another bank.¹⁰³ Except for limited questioning pertaining to the calculation of the amount of the total violation ($500,000), Garrett was not permitted to raise questions regarding the factual basis of such statements at the administrative hearing. Nevertheless, Garrett believes very strongly that such statements were not factual or truthful, and that they were nothing more than voiced suspicions.¹⁰⁴

Allegation 3

The FDIC violated federal law in enlisting the aid of examiners at the Office of the Comptroller of the Currency

FDIC Report

Analysis

The FDIC Report is wrong again. First, the FDIC requested that the OCC conduct an inquiry that was far more comprehensive that a mere "loan search." Second, Garrett has never alleged that the FDIC violated the Right to Financial Privacy Act ("RFPA") when it obtained "information on...Garrett from an OCC-supervised institution."¹⁰⁵  Third, Garrett has never contended that the FDIC violated RFPA, but that the OCC violated that statute when the OCC examiner requested and obtained "customer information" regarding one of the alleged nominee borrowers from the national bank that had such information without notifying the customer.  The issue is not whether the OCC and FDIC are prohibited by RFPA from sharing and exchanging information.  The issue is whether the OCC violated RFPA by responding to the FDIC request.  Garrett=s criticism, therefore, was the demonstrated willingness of the FDIC to ask a sister agency to risk violating Federal law to further the ends of the FDIC.

It appears that the FDIC examiner who was instructed to contact the OCC by the FDIC Kansas City Regional Office also had reservations regarding the propriety of asking the OCC to access records containing "customer information," as defined in RFPA.  Such information may not be accessed without the customer=s consent.  The FDIC examiner work-papers clearly show a marked degree of concern in asking the OCC to examine the borrower=s deposit accounts at the national bank. ¹⁰⁶

Allegation 4

The FDIC, in violation of federal law, made false statements to another bank in order to damage Mr. Garrett

FDIC Report

Analysis

The FDIC Report could not be more wrong. Garrett has never alleged that the FDIC "falsely informed another bank" about anything. The FDIC Report continues to demonstrate a severely confused understanding of the evidence and testimony in the hearing record.

The following is a summary of the regulatory misconduct charged by Garrett in respect of the allegation that Garrett had sold cattle (which had been pledged as collateral on a loan at another bank) out of trust.  First, it was undisputed that during the course of the 1991 FDIC examination of the Bank, the Springfield District Office Supervisor of the Missouri Division of Finance ("State Supervisor") was actively involved in obtaining and sharing information with the FDIC examiners who were conducting the FDIC examination of the Bank.¹⁰⁷  The State Supervisor and the FDIC Examiner-in-Charge of the 1991 FDIC examination of the Bank ("1991 FDIC EIC") both testified that the State Supervisor made periodic contacts with the FDIC examiners to share information regarding the progress of the 1991 FDIC examination of the Bank, which was largely devoted to a special investigation of Garrett.¹⁰⁸

Garrett does not allege that such activities were improper. On the contrary, Garrett believes that because of the de facto symbiotic working relationship between the State Supervisor and the 1991 FDIC EIC during the 1991 FDIC examination of the Bank, the FDIC and Missouri Division of Finance were essentially conducting a "Joint Examination" of the Bank in 1991. Regardless of whatever "label" is assigned, the undisputed fact is that a very close working relationship existed between the State Supervisor and the 1991 FDIC EIC during the 1991 FDIC examination of the Bank.  There were even occasions where the State Supervisor visited other area banks to obtain credit and loan information regarding Garrett which the State Supervisor then conveyed to the 1991 FDIC EIC and/or one of the other FDIC examiners assisting in the 1991 FDIC examination of the Bank.

During the course of the 1991 FDIC examination, the FDIC examiners began compiling information for inclusion into a criminal referral report to the U.S. Attorney.¹⁰⁹ In early October FDIC examiners discovered (after conducting tracing procedures) that several large deposits were made to Garrett=s account which were comprised of the proceeds of the sale of cattle. The FDIC examiners knew (based upon their prior experience in examining the Empire Bank in Springfield, Missouri) that Garrett had a large line of credit at that bank secured by cattle.  The FDIC examiners therefore suspected that Garrett had sold the pledged cattle out of trust in violation of law and included such violation in the criminal referral that was being prepared. ¹¹⁰

On or about October 15, 1991,¹¹¹ the State Supervisor made a telephone call to a senior executive officer at the Empire Bank in Springfield, Missouri, and informed that officer that he (the State Supervisor) had information which indicated that Garrett had (or may have) sold the cattle pledged to secure Garrett=s loan at Empire Bank.¹¹² Garrett contends that the State Supervisor committed a felony when he did that; the State Supervisor knowingly provided information derived from an examination of the Bank (viz., the information compiled by FDIC examiners regarding Garrett=s sale of cattle ) to an officer of the Empire Bank.

