Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-97-01114/USCOURTS-caDC-97-01114-0/pdf.json

Parties Involved:
Board of Governors of the Federal Reserve System
Respondent
Ghaith R. Pharaon
Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 8, 1997 Decided February 10, 1998

No. 97-1114

Ghaith R. Pharaon,

Petitioner

v.

Board of Governors of the Federal Reserve System,

Respondent

On Petition for Review of an Order of the

Federal Reserve System

Richard F. Lawler argued the cause for petitioner. With

him on the briefs were Philip M. Smith and John C. Canoni.

Stephen H. Meyer, Senior Attorney, Board of Governors of

the Federal Reserve System, argued the cause for respondent. With him on the brief were James V. Mattingly, Jr.,

General Counsel, Richard M. Ashton, Associate General

Counsel, and Katherine H. Wheatley, Assistant General

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Counsel. Douglas B. Jordan, Senior Counsel, entered an

appearance.

Before: Ginsburg, Henderson and Tatel, Circuit Judges.

Opinion for the Court by Circuit Judge Tatel.

Tatel, Circuit Judge: Petitioner challenges the Board of

Governors' conclusion that he participated in violations of the

Bank Holding Company Act by the Bank of Credit and

Commerce International. He also challenges the Board's

decision to fine him thirty-seven million dollars and bar him

permanently from the U.S. banking industry. Because substantial evidence supports the Board's findings of fact and

because petitioner's challenges to the Board's procedures,

conclusions of law, and choice of sanctions lack merit, we

affirm.

I

Section 3(a) of the Bank Holding Company Act makes it

unlawful for a company to become a bank holding company

without approval of the Board of Governors of the Federal

Reserve System. 12 U.S.C. s 1842(a)(1) (1994). In a September 1991 Notice of Assessment, the Board charged petitioner Ghaith R. Pharaon, a prominent Saudi Arabian businessman and major shareholder in the Bank of Credit and

Commerce International ("BCCI"), with participating in a

scheme through which BCCI, using Pharaon as an undisclosed "nominee" or front, secretly acquired control of Independence Bank, a medium-sized California lender, in violation

of section 3(a) of the Act. According to the Board, the

scheme was intended to solve two problems BCCI faced in

the mid-1980's: accumulated losses of over a billion dollars

and pressure from Luxembourg, BCCI's nominal home country, to find a new country capable of regulating an institution

operating in nearly seventy nations. Ownership of Independence would solve the first problem by generating profits for

BCCI and the second by laying the groundwork for transferring BCCI's oversight to U.S. banking agencies. Pharaon's

participation in the scheme, the Board asserted, allowed

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BCCI to mask its control of Independence from federal

regulators, preventing them from obtaining an accurate view

of Independence's true management and resources. The

Board charged that from 1985, when BCCI secretly purchased Independence, until 1991, when bank regulators from

several countries seized BCCI, BCCI controlled Independence, infusing capital into the bank, approving selection of

its directors, and actively participating in its management.

In addition to charging Pharaon with participating in

BCCI's section 3(a) violation, the Notice of Assessment

charged that during the period BCCI secretly controlled

Independence the annual reports (known as Y-7s) that BCCI

was required to submit to the Board as a foreign bank with

U.S. branches, see id. s 3106(a), concealed its control of the

bank in violation of section 5(c) of the Act, id. s 1844(c), and

its implementing regulation, Regulation Y, 12 C.F.R. s 225.5

(1997). The Notice held Pharaon responsible for BCCI's

violations under the Act's individual liability provision, section

8(b), 12 U.S.C. s 1847(b), and proposed a thirty-seven million

dollar civil penalty. Considering Pharaon "institutional[ly]-

affiliated" with BCCI under 12 U.S.C. s 1813(u), the Notice

also sought an order of prohibition pursuant to section 8(e) of

the Federal Deposit Insurance Act, id. s 1818(e)(1), permanently barring him from participating in the affairs of any

federally insured depository.

