Opinion ID: 3009588
Heading Depth: 2
Heading Rank: 5

Heading: Seidman's Release from the UJB Guarantee

Text: Until his May 23, 1991, conversation with Donohue, Seidman seems to have believed that his withdrawal from FSA would permit Crestmont to make the Levine loan. After speaking with Donohue about Garden Park, Seidman had second thoughts about his personal guarantee of FSA's loan from UJB and began to wonder whether it would disqualify Crestmont from loaning money to Levine even after Seidman completed his withdrawal from FSA. Seidman turned to James Poole (Poole) of Poole & Co., who advised Seidman to get a release from the UJB guarantee and to discuss this with Risko. Seidman did so and Risko approached Eberhardt. Risko told Eberhardt that the conflict between Seidman's obligation on the guarantee and his fiduciary duties to Crestmont created problems in Crestmont's providing end-user financing for the FSA project. Eberhardt told Risko to put a proposal for Seidman's release in writing and UJB would consider it. Events now moved rapidly. On May 30, 1991, the day Levine signed the commitment letter, Risko contacted Seidman and told him UJB would consider releasing Seidman. Risko suggested Seidman draft a letter asking for the release and that he, Risko, would sign a letter giving UJB the reasons for granting Seidman's request. Risko testified Seidman and he agreed that Seidman would do an initial draft of both the request for release and Risko's supporting letter. Risko testified he was only to approve and sign the supporting letter and that Seidman faxed him the draft. Seidman testified that Risko dictated the draft to Seidman's secretary and she forwarded it to Risko for review. While drafts were being faxed back and forth between Risko and Seidman, OTS examiner Thomas Angstadt (Angstadt) was at Crestmont on other business. While using a Crestmont fax machine, Angstadt saw a copy of the draft of Risko's letter lying on a desk. Angstadt secretly read and copied the draft. The final version of Risko's letter was identical with the draft except for one sentence that Risko added.9 Seidman had no objection to Risko's addition. On June 7, 1991, UJB notified Seidman that it would release him from his guarantee of FSA's loan. Eberhardt later testified UJB understood that the release did not obligate 9 . Risko's supporting letter reads as follows, with the sentence Risko added emphasized in bold face type: As you are aware, Mr. Seidman is the Chairman of the Board of Crestmont Federal Savings and Loan Association and Crestmont is entertaining financing certain condo purchasers who are purchasing units from Fulton Street. His position as Chairman may make this financing impossible if he is also a partner in Fulton Street. The inability to finance the end users, in our opinion, does not serve either United Jersey Bank's position or that of the developer. At the present time, Crestmont is entertaining $700,000 in financing for two users and a third potential buyer has indicated the need for approximately $1 million in financing. Crestmont would be willing to consider future financing of condo units in the Boonton area, assuming qualified buyers. OTS App. at 2 (emphasis added). Crestmont to provide such financing, but he prepared a handwritten memo that indicated availability of end-user financing from Crestmont was a consideration in UJB's decision to release Seidman. In the meantime, on June 3, 1991, OTS prohibited the Garden Park loan, and Seidman again asked Donohue for an explanation. Donohue now told Seidman that OTS believed conflict of interest prevented a thrift from making a loan to an entity in which an officer or director of the thrift had had an interest, including liability on a guarantee, at any time within two years before the loan was made. Seidman protested that such a policy had no support in OTS regulations, but Donohue was not moved. Frustrated, Seidman ordered Bailey to stop considering commercial loans on projects in which Seidman had an interest either as a partner or guarantor. On June 4, 1991, Bailey sent both the Levine and the Garden Park loans to the Savings Bank of Rockland.10 On June 5, 1991, OTS issued a supervisory directive forbidding Crestmont from making any commercial loans and launched the investigation for conflict of interest that gave rise to the cases now before us.11 It is undisputed that Crestmont never made the loans OTS questioned. 10 . Seidman is also a member of the Board of Directors at Rockland, but that lending institution is regulated by FDIC, not OTS. 11 . The transfer of the loan documents took place one day before the OTS supervisory directive and three days before Seidman received word that he would be released from his guarantee of the UJB loan. Thus, neither the OTS order to cease commercial transactions nor the outcome of the UJB proceedings induced Crestmont's decision to transfer the loans.