Court Opinion

ID: 3009588
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Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

9-13-1994

In the Matter of: Seidman and Bailey
Precedential or Non-Precedential:

Docket 92-3722 & 92-3729

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Recommended Citation
"In the Matter of: Seidman and Bailey" (1994). 1994 Decisions. Paper 132.
http://digitalcommons.law.villanova.edu/thirdcircuit_1994/132

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      UNITED STATES COURT OF APPEALS
          FOR THE THIRD CIRCUIT
               ___________

          Nos. 92-3722 & 92-3729
               ___________

             IN THE MATTER OF:

   LAWRENCE B. SEIDMAN AND JOHN BAILEY,
  Individually, as Persons Participating
in the Conduct of the Affairs of Crestmont
   Federal Savings and Loan Association,
            Edison, New Jersey

               JOHN BAILEY,
                         Petitioner at No. 92-3722

           LAWRENCE B. SEIDMAN,
                         Petitioner at No. 92-3729
               ___________

On Petition for Review of a Final Order of
    The Office of Thrift Supervision,
 United States Department of the Treasury
          (OTS Order No. 92-149)
               ___________

                No. 92-5392
                ___________

           LAWRENCE B. SEIDMAN,
                         Appellant

                     v.

       OFFICE OF THRIFT SUPERVISION,
        DEPARTMENT OF THE TREASURY,
         UNITED STATES OF AMERICA,
                          Appellee

                ___________

Appeal from the United States District Court
       for the District of New Jersey
      (D.C. Civil Action No. 92-00505)

          Argued:   August 3, 1993
    PRESENT:    STAPLETON, HUTCHINSON, and ROTH, Circuit Judges

                     (Filed   September 14, 1994)

                              ___________

John J. Sarno, Esquire               (Argued)
Robinson, St. John & Wayne
Two Penn Plaza East
Newark, NJ     07105
               Attorney for John Bailey

Samuel D. Bornstein, Esquire
The Atrium
80 Route 4 East
Paramus, NJ     07652

          and

Frank J. Eisenhart, Jr., Esquire     (Argued)
Arthur W. Leibold, Jr., Esquire
Edward Jewett, Esquire
Dechert, Price & Rhoads
1500 K Street, N.W.
Washington, DC      20005
               Attorneys for Lawrence B. Seidman

Faith S. Hochberg, Deputy Chief Counsel
Office of United States Attorney
970 Broad Street
Room 502
Newark, NJ 07102

Richard E. Shapiro, Esquire
Office of Thrift Supervision
10 Exchange Place
Jersey City, NJ     07302

          and

Harris Weinstein, Chief Counsel
Carolyn B. Lieberman, Senior Deputy Chief Counsel
Thomas J. Segal, Deputy Chief Counsel
Aaron B. Kahn, Assistant Chief Counsel      (Argued)
Teresa A. Scott, Esquire
Office of the Chief Counsel
Office of Thrift Supervision
Fourth Floor
1700 G Street, N.W.
Washington, DC      20552
Attorneys for Office of Thrift Supervision,
United States Department of Treasury
                             ___________

                        OPINION OF THE COURT
                            ___________

HUTCHINSON, Circuit Judge.

            In these consolidated cases, Lawrence Seidman

("Seidman") and John Bailey ("Bailey") petition for review of the

order of the Director ("Director") of the Office of Thrift

Supervision ("OTS") subjecting them to administrative sanctions

for their part in a loan transaction Crestmont Federal Savings

and Loan ("Crestmont") considered while Seidman was Chairman of

Crestmont's Board of Directors ("Board") and Bailey was one of

its officers.    Specifically, Bailey petitions for review of that

portion of the Director's order publicly directing him to cease

and desist from participating in unsafe and unsound lending

practices.    Seidman's petition seeks review of that portion of

the Director's order removing him from his office at Crestmont

and banning him from further participation in the banking

industry.

            When the Director issued the order against Seidman and

Bailey, he remanded the case to an administrative law judge

("ALJ") to determine their ability to pay civil monetary

penalties because the ALJ who had heard the case failed to assess

a civil penalty against Bailey and to properly document Seidman's

ability to pay the $930,000 civil penalty the ALJ had

recommended.    The remand order raises a question of finality that

we must consider before deciding whether we have jurisdiction to
review Bailey's and Seidman's petitions.   We conclude in Part II

that we do have jurisdiction.1

          In the administrative proceeding, the Director found

Bailey approved a commitment for a purchase money mortgage to a

real estate buyer who was buying property from a seller in which

Seidman had an interest.   The Director concluded that approval of

this commitment was an unsafe and unsound lending practice

justifying a cease and desist order against Bailey under section

1818(b) of the Federal Deposit Insurance Act ("FDIA"), 12

U.S.C.A. §§ 1811-1833 (West 1989 & Supp. 1994), as amended by the

Financial Institutions Reform, Recovery, and Enforcement Act of

1989 ("FIRREA"), P.L. No. 101-73, 103 Stat. 183 (1989).

          The Director concluded that Seidman's conduct required

him to issue a prohibition and removal order in accord with 12

U.S.C.A. § 1818(e).   To support this ultimate administrative

sanction the Director found Seidman impermissibly used his

position at Crestmont for his own benefit in order to obtain a

release from his personal guarantee of a loan; this loan had been

made by another lending institution to a real estate partnership

1
 . Seidman and Bailey also attack the remand order on the
merits. Because we will grant Bailey's petition and reverse the
cease and desist order against him, those proceedings can no
longer continue against Bailey. We will therefore order the
Director to terminate them. Because of our conclusion on
Seidman's petition that his case be remanded for the Director to
consider entry of a cease and desist order against him, we will
stay the proceedings against him concerning assessment of any
monetary penalties until the Director has finally decided whether
to direct Seidman to cease and desist from any further attempts
to hinder OTS in any investigations pertinent to its regulatory
authority.
from which Seidman was in the process of withdrawing; Seidman's

withdrawal from the partnership was being negotiated at the same

time that Bailey made the loan commitment for a purchase from the

partnership, resulting in the Director's cease and desist order

against him.   As additional support for his order removing

Seidman from Crestmont's Board of Directors and banning him from

banking for life, the Director also found that Seidman failed to

renotify Crestmont's Board or Senior Loan Committee of his

continuing interest in the real estate partnership he was

withdrawing from while they were considering the loan OTS

objected to and that Seidman later attempted to hinder the

ensuing OTS investigation by covering up his part in preparing a

memo in support of his request for the release.   The Director

concluded that each of these findings warranted Seidman's removal

as Chairman of Crestmont's Board and required him to be

permanently barred from banking.