Shortly after the Board issued its Notice, a federal grand

jury sitting in Washington, D.C., indicted Pharaon for criminal offenses relating to BCCI's purchase of Independence.

The following year, another federal grand jury, this one

sitting in Miami, Florida, and a state grand jury in New York,

each indicted Pharaon in connection with his larger involvement with BCCI. Bench warrants for Pharaon's arrest were

issued in connection with the Washington and Miami indictments. Pharaon responded to neither.

In the meantime, from his home in Saudi Arabia and acting

through U.S. counsel, Pharaon answered the Board's Notice

of Assessment, denying all charges and requesting a hearing.

Citing Pharaon's decision to remain beyond the reach of

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federal prosecutors and relying on fugitive disentitlement, a

doctrine allowing courts to sanction parties where their fugitive status has "some connection" to the proceeding,

Daccarett-Ghia v. Commissioner, 70 F.3d 621, 624 (D.C. Cir.

1995), the Administrative Law Judge recommended ruling

summarily for the Board. In a 1994 decision, the Board

declined to adopt the ALJ's recommendation, rejecting the

use of fugitive disentitlement because Pharaon's physical

presence was unnecessary to a hearing, because the Board

had no responsibility to vindicate any affront to the courts

that had indicted Pharaon, and because any judgment against

Pharaon could be satisfied from his frozen assets. The Board

made clear, however, that on remand the ALJ could use his

"express and implicit procedural powers" to ensure that

Pharaon's fugitive status not disrupt the proceedings.

Following a nineteen-day hearing, the ALJ issued a recommended decision finding in favor of the Board and approving

the penalties sought in the Notice of Assessment. Filing 179

pages of exceptions challenging virtually all of the ALJ's

findings of fact and conclusions of law, Pharaon appealed to

the Board. Board enforcement counsel also appealed, arguing that the ALJ should have imposed the maximum statutory penalty of $111.5 million (calculated by totaling the days

each violation had been outstanding at the time the Board

issued the Notice--8299 days--and assessing a penalty of

$1000 for each day prior to August 10, 1989, when Congress

amended the Act to increase its penalties, and $25,000 per

day thereafter, see Financial Institutions Reform, Recovery,

and Enforcement Act of 1989, Pub. L. No. 101-73, s 907(j)(2),

103 Stat. 183, 475 (1989) ("FIRREA") (codified at 12 U.S.C.

s 1847(b)(1))). The Board adopted the ALJ's recommended

decision.

Pharaon now petitions for review. Applying the standards

set forth in the Administrative Procedure Act, see 12 U.S.C.

ss 1818(h), 1847(b)(3) (APA applies to penalty assessment

hearings under the Bank Holding Company Act), we will set

aside the Board's factual findings only if unsupported by

substantial evidence on the record as a whole, 5 U.S.C.

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sions only if "arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law," id. s 706(2)(A).

II

We begin with Pharaon's challenges to the Board's finding

that BCCI violated the Bank Holding Company Act. The Act

makes it "unlawful, except with the prior approval of the

Board ... for any action to be taken that causes any company to become a bank holding company." 12 U.S.C. s 1842(a).

A company becomes a bank holding company if, among other

things, "(A) the company directly or indirectly ... owns,

controls, or has power to vote 25 per centum or more of any

class of voting securities of the bank or company; [or] (B) the

company controls in any manner the election of a majority of

the directors or trustees of the bank or company." Id.

s 1841(a)(2)(A)-(B). The Act provides for bank holding companies to file periodic reports with the Board to facilitate

Board oversight. Id. s 1844(c); 12 C.F.R. s 225.5. Finding that BCCI controlled more than twenty-five percent of

Independence's voting stock, as well as the election of a

majority of its directors, the Board concluded that BCCI had

become a holding company within the meaning of both subsections (A) and (B) and that it concealed its unlawful control

by filing Y-7s that flatly denied controlling any U.S. banks.

