Cal. FIN § 18349.5 — California Code / Code fin / Division 7 / Chapter 5 / Article 1 / Section 18349.5
Section 18349.5
Status: in_force

(a) For the purposes of this section, the following definitions are applicable:

(1) “Account holder” includes, in the case of an investment certificate account, an investment certificate holder; in the case of a trust account, each trustor and beneficiary of the trust account; and, in the case of any other fiduciary account, each person who occupies, with respect to the account, a position which is similar to the position that a trustor or beneficiary occupies with respect to a trust account.

(2) “Industrial loan company” means any corporation which falls within the definitions of Sections 18003 and 18003.5.

(3) “Order” means any approval, consent, authorization, permit, exemption, denial, prohibition, or requirement applicable to a specific case issued by the commissioner, including without limitation, any condition thereof. “Order” does not include any certificate of authority or license issued by the commissioner, but does include any condition of a license and any written agreement made by any person with the commissioner under this division.

(4) “Subject person of an industrial loan company” means any director, officer, or employee of the industrial loan company, or any person who participates in the conduct of the business of the industrial loan company. However, “subject person of an industrial loan company” does not include an individual who is a director, officer, or employee of a controlling person of an industrial loan company unless the individual is a director, officer, or employee of the industrial loan company or participates in the conduct of the industrial loan company.

(5) “Controlling person” means a person who, directly or indirectly, controls an industrial loan company.

(6) “Violation” includes, without limitation, any act done, alone or with one or more persons, for or toward causing, bringing about, participation in, counseling, aiding or abetting a violation.

(b) If, after notice and opportunity for hearing, the commissioner finds the following, the commissioner may issue an order suspending or removing a subject person of an industrial loan company from his or her office with the industrial loan company and prohibiting the subject person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the commissioner:

(1) (A) That the subject person has violated any provision of this division or of any regulation or order issued under this division, or any provision of any other applicable law relating to the business of the industrial loan company; or

(B) That the subject person has engaged or participated in any unsafe or unsound act with respect to the business of the industrial loan company; or

(C) That the subject person has committed or engaged in any act which constitutes a breach of his or her fiduciary duty as a subject person; and

(2) (A) That the industrial loan company has suffered or will probably suffer substantial financial loss or other damage by reason of that violation, act, or breach of fiduciary duty; or

(B) That the interests of the industrial loan company’s accountholders have been or are likely to be seriously prejudiced by reason of the violation, act, or breach of fiduciary duty; or

(C) That the subject person has received financial gain by reason of that violation, act, or breach of fiduciary duty; and

(3) That the violation, act, or breach of fiduciary duty is one involving personal dishonesty on the part of the subject person, or one which demonstrates a willful or continuing disregard for the safety or soundness of the industrial loan company.

(c) If, after notice and opportunity for hearing, the commissioner finds the following, the commissioner may issue an order suspending or removing a subject person of an industrial loan company from his or her office with the industrial loan company and prohibiting the subject person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the commissioner:

(1) That the subject person’s conduct or practice with respect to another industrial loan company or business institution has resulted in substantial financial loss or other damage; and

(2) That the conduct or practice has evidenced personal dishonesty or willful or continuing disregard for the safety and soundness of the other industrial loan company or business institution; and

(3) That the conduct or practice is relevant in that it demonstrates unfitness to continue as a subject person of the industrial loan company.

(d) If the commissioner finds the following, the commissioner may immediately issue an order suspending or removing a subject person of an industrial loan company from his or her office with the industrial loan company and prohibiting the subject person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the commissioner:

(1) That it is necessary for the protection of the industrial loan company or the interests of the industrial loan company’s account holders that the commissioner issue the order immediately, and

(2) (A) That any of the factors set forth in paragraphs (1) and (2) of subdivision (b) and any of the factors set forth in paragraph (3) of subdivision (c) are true with respect to the subject person; or

(B) That any of the factors set forth in paragraphs (1), (2), and (3) of subdivision (c), and the factor set forth in paragraph (3) of subdivision (c) are true with respect to the subject person.