          We believe the Director erred in concluding Bailey's

issuance of a purchase money loan commitment to a buyer from the

real estate development partnership from which Seidman was in the

final stages of withdrawing exposed Crestmont to the serious,

abnormal risk that constitutes an unsafe or unsound practice.

Therefore, we will grant Bailey's petition for review and vacate

that part of the Director's order commanding Bailey to cease and

desist from such practices.

          We reject Seidman's preliminary argument that 12

U.S.C.A. § 1818(e) violates due process because it fails to

afford him a trial before a fair and unbiased tribunal.   We
conclude, however, that the Director's findings that Seidman

violated 12 U.S.C.A. § 1818(e)(1) when he sought to utilize his

position at Crestmont to obtain a release from his guarantee and

when he failed to remind Crestmont's Board or Senior Loan

Committee of his interest in the real estate partnership are not

supported by substantial evidence.    Though the Director properly

determined that Seidman engaged in an unsafe or unsound practice

when he attempted to hinder the OTS investigation, we conclude

that there is no evidence to support the Director's finding that

this act of Seidman resulted in his receipt of an actual benefit

meeting section 1818(e)(1)(B)(iii)'s condition of an untoward or

prohibited effect.2    Accordingly, we will grant Seidman's

petition for review and vacate that part of the Director's order

permanently removing him from his job at Crestmont and banning

him from banking.     Nevertheless, because of our conclusion that

Seidman did commit an unsafe or unsound practice when he

unsuccessfully attempted to hinder the OTS investigation in his

dealings with his former partners and their lender, we will

remand the case to OTS for the Director to consider entering a

cease and desist order and civil monetary penalties against

Seidman as authorized by section 1818(b).

2
 . The Director relied exclusively on section
1818(e)(1)(B)(iii)'s receipt of benefit from a prohibited act to
meet its requirements concerning effect and made no finding that
Seidman's conduct met the alternate requirement of section
1818(e)(1)(B)(i) by posing a possibility of prejudice to
Crestmont's depositors or the other alternate condition of
section 1818(e)(1)(B)(ii) by creating a likelihood of loss to
Crestmont.
          Our disposition of the merits of Seidman's petition

requires us to vacate the OTS preliminary suspension order for

the reasons given in Part VII of this opinion.    Therefore, we

find it unnecessary to consider Seidman's appeal of the district

court's order dismissing, for lack of jurisdiction, his action to

enjoin the preliminary suspension order.

               I.     Factual and Procedural History

                 A.    Seidman's Business Dealings

          Lawrence Seidman is an attorney in his mid-forties who

has been engaged in the practice of banking and securities law

for twenty years.     During the past decade he has specialized in

real estate investments and begun to pursue a career in banking.

In 1989, he headed a group of investors who purchased stock in

Crestmont, a thrift institution in Edison, New Jersey.3    Seidman

became a director of Crestmont and, in November 1989, was named

Chairman of its Board of Directors.

          In 1986, before he became a Crestmont director, Seidman

formed a partnership, Fulton Street Associates ("FSA"), with

James Zorlas ("Zorlas") and Lawrence Rappaport ("Rappaport") to

purchase and develop industrial condominiums on a piece of

commercial property ("Boonton Project").    FSA's partners made

substantial capital contributions to the Boonton Project and

3
 . At the time the parties argued and briefed these cases,
Crestmont was not one of the failed thrifts that led to the
"S & L bailout." We have not been advised of any change in this
respect.
obtained additional financing from United Jersey Bank ("UJB"),

secured in part by all the partners' personal guarantees.

Seidman listed his affiliation with FSA on conflict disclosure

forms he filed with Crestmont when he became a director.

            In mid-1990, Seidman decided to focus his business

activities on Crestmont.    Recognizing that his outside business

ventures could create conflicts that would prevent Crestmont from

making otherwise desirable loans, Seidman advised the Board that

he had begun to withdraw from his outside business ventures and

started disposing of various business interests to his former

partners.    Rappaport agreed to acquire Seidman's interest in FSA,

promising to indemnify Seidman against any continuing obligation

on FSA's loan from UJB without any further consideration flowing

to Seidman.    On June 1, 1991, Seidman's transfer of his interest

in FSA to Rappaport became the subject of a formal agreement.

Seidman testified that he lost all of the $320,000 he had

invested in FSA but that he thought Crestmont offered even

greater potential for profit.

            Months before the June 1st agreement, however, UJB

started to worry about its loan to FSA.    On January 21, 1991, it

sent FSA a notice of default.    UJB gave FSA a chance to cure the

default, but FSA denied it was in default, contending any default

would have been cured if an interest reserve fund had been

properly credited against its debt.    Though UJB then sent FSA a

demand for immediate payment, negotiations between them

continued.
           James Risko ("Risko"), a Poole & Co. commercial loan

broker, handled negotiations to resolve the dispute between FSA

and UJB.   Poole & Co. was the commercial loan company that had

placed the FSA loan with UJB.   Roger Eberhardt ("Eberhardt"),

chairman of UJB's real estate management committee, and Thomas

Stackhouse ("Stackhouse"), the UJB commercial lending officer

assigned to the FSA loan, were key participants in the

negotiations.   Risko, Eberhardt and Stackhouse all testified that

the participants, including Seidman, discussed end-user financing

for FSA's Boonton condominiums.4   Crestmont was mentioned as a

potential source of end-user loans, but no one testified that

Seidman or Crestmont promised to make any loan.   On May 20, 1991,

the parties agreed to restructure the UJB loan.   As part of the

restructuring, the FSA partners, including Seidman, signed

personal guarantees covering $4.45 million.   Seidman's successful

efforts to be released from the guarantee figure prominently in

these proceedings, but other ongoing events also play a

significant role.

4
 . End-user financing permits a person who plans to occupy a
unit in a development to buy the unit or rent it to others. The
institution that has financed the project has a strong interest
in facilitating end-user financing because it usually receives a
substantial part of the price the end-user pays, thus reducing
its exposure on the loan to the developer.
                          B.   The Levine Loan

          John Bailey is the Executive Vice President of

Crestmont.   His responsibilities include underwriting commercial

loans, managing a commercial loan portfolio, producing new

lending business and supervising Crestmont's loan officers.