For its subsection (A) finding, the Board relied primarily

on a May 17, 1985, agreement between Pharaon and the

International Credit and Investment Company (Overseas)

Ltd. ("ICIC"), a BCCI-controlled company. Titled "Acquisition of Shares of Independence Bank," and signed by Pharaon and Swaleh Naqvi, BCCI's then-second-in-command, the

agreement provides in relevant part as follows:

1. [Pharaon and ICIC] have agreed to acquire 100% of

shares capital of the Bank (the said shares) from the

present shareholders thereof....

2. All the said shares of the Bank on their purchase as

aforesaid shall be transferred to and held in the name of

[Pharaon] but only 15% of the said shares of the Bank

will be held by [Pharaon] as beneficial owner thereof.

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3. For the balance of 85% of the said shares of the

Bank, ICIC shall have the right to purchase them at

their cost price from [Pharaon] either in its own name or

in the name or names of its nominee or nominees and, till

[sic] such purchase is effected and the shares transferred

to the name of ICIC and/or its nominee or nominees,

[Pharaon] will hold them in a fiduciary capacity for ICIC.

4. ICIC will provide funds to, or otherwise procure a

loan for [Pharaon] of the cost of 85% of the said shares of

the Bank and in consideration of the premises mentioned

in 3 above, ICIC will itself pay or discharge all interest,

costs, charges, commission and/or expenses of and incidental to the said loan and repayment thereof and hold

[Pharaon] indemnified and harmless in respect thereof.

The agreement also entitled ICIC to dividends issued on its

shares, gave ICIC the right to possess Independence's share

certificates, and prohibited Pharaon from disposing of ICIC's

shares.

Relying on the "right to purchase" language in paragraph

three, Pharaon argues that the agreement merely gave ICIC

an option to purchase, vesting it with no actual control. The

Board rejected this argument, as do we. The agreement

plainly states that Pharaon will hold only fifteen percent of

Independence beneficially (paragraph two), and that ICIC

will fund Pharaon's purchase of the remaining eighty-five

percent (paragraph four). Not only does paragraph three

itself specifically provide that Pharaon "will hold" the eightyfive percent "in a fiduciary capacity for ICIC," but Naqvi

testified that the "right to purchase" language simply clarified

BCCI's right to become nominal as well as beneficial owner of

the shares.

Pharaon also claims the parties neither effectuated nor

followed the agreement, but the record contains substantial

evidence to support the Board's contrary finding. The Board

pointed to evidence that BCCI provided over $10 million of

Independence's $23 million initial purchase price, that BCCI

issued a $5 million guarantee to support a $12.6 million loan

Pharaon obtained from the Bank of Boston for the remaining

amount of the purchase, and that BCCI later refinanced the

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Bank of Boston loan, taking physical possession of Pharaon's

Independence stock certificates in accordance with the agreement. Additional evidence that the parties implemented the

agreement comes from a June 1986 meeting at which Pharaon

proposed to Naqvi and Agha Hasan Abedi, then-head of

BCCI, to increase his share of Independence from fifteen

percent to fifty percent. Subsequently changing his mind,

Pharaon sent Naqvi a handwritten note stating that "I would

suggest that for the time being the 15/85 arrangement be

maintained until we can determine the course we want Independence to take."

Pharaon's other arguments provide no basis for overturning the Board's subparagraph (A) finding. Although he

claims that BCCI's financing of Pharaon's purchase of Independence cannot by itself support a finding of control under

the Act, the Board's determination that BCCI controlled

Independence rested not just on BCCI's financial support,

but also on the entire record, including the plain language of

the 1985 agreement, the 1986 meeting with Abedi and Naqvi,

and Pharaon's follow-up note. Pharaon points to evidence in

the record that he too helped manage Independence and

contributed to its capital requirements. Because we must

consider the entire record before us, however, such evidence

in no way undermines the Board's conclusion that BCCI, not

Pharaon, controlled Independence. Pharaon claims that the

ALJ improperly relied on allegations that he acted as a

nominee for BCCI in transactions not at issue in the Independence proceeding. At the beginning of his recommended

decision, however, the ALJ made quite clear that he considered such matters only for background and to demonstrate

Pharaon's financial condition, not to prove the violations

relating to Independence.