Garrett has never taken the position that the FDIC examiners asked the State Supervisor to contact the Empire Bank with the sold cattle information, or that the FDIC was otherwise instrumental in the criminal conduct of the State Supervisor.  Garrett has only alleged that the State Supervisor committed a serious crime when he deliberately disclosed bank examination information he received from FDIC examiners to an officer of the Empire Bank. ¹¹³

Allegation 5

The FDIC asked an employee [of the Bank] to lie

FDIC Report

Analysis

The FDIC Report is almost correct. First the Bank employee involved was not the Bank=s Cashier; she was the Banks=s Head Bookkeeper.¹¹⁴ Nevertheless, the FDIC Report is otherwise accurate in describing the circumstances of the incident.  As stated in the FDIC Report, the FDIC examiner requested that the Bank employee not tell Garrett what she was doing in her assistance work with the examiners if she were asked by Garrett. The employee testified that since she was sure Garrett would make inquiry, the FDIC request had put her in a position where she would be forced to lie, which she was unwilling to do.¹¹⁵ The Bank employee eventually solved her dilemma by simply going directly to Garrett, and telling him what she was doing to assist the FDIC examiners.¹¹⁶

Upon further consideration of the matter, Garrett recognizes the occasional need for FDIC examiners to work in a confidential environment and can appreciate how either the Bank employee or the FDIC examiner who made the request for confidentiality may have misunderstood or misread the situation. Accordingly, Garrett withdraws this allegation.¹¹⁷

Allegation 6

The FDIC in pursuing the matter did not take into account economic conditions

FDIC Report

Analysis

Notwithstanding a strong temptation to decline to "dignify" the cited excerpt of the FDIC Report with comment, it must be said that such passage confirms the mindless, bureaucratic attitude of the agency and its obvious preference of placing a higher premium on officially promulgated policies than on fundamental precepts of common sense and sound judgment.

If the FDIC Report is to be believed, logic and consistency would require the conclusion that the reverse corollary is equally true. In other words, since there is no explicit proscription in the FDIC Division of Supervision Manual of Examination Policies which states that the FDIC must take into account the economic and human resource expense associated with the initiation and prosecution of an administrative enforcement action, it would not be an objectionable business practice or operating policy for the FDIC Director of the Division of Supervision to issue a directive requiring all FDIC Regional Directors to abandon or disregard the principle of discretion and sound judgment in recommending such actions to the Washington Office. In essence, such directive would require the institution of a civil money penalty enforcement action whenever it was determined that a violation of law occurred.  We think not.  Indeed, the FDIC Division of Supervision has a published policy regarding the assessment of civil money penalties which cautions against a mechanical approach of using the civil money penalty power and expressly provides that discretionary sound judgment must be applied in such actions.¹¹⁹ The inherent (and obvious) weakness of the position advanced by FDIC Report, therefore, is that it contradicts both common sense and promulgated FDIC policy. By any rational standard, it is impossible to justify the expenditure of millions of dollars and thousands of man-hours¹²⁰ over an eight-year period for the purpose of imposing a single penalty order of $25,000.  Put more simply, such action is more than imprudent or foolish; it is idiotic.¹²¹

Allegation 7

The enforcement actions do not serve a legitimate regulatory purpose

FDIC Report and Analysis

The FDIC Report responds to this "allegation" by providing a detailed chronology of events (three single-spaced typewritten pages), beginning with the findings of violations of Regulation O in the 1991 FDIC Report of Examination of the Bank in September of that year, and ending with the issuance of the Amended Notice of Assessment of Civil Money Penalty issued against Garrett in April of 1996. Although there are several errors and omissions in that chronology, it would not serve any useful purpose to review them here since the entire exercise reflected in the FDIC Report is pointless. The FDIC Report essentially advances the thesis that since the action against Garrett was conducted in accordance with all applicable laws, rules, regulations, procedures, and policies of the FDIC,¹²² and since there were numerous instances where the case was subjected to various levels of review within the agency at both the regional office and Washington office, it must follow that the action against Garrett served a legitimate regulatory purpose.  It is difficult to argue with or convince a moron, and no attempt to do so will be made here. Instead, we will consolidate our analysis of this "allegation" with that of the last "allegation," discussed below.