Bailey had authority to approve loans of less than $500,000 if

they did not directly involve the interests of Crestmont's

directors but had no authority to approve loans in excess of

$500,000 or loans in which Crestmont's officers or directors had

an interest.   Loans over $500,000 went before a "Senior Loan

Committee" made up of Bailey, Seidman and Crestmont's President,

S. Griffin McClellan ("McClellan").      Commercial loans in which an

officer or director had an interest were prohibited at Crestmont.

          In December of 1990, Steven Levine ("Levine") of S & N

Realty approached Bailey about end-user financing for a $466,000

office condominium in FSA's Boonton project.        Levine, who had

been referred to Crestmont and Bailey by Zorlas, sought $375,000.

On December 18, 1990, Bailey contacted Zorlas, Rappaport and

Seidman about Levine's loan request and asked them how things

stood on Seidman's partnership interest in FSA.        All three FSA

partners individually represented to Bailey that Seidman was in

the process of withdrawing from the partnership and that the

withdrawal would be completed "shortly."         Bailey Appendix

("Bailey App.") at 319.    Bailey memorialized this conversation

and placed a memo about it in a file marked "Seidman Financial

Associates."   Id.   Rappaport testified he told Bailey no loan

could be made to Levine until Seidman was out of the partnership.
            Assured Seidman would soon be out of FSA, Bailey

decided to get a head start on the Levine loan and assigned James

Little ("Little"), a Crestmont loan officer, the task of writing

it up.   Little interviewed Levine and told him the loan could be

approved but no other action could be taken on it until Seidman

left FSA.    Little became involved with other things and gave the

paperwork on the loan back to Bailey to complete.    Still assured

that Seidman would soon be out of FSA, Bailey did extensive work

on it.

            Bailey prepared a Credit Summary for the Levine loan on

February 21, 1991.5   On March 19, 1991, Bailey and Little

approved the loan and issued a commitment letter to Levine.6
5
 . In the Credit Summary form there is a space headed "Bank
Officers and Directors Interest." Bailey says he thought this
heading referred to the officers and directors of the Levine
partnership, not FSA, the developer. Bailey also listed the
applicant as "[a] N.J. General Partnership, the ownership of
which is 100% Steven K. Levine and Ned Levine." Bailey App. at
321. Clarence Hartwick, a twenty-seven year veteran in banking
and an executive at First Fidelity Bank in New Jersey,
corroborated Bailey's understanding at a hearing before an OTS
ALJ. He testified:

            That line refers to the borrower. Is the
            borrower an officer or director of the bank,
            it's as simple as that.

Id. at 304. Bailey entered the word "none" on the line calling
for disclosure of "Bank Officers and Directors Interest." Id. at
321. Other underwriting documents included with the Credit
Summary clearly disclosed FSA's interest.
6
 . The commitment was later modified and reissued on May 10,
1991. Unknown to Bailey, Levine had already entered into a
Contract of Sale with FSA on or about May 10, 1991. Seidman did
not formally withdraw from FSA until June 1, 1991. Questioned
about what would have happened if Seidman had failed to withdraw
from a similar transaction, Crestmont's President, McClellan,
testified, "We would not have closed the loan. It was clearly
Levine did not sign the commitment letter until May 30, 1991,

when Bailey was given a check for $2,000 in exchange for the

commitment.7

                    C.   Crestmont's Loan Policies

          Crestmont had a loan policy which Bailey had authored.

It was based on OTS regulations and stated:
               The policy of the bank is to carefully
          administer extensions of credit which are
          subject to special reporting requirements.
          These loans include the following:

                . . .

                -    [L]oans to individuals or entities
                     that conduct business or have
                     conducted business with officers or
                     directors of the bank.

               These situations are clearly described
          in the bank's loan committee credit summary.
          They are presented to the bank's Senior Loan
          Committee regardless of their size.

Id. at 314.    Crestmont had another policy, also based on OTS

regulations, which forbade it from
          either directly or indirectly mak[ing] any
          loan to or purchase . . . any loan made to
(..continued)
understood by all involved that that was a condition to closing."
Id. at 191.
7
 . Crestmont negotiated that instrument but the date of
negotiation is unclear. OTS contends that the check was
negotiated before June 1, 1991, the date Seidman transferred his
interest, but Bailey contends the check was cashed after Seidman
relinquished his partnership. Levine's delivery of the check for
$2,000 resulted in a binding contract two days before Seidman's
formal withdrawal. See generally Restatement (Second) of
Contracts § 17 (1981).
            any third party on the security of real
            property purchased from any affiliated person
            of the association unless the property was a
            single-family dwelling owned and occupied by
            the affiliated person as a permanent
            residence.

OTS Appendix ("OTS App.") at 96-97 (citing 12 C.F.R.

§ 563.43(c)(1)). Crestmont's policies also put on its directors
          a fundamental duty to avoid placing
          themselves in any position which creates,
          leads to or could lead to a conflict of
          interest or even the appearance of such
          conflict of interest between the
          accomplishment of the purposes of the
          association and the personal financial
          interests of the directors, officers and
          other affiliated persons.

Id. at 98-99 (citing 12 C.F.R. § 571.7).    Specifically,

Crestmont's directors were supposed to avoid any transaction in

which
            a third party purchaser seeks to obtain a
            loan from the association secured by real
            estate acquired from the affiliated
            partnership or as to which the affiliated
            partnership holds a security interest.

Id. at 100.    Bailey and Seidman were fully aware of these

policies.
                     D.   The Garden Park Loan

          At the same time that Crestmont was negotiating the

Levine loan, Seidman and OTS were engaged in a tense dialogue

over property owned by Garden Park Associates ("Garden Park"),

for which Seidman was attempting to arrange financing at

Crestmont.   Seidman had an interest in Garden Park and had also

personally guaranteed the development loans for Garden Park.

Seidman fully disclosed his interest in Garden Park to the

Crestmont Board and Crestmont formally asked OTS to permit it to

make the Garden Park loan.   On May 23, 1991, OTS denied

Crestmont's request citing 12 C.F.R. § 563.43(c)(1) (1991) which

forbade certain transactions with affiliated parties.8     Seidman

contacted OTS's Chief Examiner in charge of Crestmont, Joseph

Donohue ("Donohue"), for a further explanation of OTS's position.