While we can uphold the Board's conclusion that BCCI

controlled Independence solely on the basis of its subsection

(A) finding, we note that the record also contains substantial

evidence to support the Board's subsection (B) finding that

BCCI controlled the election of at least three members of

Independence's five-member board of directors. Abedi selected Kemal Shoaib to serve as Independence's CEO and

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chairman, Shoaib received pension and other fringe benefits

from BCCI, and Shoaib remained in active contact with BCCI

while at Independence. A Shoaib letter to Naqvi states that

another director, a Morrison & Foerster partner, was "nominated by us." When a third board position opened, Shoaib

wrote to Naqvi seeking approval for two potential candidates.

Although Pharaon points to some genuine inconsistencies in

other ALJ findings about BCCI's involvement in the selection

of Independence personnel, the Board's finding that BCCI

controlled a majority of the Independence board finds firm

support in the record.

Challenging the Board's interpretation of the Act's penalty

provisions, Pharaon argues that regardless of BCCI's violations, he cannot be penalized for acting as BCCI's undisclosed

nominee. The Board found Pharaon personally liable under

section 8(b) of the Act, which authorizes the Board to levy

civil penalties against "[a]ny company which violates, and any

individual who participates in a violation of, any provision of

this chapter, or any regulation or order issued pursuant

thereto." 12 U.S.C. s 1847(b)(1). Comprehensively overhauling the regulation of financial institutions in 1989, Congress added a new subsection 1847(d), which provides three

tiers of penalties for "any company" that commits a reporting

violation. FIRREA s 911(e), 103 Stat. at 481 (codified at 12

U.S.C. s 1847(d)). According to Pharaon, because subsection

(d) mentions only companies, individuals are no longer liable

for reporting violations under subsection (b). Although the

Board responds that repeals by implication are disfavored, we

need not invoke that familiar canon of statutory interpretation because we cannot even discern a basis for implying a

repeal. Establishing a range of penalties for reporting violations by companies, FIRREA has no bearing on section

1847(b)'s long-standing and still-existing provision for individual liability other than to increase maximum penalties

from $1000 to $25,000 per day. See Chevron U.S.A. Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837, 842

(1984) ("If the intent of Congress is clear, that is the end of

the matter...."). Congress passed FIRREA to strengthen

"the enforcement powers of Federal regulators of depository

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institutions" and "the civil sanctions and criminal penalties for

defrauding or otherwise damaging depository institutions and

their depositors." FIRREA s 101(9), (10), 103 Stat. at 187.

We cannot imagine that Congress would have exempted

individuals from liability for false reports without saying so.

We are equally unpersuaded by Pharaon's argument that

the Board lacked evidence to connect him to BCCI's scheme.

Sweeping broadly, section 1847(b) reaches any action "causing, bringing about, participating in, counseling, or aiding or

abetting" a violation of the Act. 12 U.S.C. s 1847(b)(5).

Nothing in the Act requires that Pharaon have known the

details of BCCI's plan to conceal its ownership of Independence. Interamericas Invs., Ltd. v. Board of Governors of

the Fed. Reserve Sys., 111 F.3d 376, 384 (5th Cir. 1997). It is

enough, as the Board found, that Pharaon agreed to act as

BCCI's nominee. As BCCI's nominee, he could be held

responsible for acts undertaken by BCCI to further its secret

purchase of Independence, such as filing false reports with

U.S. regulators.

III

Having thus upheld the Board's twin findings that BCCI

violated the Act by secretly acquiring Independence and that

Pharaon, serving as the scheme's lynchpin, is personally liable

as a participant, we turn to Pharaon's procedural challenges.

He claims principally that the ALJ improperly denied him

discovery and excluded testimony by misapplying the fugitive

disentitlement doctrine.