Allegation 8

The enforcement procedures and tactics were undertaken by individuals, not as a matter of agency policy, but rather because of personal animus to Mr. Garrett

FDIC Report

Analysis

The FDIC Report totally misconstrues the nature and effect of the examples of regulatory misconduct and abuse alleged by Garrett. Contrary to the averment in the FDIC Report, all seven of the actions questioned by Garrett were not cited by Garrett as "examples of bad faith."  On the contrary, Garrett argued that the questioned actions were illustrations of one of three categories regulatory misconduct by the FDIC: (1) actions that were arbitrary or capricious, (2) actions taken not to serve a legitimate regulatory purpose, but to further a personal or non-governmental objective, or (3) actions undertaken in bad faith.¹²⁴  It is evident that the FDIC Inspector General does not have an understanding of the fact that there are basic and important differences between the three categories of misconduct. They are not all the same.  For example, an arbitrary or capricious action is not necessarily undertaken in bad faith, or for a non-governmental purpose. Similarly; an action taken bad faith is not necessarily undertaken for a non-governmental purpose; and an action undertaken for a non-governmental purpose in not necessarily arbitrary or capricious, or taken in bad faith.  Each category is separate and distinct from the other.

This section of the FDIC Report identifies the following seven FDIC actions that were alleged by Garrett to constitute regulatory misconduct: (1) false statements of fact in a criminal referral sent to the U.S. Attorney, (2) unauthorized criminal disclosure of bank examination information to an officer of another bank (by a State examiner, not FDIC), (3) instructing a Bank employee to lie to Garrett, (4) failure to prepare a CMP matrix or written memorandum addressing the 13 FFIEC factors in accordance with prescribed policies and procedures set forth in the FDIC Division of Supervision Manual of Examination Policies and Directives to FDIC Regional Directors, (5) the initiation and conduct of a regulatory enforcement action that does not serve a legitimate regulatory purpose, (6) the downgrade of supervisory ratings of the Bank assigned in an examination report conducted and prepared by the Missouri Division of Finance, (7) the use of an "epithet" by an employee of the FDIC to describe an intended effect regarding the use of the FDIC statutory enforcement powers.

As indicated in the discussion analysis of "Allegation 7," above, Garrett views the charges of conducting an enforcement action for a non-governmental purpose (i.e., without a legitimate bank regulatory purpose) and utilizing the enforcement powers of the FDIC to further a personal animus or dislike of the targeted banker as synonymous. They are one and the same in the case of the FDIC action instituted against Garrett. Accordingly, this section of the FDIC Report identifies five actions alleged by Garrett to constitute abusive regulatory misconduct by the FDIC and one action that constituted regulatory misconduct by the Missouri Division of Finance.¹²⁵

Only items (6) and (7),above, remain to be discussed.  With regard to the FDIC downgrade of the supervisory ratings assigned in the 1991 Report of Examination of the Bank prepared by the Missouri Division of Finance, the FDIC Report again fails to grasp the gravamen of Garrett=s objection.  As mentioned previously (and again contrary to the averment in the FDIC Report), Garrett has never predicated his objection to the FDIC downgrade action on personal bias or animus against Garrett. Rather, Garrett=s contention has always been that the FDIC downgrade action was not reasonably founded upon fact and was therefore prohibited arbitrary agency action. The hearing record is replete with testimony¹²⁶ and documentary evidence¹²⁷ which clearly demonstrated that the FDIC downgrade action was arbitrary and taken to provide an ostensible "excuse" for the agency to re-examine the Bank on an accelerated basis.¹²⁸  Garrett believes (but cannot prove) that the FDIC downgrade actions were directed by the Assistant Regional Director in the Kansas City Regional Office who was responsible for engaging in regulatory misconduct based upon a personal dislike of Garrett, discussed below.

Notwithstanding the self-serving rhetoric in the FDIC Report,¹²⁹ the most compelling and graphic illustration of FDIC regulatory misconduct predicated upon personal animus against Garrett occurred in October of 1991 - at the very beginning of the eight-year nightmare endured by Garrett.  The conduct in question will certainly stand as one of the most outrageous displays of arrogance by a senior FDIC management official that has ever been recorded in the history of the agency.  It occurred on October 25, 1991, which was a little more than three weeks after the 1991 FDIC examination of the Bank first started. By such date, the 1991 FDIC EIC had completed a preliminary written assessment of the findings and conclusions of the examination, and had made a list of recommendations regarding the nature and scope of the regulatory response of the FDIC to such findings and conclusions.¹³⁰