Donohue told Seidman that OTS considered the Garden Park loan

impermissible so long as Seidman remained a guarantor of Garden

Park's obligation.   Seidman asked for reconsideration, but OTS

still refused to allow the loan.

8
 . OTS amended this regulation subsequent to the ALJ's decision,
but the Code of Federal Regulations no longer contains any
independent OTS conflict of interest rules. Instead, 12 C.F.R.
§ 563.43 incorporates the Federal Reserve Board regulations found
at 12 C.F.R. § 215 et seq. See 57 Fed. Reg. 45,977 (1992)
(codified at 12 C.F.R. § 563.43). There is no provision in the
Federal Reserve Board regulations comparable to former 12 C.F.R.
§ 563.43(c)(1). For the text of former section 563.43(c)(1), see
infra typescript at 44.
             E.   Seidman's Release from the UJB Guarantee

           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.
               F.   The OTS Investigation, Charges and

                    Seidman's District Court Action

            Though Crestmont had made no prohibited loan and now

proposed none, OTS went on with its investigation into what it

suspected were violations of OTS's regulations on conflict of

interest.    On September 13, 1991, OTS deposed Seidman, focusing

on the draft letter Seidman had faxed to Risko.       Seidman never

admitted writing the original draft of Risko's letter.       He said

he believed that Risko had dictated it over the phone to

Seidman's secretary, Janet Greenhill ("Greenhill").       Greenhill

testified she did not remember these details.12       Seidman admitted

that he had approved the text of the letter as sent with the

additional sentence stating it would be in UJB's best interest to

free him from the guarantee because that could open another

source of end-user financing for FSA.

            After he was deposed, Seidman learned that Risko and

Poole & Co.'s records had been subpoenaed by OTS and that Risko

planned to testify on deposition without an attorney.       Seidman

called Risko to find out what Poole & Co.'s files contained

concerning Seidman's request for a release from his guarantee and

asked whether he could review the file.     Risko testified he told

12
 . Greenhill did testify it was her practice to put Seidman's
initials on any letter he dictated to her and there were no such
initials on the initial draft of Risko's letter. She also
testified it was not unusual for her to take dictation from
others over the phone.
Seidman that he had a fax of the initial draft along with the fax

sheets showing it was transmitted from Crestmont.

           On September 16, 1991, before his OTS deposition, Risko

met with Seidman.   Seidman testified Risko told him he was going

to tell OTS the letter was Seidman's idea.     Seidman testified he

told Risko this was a lie.    Seidman said he reviewed the file and

pulled out a number of documents relating to his request for a

release.   Risko testified Seidman asked him to "make sure that

[the documents] get thrown away" and asked Risko to do his "best

to make sure [the documents were] not around."     Seidman Appendix

("Seidman App.") at 347-48.     Risko also testified that Seidman

told him to forget the documents ever existed.     Seidman

emphatically denies ever saying this.     Both Risko and Seidman

agree that Seidman told Risko he should tell OTS the truth.

           Things grew tense.   Risko left the room to speak with

Poole.   Seidman was left alone with the documents.    Poole

reentered the conference room, picked up the draft, crumpled it

and left the room with it.    Seidman followed Poole to his office

where they had a heated exchange.    Seidman grabbed the crumpled

copy of the draft and tore it up.    Seidman testified he did this

"in a rage of anger" after learning Risko had made copies of all

the relevant documents.   Id. at 481-82.    Risko testified he never

informed Seidman that copies existed.13

13
 . The ALJ found Seidman destroyed the documents intentionally
but "it was done in a fit of anger and not for the purpose of
destroying material and relevant evidence." Seidman App. at 49.
The Director's decision concluded cryptically that the ALJ found
Seidman had destroyed material evidence. While the ALJ found
          On October 30, 1991, OTS filed notice of charges

against Seidman and Bailey.14   On the same day, it issued a

preliminary Order of Suspension removing Seidman from his posts

at Crestmont without pay.15   From April 20, 1992, through May 1,

1992, Treasury Department ALJ Walter Alprin ("Alprin") held

hearings on the charges against Seidman and Bailey.   On

August 13, 1992, Alprin issued his decision recommending that the

Director issue a Removal and Prohibition Order permanently

barring Seidman from any work in the banking field and assessing

$930,000 in civil penalties against him.   Alprin also recommended

an order directing Bailey to "cease and desist from engaging in

(..continued)
Seidman engaged in a number of culpable acts, it seems clear that
the ALJ did not think destruction of evidence was one of them.
14
 . The OTS sought the following relief against Seidman: (1) a
preliminary order immediately suspending Seidman from his office
at Crestmont and from further participating in Crestmont's
affairs; (2) an order removing Seidman from his office at
Crestmont and banning him from the banking industry; (3)
disgorging any unjust enrichment or avoidance of loss; (4)
providing a new guarantee to UJB on the FSA loan; (5) civil
monetary penalties; and (6) any other relief the Director deemed
appropriate.
15
 . Seidman commenced a district court action seeking a
preliminary injunction to enjoin further enforcement of the Order
of Suspension on February 7, 1992. In his complaint, Seidman
alleged that the Order of Suspension was facially invalid because
it exceeded OTS's statutory authority. On February 17, 1992, OTS
filed a motion for dismissal under Federal Rule of Civil
Procedure 12(b)(1), 12(b)(6), or, in the alternative, summary
judgment under Federal Rule of Civil Procedure 56. On May 22,
1992, the district court granted OTS's Rule 12(b)(1) motion and
dismissed the Rule 12(b)(6) and Rule 56 motions as moot. Because
we will grant Seidman's petition for review and reverse the
Director's order removing him from office and banning him from
banking, we do not consider Seidman's appeal of the May 22, 1992
order. See infra Part VII.
any unsafe or unsound practices in conducting the business of any

financial institution . . . ."   Id. at 89.   Alprin did not

recommend any monetary penalty against Bailey.