As we read the record, the ALJ mentioned Pharaon's

absence as a consideration in connection with just one ruling

Pharaon challenges: a July 1995 decision allowing only live

testimony at the hearing. Pharaon treats this ruling as a

form of fugitive disentitlement. We think the Board offers a

more accurate interpretation: The ALJ did not punish Pharaon for his fugitive status, but merely relied on what the

Board referred to in its 1994 decision as his "express and

implicit procedural powers" to ensure that Pharaon's fugitive

status not adversely affect the hearing. Later making this

point explicit, the ALJ explained that "the importance of

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visual observations of witnesses" significantly influenced his

ruling requiring Pharaon to appear in person. Given the

significance of personal observation to credibility determinations, we cannot say that this ruling amounted to an abuse of

discretion. We reach the same conclusion with respect to

another ruling, also challenged by Pharaon, in which the ALJ

"similarly order[ed]" that a witness Pharaon proposed on the

eve of the hearing could only appear in person.

Citing fugitive disentitlement, Pharaon challenges several

other discovery rulings. See Pet'r Br. at 53 ("Pharaon was

thus denied the basic rudiments of due process, apparently

based on the disentitlement doctrine."). Because none of the

rulings rested on fugitive disentitlement, however, we need

not consider them further.

Pharaon also claims that the Board failed to disclose 127

unspecified files of relevant documents and an agreement

with the New York District Attorneys' Office immunizing

Naqvi for his testimony. Offering no grounds to support

these challenges, Pharaon has waived them. Terry v. Reno,

101 F.3d 1412, 1415 (D.C. Cir. 1996), cert. denied, 117 S. Ct.

2431 (1997).

Next, Pharaon claims ALJ bias, relying chiefly on a statement made by the ALJ in his 1993 ruling on fugitive disentitlement. Claims of bias must "be raised as soon as practicable after a party has reasonable cause to believe that grounds

for disqualification exist." Marcus v. Director, Office of

Workers' Compensation Programs, 548 F.2d 1044, 1051 (D.C.

Cir. 1976) (footnote omitted). Aware of the ALJ's alleged

bias when he appealed the recommended decision to the

Board, Pharaon failed to raise the issue or argue that the

case should be remanded to a different ALJ. He has thus

waived his principal ground for asserting bias. Other evidence of alleged bias--the ALJ's record of ruling in favor of

the Board in other proceedings and his allegedly incorrect

rulings against Pharaon in this case--falls far short of demonstrating that the ALJ had "a fixed opinion--'a closed mind on

the merits of the case.' " Throckmorton v. NTSB, 963 F.2d

441, 445 (D.C. Cir. 1992) (quoting United States v. Haldeman,

559 F.2d 31, 136 (D.C. Cir. 1976)). "Almost invariably, [such

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rulings] are proper grounds for appeal, not for recusal."

Liteky v. United States, 510 U.S. 540, 555 (1994).

Pharaon's final procedural challenge, presented only in a

sparse footnote, invokes 5 U.S.C. s 557(c), which states that

"[b]efore ... a decision on agency review of the decision of

subordinate employees, the parties are entitled to a reasonable opportunity to submit ... exceptions to the ... recommended decision[ ] ... [and][t]he record shall show the ruling

on each ... exception presented." Pharaon faults the Board

for failing to respond with specificity to each of his many

exceptions to the ALJ's recommended decision. Section

557(c) functions as a bedrock of judicial review of agency

action. We have long held, however, that agencies need only

indicate that they have considered and rejected a party's

exceptions, see Human Dev. Ass'n v. NLRB, 937 F.2d 657,

668 (D.C. Cir. 1991), and that they have no obligation to

respond at all to entirely insubstantial arguments, International Ass'n of Bridge, Structural & Ornamental Iron Workers v. NLRB, 792 F.2d 241, 247-48 (D.C. Cir. 1986). "Assum[ing]" Pharaon to be challenging the ALJ's recommended

decision "in its entirety," the Board said that it had reviewed

Pharaon's submission and denied his exceptions. From our

own review of the Board's decision and Pharaon's exceptions,

we are satisfied that the agency in fact considered and

rejected all of them. To be sure about this, at oral argument

we asked Pharaon's counsel to identify any significant exceptions to which the Board failed to respond. He offered none.

