Opinion ID: 1856212
Heading Depth: 1
Heading Rank: 4

Heading: commonwealth's insolvency

Text: Before August 7, 1979, a Department examination showed Commonwealth's unsound financial condition and excessive insider loans in violation of § 8-409.02. However, on August 7, the Department approved Commonwealth and SSS as member depositories of NDIGC. On February 8, 1980, the Department's second examination of Commonwealth showed excessive insider loans. Nevertheless, on April 28, 1980, the Department approved NDIGC's increase in the insurance, from $10,000 to $30,000, for each certificate of indebtedness of a member depository notwithstanding that the Department knew, or should have known, that NDIGC's reserves were insufficient to provide the $30,000 insurance for each certificate holder. The Department required each NDIGC member depository to display a sign at its place of business, stating that the depository was a member of NDIGC which guaranteed each certificate of indebtedness to a limit of $30,000. On February 13, 1981, the Department's third examination of Commonwealth showed the industrial's insufficient paid-up capital in violation of § 8-403.02 and excessive insider loans. In March of 1982, the Department's fourth examination disclosed that Commonwealth was insolvent, and the Department took supervisory control of Commonwealth. In December 1982, after its fifth examination of Commonwealth, the Department continued its supervisory control. On March 10, 1983, the Federal Bureau of Investigation informed the Department that Commonwealth and its officers were involved in fraudulent loan activities. In June, the Department appointed a special prosecutor to investigate alleged criminal activities involving Commonwealth and its officers. On August 31, the Department's sixth examination showed that Commonwealth was still insolvent. It was not until October 27 that the Department notified NDIGC and NDIGC's member depositories concerning the Commonwealth problem. The Department took possession of Commonwealth's assets on November 1, 1983, and decided to liquidate Commonwealth. In view of claims against Commonwealthclaims which exceeded NDIGC's assetsall NDIGC assets were turned over to the court-appointed receiver for Commonwealth, resulting in NDIGC's collapse and leaving SSS without insurance coverage for its customers' certificates of indebtedness. After November 1, 1983, the Department prohibited withdrawal of unmatured certificates of indebtedness from all industrials, but did not restrict withdrawal of matured certificates. Absence of deposit insurance caused concern to holders of SSS' certificates of indebtedness. SSS' certificate holders withdrew their matured certificates of indebtedness, producing an SSS loss of nearly $19 million in withdrawn customer accounts. Customer accounts of $31.2 million were frozen at SSS. On December 19, SSS applied for deposit insurance coverage with Federal Savings & Loan Insurance Corporation (FSLIC). When, on July 9, 1984, FSLIC had not approved SSS' application for insurance, SSS filed for protection and reorganization under federal bankruptcy law at a reorganizational cost of $260,000.