                   G.   The Director's Decision

          Seidman and Bailey sought the Director's review of the

ALJ's recommended decision and asked for oral argument.    The

Director denied the request for argument and issued a decision on

December 4, 1992, finding against Seidman and issuing the Removal

and Prohibition Order the ALJ had recommended.    The Director

determined, however, that the record was not sufficient to

support the recommended civil penalty of $930,000 against Seidman

and remanded the case to the ALJ to take further evidence

concerning Seidman's ability to pay.16   The Director also agreed

with the ALJ's recommended findings of fact and conclusions of

law as to Bailey and entered a Permanent Cease and Desist Order,

but he disagreed with the ALJ's conclusion that no civil

penalties were warranted against Bailey and sent Bailey's case

back for further fact finding on money penalties.

          In support of his order removing Seidman and banning

him from banking, the Director found Seidman engaged in self-

16
 . On January 15, 1993, Seidman challenged the legality of the
remand by filing a motion with the Director to stay further
proceedings before the ALJ. He also sought a stay from this
Court. We denied Seidman's request for a stay without stating
whether our denial was on the merits or because Seidman had
failed to exhaust his administrative remedies. The motion before
OTS remained undecided at the time Seidman filed his opening
brief in this Court (March 1993). We have not been advised of
any subsequent action.
interested conduct by insinuating to UJB that a release from his

FSA guarantee would cause Crestmont to provide end-user financing

for FSA's Boonton project.   The Director also found that

Crestmont unlawfully made a loan commitment to Levine while

Seidman was still a partner in FSA.   Finding these acts of self-

dealing were never disclosed to Crestmont's Board or the Senior

Loan Committee, the Director held Seidman breached his fiduciary

duties to Crestmont.   The Director also held Seidman violated

OTS's conflict of interest provision, 12 C.F.R. § 571.7(b), and

sought to benefit personally from these acts through the release

from his FSA guarantee.

          The Director independently held that Seidman's attempt

to destroy evidence and cover-up his activities during the

investigation violated section 1818(e)(1).   He found the

attempted cover-up, which involved giving misleading testimony,

destroying the original record of the fax of the early draft of

Risko's letter from Seidman to Risko and requesting that Risko

forget about the letter, inter alia, constituted an unsafe or

unsound practice.   The Director concluded that these acts

established personal dishonesty within the meaning of section

1818(e)(1)(C)(i) and conferred a personal benefit on Seidman

within the meaning of section 1818(e)(1)(B)(iii).

          The Director also held Bailey had engaged in an unsafe

and unsound banking practice.   He found Bailey knew of Seidman's

interest in FSA, failed to disclose it to the Board of Directors

or the Senior Loan Committee and issued a commitment letter for

the Levine loan before Seidman withdrew from FSA.   The Director
concluded this created an "abnormal risk of loss" to Crestmont

and that a cease and desist order was appropriate under section

1818(b).   Seidman App. at 121.

                         II.   Jurisdiction

           The Director had jurisdiction over these proceedings

pursuant to 12 U.S.C.A. § 1818(h)(1).   Seidman and Bailey filed

timely petitions for review pursuant to 12 U.S.C.A. § 1818(h)(2).

Because of the Director's remand to an ALJ for further findings

on Seidman's and Bailey's ability to pay civil penalties, we must

consider whether their petitions seek review of a final order.

Generally, an order which decides all issues of liability but

remands on issues of damages is not immediately appealable.    See

Teledyne Continental Motors v. United States, 906 F.2d 1579, 1582

(Fed. Cir. 1990).   Here the agency clearly contemplates further

action concerning civil penalties.   So long as the assessment of

monetary penalties is pending, the full impact the Director's

decisions may have on either Seidman or Bailey is uncertain.

           Under FDIA, parties sanctioned by OTS
           may obtain a review of any order . . . by the
           filing in the court of appeals of the United
           States for the circuit in which the home
           office of the depository institution is
           located . . . within thirty days after the
           date of service of such order, a written
           petition praying that the order of the agency
           be modified, terminated, or set aside. . . .
           Upon the filing of such petition, such court
           shall have jurisdiction, which upon the
           filing of the record shall . . . be
           exclusive, to affirm, modify, terminate, or
           set aside, in whole or in part, the order of
           the agency. Review of such proceedings shall
           be had as provided in chapter 7 of Title 5.
           The judgment and decree of the court shall be
           final, except that the same shall be subject
           to review by the Supreme Court upon
           certiorari . . . .

12 U.S.C.A. § 1818(h)(2) (West 1989).    Nothing in FDIA expressly

states that the "order" must be a final one.    We recognized in

Shea v. OTS, 934 F.2d 41 (3d Cir. 1991), however, "'there is a

strong presumption that judicial review is only available when an

agency action becomes final . . . .'"    Id. at 44 (quoting Bell v.
New Jersey, 461 U.S. 773, 778 (1983)).    This presumption

recognizes that postponement of review until final action can

sometimes avoid the inefficiency of piecemeal review and, in some

cases, make any review unnecessary.   CEC Energy Co. v. Public

Serv. Comm., 891 F.2d 1107, 1112 (3d Cir. 1989); see also

Fidelity Television, Inc. v. Federal Communications Comm'n, 502
F.2d 443, 448 (D.C. Cir. 1974) (quoting Chicago & Southern Air

Lines v. Waterman S.S. Corp., 333 U.S. 103, 113 (1948) and

Isbrandtsen Co. v. United States, 211 F.2d 51, 55 & n.24 (D.C.

Cir.), cert. denied, 347 U.S. 990 (1954)).

           In Shea we concluded, "in this Circuit, the finality of

a disposition is determined by its consequences[,]" including

"whether the OTS's decision 'imposes an obligation' or 'denies a

right.'"   Shea, 934 F.2d at 44-45.   In CEC Energy we reasoned

that "[a]pplication of the ripeness doctrine prevents the

entanglement of the courts in administrative policy disagreements

and protects the agencies from judicial interference until

decisions are formalized and their effects felt in a concrete
way."   CEC Energy Co., 891 F.2d at 1109 (citation omitted).     We

went on to state, "[t]he doctrine of ripeness requires an

evaluation of the fitness of the challenged issue for review and

the hardship to the parties of withholding judicial

consideration."   Id. at 1109-10 (citation omitted); see also

Federal Trade Comm'n. v. Standard Oil, Inc., 449 U.S. 232 (1980);

Solar Turbines Inc. v. Seif, 879 F.2d 1073, 1080 (3d Cir. 1989)

(concluding Supreme Court's finality standard incorporates

ripeness standard).    An important but not dispositive factor is

an agency's classification of its order as final.    Because

finality is a pragmatic requirement informed but not decided by

an agency classification of its decision, we looked at several

other factors in CEC Energy:
          1) whether the decision represents the
          agency's definitive position on the question;
          2) whether the decision has the status of law
          with the expectation of immediate compliance;
          3) whether the decision has immediate impact
          on the day-to-day operations of the party
          seeking review; 4) whether the decision
          involves a pure question of law that does not
          require further factual development; and 5)
          whether immediate judicial review would speed
          enforcement of the relevant act.