IV

This brings us finally to Pharaon's statutory and constitutional challenges to the penalties. In keeping with our limited review of agency penalty assessments, we will not overturn

the Board's choice of sanctions unless they are either " 'unwarranted in law or ... without justification in fact.' " Bluestone Energy Design, Inc. v. FERC, 74 F.3d 1288, 1294 (D.C.

Cir. 1996) (quoting Butz v. Glover Livestock Comm'n Co., 411

U.S. 182, 185-86 (1973)) (ellipsis in original).

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Citing the difference between his thirty-seven million dollar

penalty and the range of penalties set out in a Board Civil

Money Penalty Assessment Matrix and claiming the Board

failed to follow a thirteen-factor test set forth in an Interagency Policy Regarding the Assessment of Civil Money

Penalties by the Federal Financial Institutions Regulatory

Agencies, 45 Fed. Reg. 59,423, 59,424-25 (1980), Pharaon

urges us to set aside the penalty as arbitrary and capricious

in violation of the APA. According to the Board, neither the

matrix nor the interagency policy limits its discretion.

We agree with the Board about the matrix. An internal,

staff-level guideline, the matrix cautions that "because the

facts and circumstances of each penalty case are different, the

assessment of a civil money fine cannot be completely reduced to the mechanical application of a formula or purely

numerical index. The exercise of judgment based on expertise and experience is important and necessary." Because

the matrix does not constrain the Board's discretion, the

agency had no obligation to explain any departure from it.

See, e.g., Vietnam Veterans of Am. v. Secretary of the Navy,

843 F.2d 528, 539 (D.C. Cir. 1988) (where no indication that

agency intended to bind itself by staff memorandum, document not binding).

In contrast to the matrix, the Board has expressly adopted

the interagency policy. See In re Cedar Vale Bank Holding

Co., 82 Fed. Res. Bull. 871 (1996), aff'd sub. nom. Long v.

Board of Governors of the Fed. Reserve Sys., 117 F.3d 1145

(10th Cir. 1997). Considering the factors listed in the interagency policy, the ALJ concluded that Pharaon's violations

would yield a penalty of slightly over $151 million, well above

the statutory maximum. Although the Board's January 1997

final decision does not review each factor in turn, a comparison of the Board's decision with the interagency policy indicates that the Board in fact considered each factor relevant to

this case. When we asked Pharaon's counsel about this at

oral argument, he was unable to point to any relevant factor

the Board ignored.

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Pharaon correctly observes that the Board nowhere tells us

how its enforcement counsel originally selected thirty-seven

million dollars. But we will "uphold a decision of less than

ideal clarity if the agency's path may reasonably be discerned." Motor Vehicle Mfrs. Ass'n v. State Farm Mut.

Auto. Ins. Co., 463 U.S. 29, 43 (1983); see also Detroit/Wayne

County Port Auth. v. ICC, 59 F.3d 1314, 1317 (D.C. Cir.

1995). This is just such a case. After weighing the

mitigating factors set forth in 12 U.S.C. s 1818(i)(2)(G)(i)-(iv)--

"(i) the size of financial resources and good faith of the ...

person charged; (ii) the gravity of the violation; (iii) the

history of previous violations; and (iv) such other matters as

justice may require"--the Board found the penalty "in line

with the gravity of the offenses, the intentional nature of the

actions, [and] the attempts to conceal the nature of the

transactions." Under all of these circumstances, we find

nothing arbitrary and capricious in the Board's selection of

the penalty. Indeed, had the Board applied the penalty

standards set forth in 12 U.S.C. s 1847(b), as Board enforcement counsel urged, it could have imposed a penalty of over

$111 million, three times the amount it actually assessed.

