Opinion ID: 901376
Heading Depth: 1
Heading Rank: 6

Heading: The financial standing, general business experience, and character of the organizers and incorporators

Text: [¶ 9.] The Commission concluded that ITC failed to prove by a preponderance of the evidence that its organizers have adequate financial standing, business experience, and character to operate a trust company. The Commission found in Finding of Fact No. 2 that ITC's application included very sketchy financial information and projections of losses in the first two years of operation. The testimony at the hearing revealed that the organizers did not prepare a written business plan. Holman testified that the original investors basically did it verbally talking out the idea. The Commission found in Finding of Fact No. 2: The application and testimony at the hearing revealed significant problems with ITC's business plan and financial standing.... ITC's income projections assume that it could charge fees at or above the top end of the market. ITC did not establish how it can charge more than its competition, and yet attract the volume of trust business that it projected or achieve the fast growth that it projected. The income projections of ITC appear to be unrealistic. On the expense side, ITC underestimated its expenses and overlooked several large expense items, including investment fees to Smith Barney, the omission of employee benefits and employer share of Social Security, outsourcing of a variety of services, tax return preparation, custody and safekeeping, and South Dakota's minimum tax on trust companies. [¶ 10.] The Commission further found that Applicant's financial information and testimony calls into question the solvency of ITC and the minimum capital into year 3, 4, and 5 of the business plan. SDCL 51A-6A-19 requires that [t]he minimum capital of a trust company shall be two hundred thousand dollars. The testimony was that ITC's initial capitalization would be $360,000. However, based on the Commission's findings on the unreliability of ITC's profit and loss projections, ITC could drop below the $200,000 capital threshold quickly. No financial statements for the organizers were submitted. The Commission found that ITC had not submitted proof of the organizers' actual financial standing and that there had only been cursory testimony on the subject of the organizers' financial standing. Holman testified generally that the organizers were willing to invest additional capital in the event that ITC did not operate profitably within the time projected. When questioned further he did not substantiate to the Commission the availability of additional funds or how much additional capital the organizers were willing to invest. [¶ 11.] ITC seeks to place the blame on the Commission by arguing that the Commission failed to request additional information regarding the organizers' financial standing, business experience or character. While the Commission may have the authority to request additional information, it is not obligated to do so. ITC's arguments suggest that an applicant can submit an inadequate application and expect the Commission to request the information needed to satisfy the conditions of SDCL 51A-6A-5. However, it was ITC that had the burden of proving by a preponderance of the evidence that it satisfied the statutory conditions. Reviewing the record in its entirety, the Commission's findings as to the financial standing, business experience, and character of the organizers are not clearly erroneous.