CEC Energy Co., 891 F.2d at 1110 (citing Solar Turbines Inc., 879
F.2d at 1080).    Thus, we turn to the facts that are material to

our jurisdiction over Seidman's and Bailey's petitions for

review.

            Under the Director's order, Seidman is permanently

removed from, and prohibited from returning to, the banking

industry.    The order denies Seidman a right to pursue the trade
he has chosen.    It also firmly concludes that Seidman is not fit

to be a banker and that Bailey should be publicly reprimanded.

The order notifies Seidman and Bailey of their right to petition

for judicial review and the agency states it is final.     Most

significantly, the order demands immediate compliance and impacts

immediately on Seidman's and Bailey's day-to-day affairs.     OTS is

currently enforcing the order precluding Seidman from taking part

in the business of banking, and it is clear the agency has

definitely decided to ban Seidman from that industry.     Although

the consequences to Bailey are not as harsh as those visited upon

Seidman, the agency has indicated that it will engage in no

further factual development or reconsideration of its order

publicly directing Bailey to cease and desist from unsafe

practices.   The order has a continuing effect on Bailey's

reputation and it too poses legal questions that can be fully

reviewed at this time.    In addition, Seidman's and Bailey's

petitions pose questions that are mainly legal in nature and

judicial review now is likely to facilitate the appropriate

enforcement of applicable law.

           Because assessment of any civil penalties hinges on the

Director's conclusion that Seidman and Bailey violated FIRREA, we

believe review at this juncture serves the interest of judicial

economy.   This case turns not on the civil penalties that are yet

to be determined on the Director's remand to an ALJ but on the

legality of the decisions the Director has already made.      The

Director's decision "'imposes . . . obligation[s]'" and

"'denies. . .    right[s].'"   Shea, 934 F.2d at 44-45.   Therefore,
we have jurisdiction under 12 U.S.C.A. § 1818(h)(2) to review the

Director's order removing Seidman from his position at Crestmont

and banning him permanently from the thrift industry, and

directing Bailey to stop engaging in unsafe or unsound

practices.17

                      III.   Standard of Review

           The Administrative Procedure Act ("APA"), 5 U.S.C.A.

§ 706(2) (West 1977), defines the scope of judicial review over

the Director's findings and conclusions of law.   We must uphold

the Director's order against Bailey and Seidman unless we

determine that the Director has made an error of law or that his

findings are not supported by substantial evidence on the whole

record.    See Hoffman v. FDIC, 912 F.2d 1172, 1173-74 (9th Cir.

1990).    Substantial evidence is "such relevant evidence as a

reasonable mind might accept as adequate to support a

conclusion."    Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229

(1938).   Issues of law are subject to plenary review.   Dill v.

INS, 773 F.2d 25, 28 (3d Cir. 1985).    In deciding legal issues,

we must defer to an agency's consistent interpretation of the

statute it administers unless it is "arbitrary and capricious,"

17
 . Our resolution of this issue of appealability is further
supported by analogy to a district court proceeding in which one
defendant had been enjoined from engaging in the banking business
and a second defendant had been enjoined from engaging in unsafe
and unsound banking practices. The granting of the injunctions
by the district court in this situation would be appealable under
28 U.S.C.A. § 1292(a)(1) (West 1993). We conclude that the same
injunctive effect of the civil penalties imposed on Seidman and
Bailey argues in favor of permitting this appeal.
Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,

467 U.S. 837, 844 (1984).      Nevertheless, when "bizarre"

interpretations of a statute are made out of "regulatory zeal,"

deference is not appropriate.      See Wachtel v. OTS, 982 F.2d 581,

585 (D.C. Cir. 1992).      Similarly, interpretations contrary to the

plain meaning of the statute are unacceptable.       Elliot Coal

Mining Co., Inc. v. Director, OWCP, 17 F.3d 616, 629 (3d Cir.

1994).    Seidman's due process attack on the statute in question,

the merits issue to which we first turn, is subject to plenary

review.    United States v. Engler, 806 F.2d 425, 429 (1986).

         IV.    Seidman's Due Process Challenge to the Statute

               Seidman argues that 12 U.S.C.A. § 1818(e) violates due

process because it fails to afford him a hearing before a fair

and unbiased tribunal.      He says a sanction so severe should not

be entrusted to a person who has the combined functions of

investigation, prosecution and adjudication.      Although the

Supreme Court has held that the Constitution requires

administrative agencies to be fair and unbiased, see In re
Murchison, 349 U.S. 133, 135-36 (1955), it has also held that the

Constitution permits the investigative, prosecutorial and

adjudicative roles to be combined in one agency.      See Withrow v.

Larkin, 421 U.S. 35, 46-47, 52-53 (1975).      Agency administrators

are presumed to be "'capable of judging a particular controversy

fairly on the basis of its own circumstances.'"       Id. at 55

(quoting United States v. Morgan, 313 U.S. 409, 421 (1941)).
Seidman argues Withrow does not permit all three roles to be
combined in one person who also has the power to find facts and

judge credibility without even hearing the witnesses.

          The Director of OTS has the power to authorize an

investigation, to determine whether charges should be brought, to

issue notice of charges proffered and then to decide them as to

law and fact.   See 12 C.F.R. §§ 509.4, 509.18 (1993).    Although

OTS charges are usually heard by an ALJ, "[t]he Director may, at

any time during the pendency of a proceeding perform, direct the

performance of, or waive performance of, any act which could be

done or ordered by the [ALJ]."   Id. § 509.4.    The ultimate

decision is entirely the Director's and he is free to disregard

not only the ALJ's legal conclusions but also the ALJ's findings

of fact, including findings on credibility.     See id.

§ 509.5(b)(7) (". . . only the Director shall have the power to

grant any motion to dismiss the proceeding or to decide any other

motion that results in a final determination of the merits of the

proceeding . . . ."); id. § 509.40 (1993).