Although Pharaon challenged the calculation of this maximum

penalty before the Board, he does not do so here.

Pharaon's principal constitutional challenge to the thirtyseven million dollar penalty rests on the Eighth Amendment's

Excessive Fines Clause, U.S. Const. amend. VIII ("Excessive

bail shall not be required, nor excessive fines imposed, nor

cruel and unusual punishments inflicted."). Protecting individuals against government power to extract payments as

punishment, Austin v. United States, 509 U.S. 602, 609-10

(1993), the Excessive Fines Clause requires us to consider the

" 'value of the fine in relation to the offense.' " United States

v. Emerson, 107 F.3d 77, 80 (1st Cir. 1997) (quoting Austin,

509 U.S. at 627 (Scalia, J., concurring)), cert. denied, 118

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S. Ct. 61 (1997). Reviewing the question de novo, see Lamprecht v. FCC, 958 F.2d 382, 391 (D.C. Cir. 1992), we discern

no Eighth Amendment violation. As we have already indicated in rejecting Pharaon's APA challenge, the penalty is

proportional to his violation and well below the statutory

maximum.

Pharaon's Fifth Amendment claim has even less merit. He

relies on the Supreme Court's statement in BMW of North

Am. v. Gore, 116 S. Ct. 1589 (1996), that "[e]lementary

notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the

conduct that will subject him to punishment but also of the

severity of the penalty that a State may impose." Id. at 1598.

Here, section 1847(b)'s maximum penalty provisions provided

just that notice. Because the assessed penalty falls far below

the statutory maximum, Pharaon cannot claim that he lacked

constitutionally adequate notice. Cf. Long, 117 F.3d at 1156

(upholding a $717,941 penalty against due process challenge

when statute authorized Board to assess a maximum penalty

of $45.6 million). We need not consider Pharaon's Double

Jeopardy claim because he failed to include it in his exceptions to the ALJ's recommended decision. See 12 C.F.R.

s 263.39(b)(1) (1997) (failure to raise exception constitutes

waiver).

For his final argument, Pharaon claims that the Board had

no basis under 12 U.S.C. s 1818(e)(1)(A)-(C) for its order

permanently barring him from participating in the affairs of

any federally insured depository. He offers no challenge to

the Board's subsections (A) and (C) findings, and for good

reason: It is undeniable that he "violated [the] law," id.

s 1818(e)(1)(A)(i), and that his violation at least "involve[d]

personal dishonesty," id. s 1818(e)(1)(C). Pharaon claims

only that the record contains insufficient evidence to support

the Board's finding under subsection (B), the so-called effects

prong, see Oberstar v. FDIC, 987 F.2d 494, 502 (8th Cir.

1993), which requires that the Board establish that:

by reason of the violation ... (i) such insured depository

institution or business institution has suffered or will

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probably suffer financial loss or other damage; (ii) the

interests of the insured depository institution's depositors have been or could be prejudiced; or (iii) such party

has received financial gain or other benefit by reason of

such violation, practice, or breach.

12 U.S.C. s 1818(e)(1)(B).

According to Pharaon, subsection (B) requires the Board to

demonstrate the exact amount of harm caused by Pharaon's

participation in BCCI's scheme. The plain language of the

statute provides to the contrary, however. Section

1818(e)(1)(B) allows the Board to impose an order of prohibition not only if the insured institution "suffered ... financial

loss or other damage" or if the interests of its depositors

"have been ... prejudiced," but also if the institution "will

probably suffer financial loss or other damage" or if its

depositors "could be prejudiced." Id. Under all the circumstances of this case, we think the Board had ample basis for

concluding that as a result of BCCI's secret takeover of

Independence and Pharaon's participation in the scheme,

BCCI "will probably suffer financial loss or other damage"

and its depositors "could be prejudiced."

V

Because the Board's findings of fact are supported by

substantial evidence in the record and because we discern no

reversible errors in the Board's procedures, legal conclusions,

or choice of sanctions, we affirm.

••••••••So ordered.

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