The conundrum for bank officers and directors, and other institution-affiliated parties, who are hit with regulatory enforcement actions, is that, notwithstanding the strong belief of the accused that they are not "gulity as charged," the cost of fighting an enforcement action often far outweighs the cost of a civil money penalty. Often, that disparity is enough to induce the defendant to settle, albeit with a bitter taste in his or her mouth.
Then, there are folks like Patrick Adams. Four years ago, we discussed the difficulties faced by Dallas-based T-Bank when it was accused by the OCC of violating the Bank Secrecy Act in the course of its dealings with third party payment processors. The bank entered into a consent C&D with the OCC. Adams, the then-CEO of the bank, was also hit with an enforcement action and, unlike the bank, decided that he wouldn't knuckle under to charges that he thought were not justified. Lo and behold: a couple of weeks ago, an administrative law judge agreed with him.
Vinson & Elkins won a major victory for client Patrick Adams, former President and CEO of T-Bank in Dallas, when C. Richard Miserendino, Administrative Law Judge for the United States Department of the Treasury, recommended that all charges of alleged unsafe and unsound banking practices brought by the Office of the Comptroller of the Currency (OCC) against Adams be dismissed in their entirety. The 151-page opinion issued on November 8, 2012, followed a week-long trial with 19 witnesses in Fort Worth earlier this year.
The decision recommends complete dismissal of the charges, with the judge issuing findings against the OCC on all of its allegations. The judge specifically found that Adams (1) did not violate any laws or regulations; (2) did not engage in any reckless, unsafe, or unsound practices in his management of the Bank; and (3) did not breach his fiduciary duties to the Bank.
Good for V&E. More important, good for Patrick Adams.
On the downside, Adams spent four years fighting charges that apparently weren't supportable (at least, the ALJ thought that they weren't) and spent God-knows-how-much money on lawyers and litigation expenses in the process. You'll also notice that Mr. Adams is described as the "former" president and CEO of the bank.
Unlike a private party who files a lawsuit that eventually turns out to be a pile of bat guano, it's extremely difficult to go after the government for any recompense in situations such as these. As one person close to the case observed, "They can do what they want with impunity knowing that you either can't afford to fight them or that they have no 'risk of loss' (you supposedly can't sue them for damages)." Actually, you can sue them, but the qualified immunity that protects them makes it a fool's errand to do so in all but the rarest of cases.
On the other hand, I think it's always useful for both government attorneys and those who oppose them to keep in mind the following ethical consideration, which, though "aspirational" in nature and part of the since-replaced Model Code of Professional Responsibility, embodies what the legal profession has long held to be proper conduct by those lawyers who wield the power to wreak havoc on the lives of the regulated:
EC 7-14 A government lawyer who has discretionary power relative to litigation should refrain from instituting or continuing litigation that is obviously unfair. A government lawyer not having such discretionary power who believes there is lack of merit in a controversy submitted to him should so advise his superiors and recommend the avoidance of unfair litigation. A government lawyer in a civil action or administrative proceeding has the responsibility to seek justice and to develop a full and fair record, and he should not use his position or the economic power of the government to harass parties or to bring about unjust settlements or results.
As I said, the above ethical guidance is aspirational. I will not be holding my breath while await its tenets to influence the behavior of anyone.