          In Murchison, the Supreme Court held that a statutory

scheme which gave a state judge power to sit as a grand jury,

compel testimony, charge perjury and try and convict the persons

charged violated due process.    Murchison, 349 U.S. at 133-34.      In

Withrow, however, the Court stated, "Murchison has not been

understood to stand for the broad rule that the members of an

administrative agency may not investigate the facts, institute

proceedings, and then make the necessary adjudications."

Withrow, 421 U.S. at 53.   In Withrow, the combination of

functions under attack permitted Wisconsin's state board for the
examination of physicians to conduct investigative proceedings,

institute charges, hold a hearing and adjudicate the charges.

Id. at 54.   The Supreme Court held that this combination of

regulatory powers did not violate due process.   It stated:

"[T]here was no more evidence of bias or the risk of bias or

prejudgment than inhered in the very fact that the Board had

investigated and would now adjudicate."   Id. (footnote omitted).

The Supreme Court pointed out that the defendant and his counsel

were permitted to be present throughout the investigation,

counsel attended the hearings and counsel was aware of the facts

presented to the board.   Id. at 55.   Ultimately, the Court

required a showing of actual bias or at least a risk of bias and

held neither was present under the Wisconsin scheme.   Id.

           In United Retail & Wholesale Employees Teamsters Union

Local No. 115 Pension Plan v. Yahn & McDonnell, Inc., 787 F.2d
128 (3d Cir. 1986), aff'd by an equally divided court, 481 U.S.
735 (1987), we held that the provisions of the Multiemployer

Pension Plan Amendments Act of 1980 governing procedure in

administrative adjudications were unconstitutional because bias

or a likelihood of bias is present when an agency's adjudicator

has a fiduciary or fiscal stake in the decision.   Id. at 139-40.
But see Concrete Pipe & Prods. v. Construction Laborers Pension

Trust for S. California, 113 S. Ct. 2264, 2276-78 (1993) (holding

that even where an initial determination is made by a biased

party, due process is met where there are provisions for a

neutral de novo review and adjudication of all factual and legal
issues).   Consistent with Withrow's requirement of bias, we held
that the presumption that administrative decisionmakers are

unbiased may be rebutted by a "'showing of conflict of interest

or some other specific reason.'"   Id. at 138 (quoting Schweiker

v. McClure, 456 U.S. 188, 195 (1982)).

          Seidman contends that Murchison, not Withrow, controls

when the power of decision is vested in one individual instead of

a multi-member board or commission.   His argument implies that

bias is inherent in such a process because it permits a single

person to act as prosecutor, investigator and adjudicator as to

the severe sanctions of section 1818(e).    We think Withrow

implies the contrary and actual bias or a likelihood of bias must

appear if an otherwise valid administrative sanction is to be

overturned because of a denial of due process.    Though in Withrow

a board, not a single person, combined the functions which the

Director of OTS possesses under section 1818(e)(1), we do not

think that distinction is controlling.     In Withrow the Court

stated:
               The risk of bias or prejudgment in this
          sequence of functions has not been considered
          to be intolerably high or to raise a
          sufficiently great possibility that the
          adjudicators would be so psychologically
          wedded to their complaints that they would
          consciously or unconsciously avoid the
          appearance of having erred or changed
          position. Indeed, just as there is no
          logical inconsistency between a finding of
          probable cause and an acquittal in a criminal
          proceeding, there is no incompatibility
          between the agency filing a complaint based
          on probable cause and a subsequent decision,
          when all the evidence is in, that there has
          been no violation of the statute. . . .
      The initial charge or determination of
probable cause and the ultimate adjudication
have different bases and purposes. The fact
that the same agency makes them in tandem and
that they relate to the same issues does not
result in a procedural due process violation.
Clearly, if the initial view of the facts
based on the evidence derived from
nonadversarial processes as a practical or
legal matter foreclosed fair and effective
consideration at a subsequent adversary
hearing leading to the ultimate decision, a
substantial due process question would be
raised. But in our view, that is not this
case.
Withrow, 421 U.S. at 57-58 (footnote omitted).18   Any interest

the Director might have in sustaining his own charges is no

different than the board had in Withrow.   Seidman has not shown

bias or a likelihood of bias.19   His due process argument fails.

We therefore turn to the substantive requirements of the statutes

which Bailey and Seidman were charged with violating.     We begin

with the charges against Bailey because their consideration will

18
 . Congress, however, has expressed concern over the exercise
of the power to remove a banker from office and ban him or her
from the industry:

          [T]he power to suspend or remove an officer
          or director of a bank or savings and loan
          association is an extraordinary power, which
          can do great harm to the individual affected
          and to his institution and to the financial
          system as a whole. It must be strictly
          limited and carefully guarded.

               Accordingly, the committee adopted
          language which . . . imposes the further
          requirement that the violation or practice
          must be "one involving personal dishonesty on
          the part of [the] director or officer."

               With this limitation, and with the
          opportunity given to seek judicial review of
          suspension or removal orders . . . the
          committee concluded that the danger of abuse
          of the power has been reduced to the minimum.

S. Rep. No. 1482, 89th Cong., 2d Sess. (1966), reprinted in 1966
U.S.C.C.A.N. 3532, 3539; see also 112 Cong. Rec. 24984 (1966)
(remarks of Rep. Patman concerning possible agency abuse of
"unsafe or unsound practice" provision).
19
 . Seidman contends various OTS officials may be biased against
him, see Brief of Petitioner Seidman at 11 n.12 (explaining
adversarial history with OTS), but he points to no specific facts
tending to show that Director Ryan, the decisionmaker, was
biased.
require us to analyze some of the same concepts that underlie the

more serious charges against Seidman.

                  V.   The Charges Against Bailey

          Section 1818(b)(1) prohibits unsafe and unsound

practices.   OTS argues that Bailey's commitment to the Levine

loan conflicts with Crestmont's policy of prohibiting purchase

money loans on the security of real property in which a Crestmont

officer or director had an interest.    An officer's violation of a

banking institution's policy, however, is not enough to justify a

cease and desist order under section 1818(b)(1).    While the

statute gives the Director considerable discretion, it

nevertheless requires substantial evidence showing that the

violation of policy amounted to an unsafe and unsound practice.