(e) (1) If the commissioner finds the following, the commissioner may immediately issue an order suspending or removing a subject person of an industrial loan company from his or her office with the industrial loan company and prohibiting the subject person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the commissioner.

(A) That the subject person has been charged in an indictment issued by a grand jury or in an information, complaint, or similar pleading issued by a United States attorney, district attorney, or other governmental official or agency authorized to prosecute crimes, with a crime which is punishable by imprisonment for a term exceeding one year and which involves dishonesty or breach of trust; and

(B) That the person’s continuing to serve as a subject person of the industrial loan company may pose a material threat to the interest of the industrial loan company’s account holders or may threaten to materially impair public confidence in the industrial loan company. In case the criminal proceedings are terminated other than by a judgment of conviction the order shall be deemed rescinded.

(2) If the commissioner finds the following, the commissioner may immediately issue an order suspending or removing a subject person of an industrial loan company or a former subject of an industrial loan company, from his or her office, if any, with the industrial loan company and prohibiting the person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the industrial loan company:

(A) That the person has been finally convicted of a crime which is punishable by imprisonment for a term exceeding one year and which involves dishonesty or breach of trust; and

(B) That the person’s continuing to serve or resumption of service as a subject person of the industrial loan company may pose a material threat to the interests of the industrial loan company’s account holders or may threaten to materially impair public confidence in the industrial loan company.

(3) The fact that any subject person of an industrial loan company charged with a crime involving dishonesty or breach of trust is not finally convicted of that crime shall not preclude the commissioner from issuing an order regarding the subject person pursuant to other provisions of this division.

(f) Within 30 days after an order is issued pursuant to subdivision (d) or (e), the person to whom the order is issued may file an application for a hearing.

(g) Any person to whom an order is issued under subdivision (b), (c), (d), or (e) may apply to the commissioner to modify or rescind that order. The commissioner shall not grant that application unless the commissioner finds that it is in the public interest to do so and that it is reasonable to believe that the person will, if and when he or she becomes a subject person of an industrial loan company, comply with all applicable provisions of this division and of any regulation or order issued thereunder.

(h) A hearing held pursuant to this section shall be private unless the commissioner, in his or her discretion, after fully considering the views of the parties, determines that a public hearing is necessary to protect the public interest.

(i) (1) It is unlawful for any subject person of an industrial loan company or former subject person of an industrial loan company to whom an order is issued under subdivision (b), (c), (d), or (e) to do any of the following, except with the prior consent of the commissioner, so long as the order is effective:

(A) To serve or act as a director, officer, employee, or agent of any industrial loan company.

(B) To vote any shares or other securities of an industrial loan company having voting rights, for the election of any person as a director of an industrial loan company.

(C) Directly or indirectly, to solicit, procure, or transfer or attempt to transfer, or vote any proxy, consent, or authorization with respect to any shares or other securities of any industrial loan company having voting rights.

(D) Otherwise to participate in any manner in the conduct of the business of any industrial loan company.

(2) Any person who violates paragraph (1) shall, upon conviction, be punished by a fine of not more than ten thousand dollars ($10,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail not to exceed one year, or by both that fine and imprisonment.

(3) If the commissioner believes that any person has violated paragraph (1), the commissioner may bring an action in a court of competent jurisdiction petitioning the court to assess that person a civil penalty in an amount as the commissioner may specify; provided, however, that the amount of the civil penalty shall not exceed two thousand five hundred dollars ($2,500) for each violation or, in the case of a continuing violation, two thousand five hundred dollars ($2,500) for each day for which the violation continues.

In determining the amount of a civil penalty to be assessed under this paragraph, the court shall consider the financial resources and good faith of the person charged, the gravity of the violation, the history of previous violations by the person, and such other factors as in the opinion of the court may be relevant.