Due to the aggravated circumstances of the situation,¹³¹ FDIC examination procedures required that the 1991 FDIC EIC forward a "call-in" memorandum by facsimile to the FDIC Kansas City Regional Office summarizing his findings and recommendations, and to wait for confirmation instructions. The 1991 FDIC EIC made the following recommendations in his report to the Kansas City Regional Office: (1) the issuance of a formal report of apparent crime to the U.S. Attorney, (2) the issuance of an order of removal from office and prohibition from further participation against Glen Garrett, (3) the issuance of a civil money penalty against Glen Garrett, and (4) the issuance of a cease and desist order against the Bank, which were forwarded to the FDIC Kansas City Regional Office by facsimile from the Bank on October 25, 1991.¹³²

According to the sworn testimony of the 1991 FDIC EIC, a senior FDIC management official in the Kansas City Regional Office with the title of Key Review Examiner¹³³ called the 1991 FDIC EIC at the Bank, informing him that his findings and recommendations had been reviewed and discussed by senior regional staff representatives of the FDIC Division of Supervision, and related the results of that review with the following comment:

Aside from the appallingly insensitive and contemptuous nature of such a comment, it nevertheless provides a chillingly accurate portrayal of the extreme degree of prejudicial bias and personal animus against Mr. Garrett that existed in 1991 and which would continue to emanate from the FDIC Kansas City Regional Office over the ensuing eight years.¹³⁵

Some might argue that the cited offensive comment by the FDIC management official¹³⁶ was an aberration, or a once-in-a-lifetime event.  Incredible as it might seem, such was not the case for this particular FDIC management official. The barnyard metaphor he used to describe the intended effect of utilizing the FDIC statutory enforcement powers against Garrett was one of his favorites. There was convincing evidence offered at the administrative hearing which indicated that the same FDIC management official had personally used the exactly the same metaphor several months earlier in 1991 to describe the collective attitude of senior FDIC management officials in the FDIC Kansas City Regional Office toward the FDIC examiner, who would later be assigned to serve as the Examiner-in-Charge of the 1991 FDIC examination of the Bank (hereinafter referred to as the "targeted FDIC examiner").¹³⁷

The FDIC Field Office Supervisor of the Springfield, Missouri Field Office testified that on or about August 8, 1991, he received a telephone call from the Assistant Regional Director in the FDIC Kansas City Regional Office regarding a prior request the Assistant Regional Director had made for a performance evaluation of the targeted FDIC examiner. The FDIC Field Office Supervisor testified that he had previously submitted the requested performance evaluation to the Kansas City Regional Office; that he had assigned satisfactory ratings in all performance categories; and that the FDIC Assistant Regional Director made more than one call back to the Field Office Supervisor, advising that the performance evaluation he submitted to the Kansas City Regional Office had been "lost."¹³⁸ It was apparent to the Field Office Supervisor that the Assistant Regional Director was upset with the fact that the previously submitted performance evaluation of the targeted FDIC examiner included favorable ratings in all performance areas, and that the stated need to prepare another performance evaluation by the Assistant Regional Director was tantamount to a request for an evaluation that included unsatisfactory ratings notwithstanding the satisfactory de facto performance of the targeted examiner. It was at this juncture that the FDIC Assistant Regional Director "reminded" the FDIC Field Office Supervisor:

The FDIC Field Office Supervisor was so stunned by the statement that he decided to prepare a written note to the himself detailing exactly what was said and the historical context in which the cited statement was made.¹⁴⁰  He testified that he prepared the note to protect himself in case there was ever a question regarding the true author of the ratings that were assigned in the final performance evaluation of the targeted FDIC examiner.¹⁴¹

Given the unique (albeit shockingly disgusting) nature of the repeated specific reference to the male anatomy, and given the fact that such references were made in official business communications involving an identifiable Assistant Regional Director who was assigned to the FDIC Kansas City Regional Office in 1991, there is little (if any) reasonable doubt that the cited offensive statements were, in fact, made by such FDIC Assistant Regional Director. As indicated previously,¹⁴² the FDIC Report irresponsibly minimizes and dismisses the statement made during the 1991 FDIC examination of the Bank based upon the testimony of a participant who stated he could not recall making such statement or hearing it in the first instance from the FDIC Assistant Regional Director.¹⁴³  Even worse, however, is the obsequious failure of the FDIC Report to take any notice of the recorded incident of serious misconduct by the FDIC Assistant Regional Director involving the FDIC Field Office Supervisor.¹⁴⁴

On the other hand, Bob Clarke's comment noted at the outset of this assessment may prove to be the most durable and prescient of all.  In retrospect, what he really said was: "To anyone who is genuinely familiar with the FDIC Inspector General=s complacent attitude toward conducting bona fide comprehensive investigative inquiries into the de facto manner and the means that are employed by the FDIC Division of Supervision to achieve an end-result sought, it will not be a surprise that the FDIC Inspector General found that there was nothing improper regarding any aspect of the FDIC enforcement action conducted against Glen Garrett.  There was nothing wrong with anything that was done in the Garrett case, and there would not be any objection or criticism if the FDIC Division of Supervision decided to duplicate the effort."  Sad, but true.

CONCLUSION

The FDIC enforcement action conducted against Glen Garrett is totally unprecedented in the annals of legitimate bank supervision.  For a period of eight years, the FDIC allowed and/or perpetrated a process that was contrary to law and human decency by engaging in a deliberate course of action that included willful and prejudicial misconduct, and which was essentially designed to intimidate and threaten a small community banker with the ultimate hope of prevailing by attrition. The plain, indisputable fact of the matter is that the FDIC enforcement action against Glen Garrett was not pursued for a legitimate governmental or regulatory purpose. Rather, the statutory enforcement powers of the FDIC were abused to implement the personal agenda of a shallow-minded, vindictive bureaucrat who was determined to satiate his personal dislike of Glen Garrett by continuing to persecute him for eight years, regardless of cost in either dollars or human resources and notwithstanding the lack of any upside benefit to the FDIC.  In his own words, the FDIC enforcement powers provided in section 8 of the Federal Deposit Insurance Act were used in an attempt to "castrate" Glen Garrett. Congress must have had a different purpose in mind when it granted such powers to the FDIC.

The lead editorial titled "Federal Malpractice" and published in the March 23, 1999 edition of The Kansas City Star summed it up best:

APPENDIX

ENDNOTES

1. The FDIC Report is attached as "Exhibit A" and essentially focuses on the eight grievances Glen Garrett filed in June of 1998 with the Small Business Association National Ombudsman of the Regulatory Enforcement Fairness Board ("SBA National Ombudsman"). [The Office of SBA National Ombudsman was created following the enactment of the Small Business Regulatory and Enforcement Fairness Act ("SBREFA") in 1996.] The FDIC Report also references a "related request" from Senator Bond dated November 9, 1999, and states that the FDIC Inspector General responded to Senator Bond in a separate report dated April 5, 2000. [Glen Garrett was not provided with and we have not seen a copy of that report.] The FDIC Report fails to mention two earlier written responses from the FDIC to Senator Bond. On November 23, 1999, the FDIC Inspector General addressed a report to Senator Bond responding to a letter dated November 9, 1999 from Senator Bond, and on December 6, 1999, FDIC Chairman Tanoue sent a follow-up letter to Senator Bond, forwarding a copy of a nine-page report prepared by the FDIC Legal Division which was titled, "Response to an Inquiry from The Honorable Christopher Bond." We critiqued the accuracy of both FDIC responses to Senator Bond in a memorandum to the File dated February 3, 2000. A copy of that memorandum (without the attachments referenced therein) is attached as "Exhibit B."

2. Other, less discriminating, observers might well characterize the FDIC Report as a comprehensive whitewash embellished by factual inaccuracies, half-truths, and self-serving rhetoric.

3. The FDIC Report does not discuss or even mention that the FDIC Examiner-in-Charge of the 1991 FDIC examination of the Bank recommended multiple regulatory actions, including: (1) the issuance of a formal report of apparent criminal conduct to the U.S. Attorney, (2) the issuance of an order of removal and prohibition from further participation in banking, (3) the issuance of a civil money penalty order, and (4) the issuance of a cease and desist order against the Bank. See, RX 4, RX 56, RX 14, RX 15 and RX 16.

4. The sad irony is that this same attitude of the agency to settle for mediocrity and willingness to "getting it almost right" was instrumental and contributed heavily to the eight-year regulatory nightmare that Garrett was subjected to by the FDIC between 1991 and 1999.

5. RX 17 at 23.

6. It is believed that the FDIC agreed with our legal analysis of such violations, as reflected in a letter report Garrett addressed to the Assistant Regional Director of the FDIC Kansas City Regional Office dated May 26, 1994. That letter report is part of RX 38 and appears at pages 18-27. Our analysis of the alleged violations was subsequently confirmed by the General Counsel of the Federal Reserve Board in letter opinions he issued and published on October 21, 1994. RX 39 and RX 40. The FDIC has never disputed the contention that all of the cited violations of Regulation O in the 1991 FDIC Examination Report of the Bank are wrong.

7. In June of 1992, the Bank consented to the issuance of a cease and desist order under section 8 (b) of the Federal Deposit Insurance Act based upon the results of the 1991 FDIC Examination Report. Although the Order contained a standard provision requiring the Bank to correct the violations of law cited in the 1991 FDIC Examination Report, the Bank ignored the requirement for the cited violations of Regulation O, and the FDIC never made any attempt to enforce t