          Section 1818(b)(1) provides:
          If, in the opinion of the appropriate Federal
          Banking Agency . . . any institution-
          affiliated party . . . has engaged . . . in
          an unsafe or unsound practice in conducting
          the business of [a] depository institution,
          . . . the agency may issue and serve upon the
          . . . party a notice of charges in respect
          thereof. . . . [I]f upon the record made at
          . . . [a] hearing, the agency shall find that
          any . . . unsafe or unsound practice
          specified in the notice of charges has been
          established, the agency may issue and serve
          upon . . . the institution-affiliated party
          an order to cease and desist from any such
          . . . practice.

12 U.S.C.A. § 1818(b)(1).20
20
 . Bailey and Seidman are institution-affiliated parties.       See
12 U.S.C.A. § 1813(u)(1) (West 1989).
             Because the statute itself does not define an unsafe or

unsound practice, courts have sought help in the legislative

history.     See, e.g., Northwest Nat'l Bank v. United States, 917
F.2d 1111, 1115 (8th Cir. 1990); Gulf Federal Sav. & Loan Ass'n

v. Federal Home Loan Bank Bd., 651 F.2d 259, 264 (5th Cir. 1981),

cert. denied, 458 U.S. 1121 (1982).    In hearings before Congress

prior to its adoption in the Financial Institutions Supervisory

Act of 1966, Pub. L. No. 89-695 (1966) John Horne, Chairman of

the Federal Home Loan Bank Board ("FLHBB"), OTS's predecessor,

testified:
             Generally speaking, an "unsafe or unsound
             practice" embraces any action, or lack of
             action, which is contrary to generally
             accepted standards of prudent operation, the
             possible consequences of which, if continued,
             would be abnormal risk or loss or damage to
             an institution, its shareholders, or the
             agencies administering the insurance funds.

Financial Institutions Supervisory Act of 1966: Hearings on

S. 3158 and S. 3695 Before the House Committee on Banking and

Currency, 89th Cong., 2d Sess. 49-50 (memorandum submitted by

John Horne) (citations omitted).     Thus, courts have generally

interpreted the phrase "unsafe or unsound practice" as a flexible

concept which gives the administering agency the ability to adapt

to changing business problems and practices in the regulation of

the banking industry.     See Groos Nat'l Bank v. Comptroller of the
Currency, 573 F.2d 889, 897 (5th Cir. 1978) ("The phrase 'unsafe

or unsound banking practice' is widely used in the regulatory

statutes and in case law, and one of the purposes of the banking
acts is clearly to commit the progressive definition and

eradication of such practices to the expertise of the appropriate

regulatory agencies.").

             Among the specific acts that may constitute an unsafe

and unsound practice are "paying excessive dividends,

disregarding a borrower's ability to repay, careless control of

expenses, excessive advertising, and inadequate liquidity."         Gulf

Federal Sav. & Loan Ass'n, 651 F.2d at 264.      In Gulf Federal, the

court had to decide whether a bank's breach of contract was an

unsafe or unsound practice that justified an FHLBB order to cease

and desist.     Id. at 262.   The FHLBB concluded that the bank's

potential liability for breach and possible "loss of public

confidence in the institution" meant the breach was an unsafe and

unsound practice that authorized the agency to order the bank to

perform its contract.     Id. at 264.   The court disagreed and held

that a breach of contract is not an unsafe or unsound practice

that threatens a bank's financial soundness.      Id.   The court

expressly rejected FHLBB's conclusion that liability for breach

and consequent loss of public confidence in the bank's

willingness to honor its commitments give rise to an unsafe or

unsound practice that authorized a cease and desist order.      Id.
It stated:
          Such potential "risks" bear only the most
          remote relationship to [the bank's] financial
          integrity and the government's insurance
          risk. . . . We fail to see how the [FHLBB]
          can safeguard [the bank's] finances by making
          definite and immediate an injury which is, at
          worst, contingent and remote.
                Approving intervention under the
           [FHLBB's] "loss of public confidence"
           rationale would result in open-ended
           supervision. . . . The [FHLBB's] rationale
           would permit it to decide, not that the
           public has lost confidence in [the bank's]
           financial soundness, but that the public may
           lose confidence in the fairness of the
           association's contracts with its customers.
           If the [FHLBB] can act to enforce the
           public's standard of fairness in interpreting
           contracts, the [FHLBB] becomes the monitor of
           every activity of the association in its role
           of proctor for public opinion. This departs
           entirely from the congressional concept of
           acting to preserve the financial integrity of
           its members.

Id. at 264-65 (footnote omitted).

           In Northwest National Bank the court upheld the

Comptroller of the Currency's ("Comptroller's") conclusion that

evidence showing failure to maintain an adequate loan to loss

reserve and inadequate capital, together with deficient loan

administration, established unsafe or unsound banking practices.

Northwest Nat'l Bank, 917 F.2d at 1113-14.   The court agreed with

FHLBB that the bank's failure to maintain adequate reserves and

capital was an unsafe or unsound practice.   Id. at 1115.    The

court defined the phrase "unsafe and unsound banking practices"

in general terms similar to those that appear in the legislative

history:   "Unsafe and unsound banking practices are . . .

'conduct deemed contrary to accepted standards of banking

operations which might result in abnormal risk or loss to a

banking institution or shareholder.'"   Id. (quoting First Nat'l
Bank of Eden v. Department of the Treasury, 568 F.2d 610, 611 n.2
(8th Cir. 1978) (per curiam)).    The court in Northwest National

Bank decided that the poor state of the bank's loan portfolio and

the insufficient level of its capital and reserves permitted an

inference that unsafe lending practices had occurred.     Id.

Accordingly, it upheld the Comptroller's finding that the bank

had engaged in unsafe and unsound banking practices.    Id. at

1115-16; see also First Nat'l Bank of Eden, 568 F.2d at 611

(upholding Comptroller's issuance of cease and desist order for

unsafe and unsound banking practices when record showed

accumulation of unsafe assets, inadequate internal controls and

auditing procedures, lack of credit information on certain bank

investments in violation of federal regulations and payment of

excessive bonuses to bank officers).

          In MCorp Financial, Inc. v. Board of Governors, 900
F.2d 852 (5th Cir. 1990), aff'd in part, rev'd in part on other

grounds, 112 S. Ct. 459 (1991), the Board of Governors of the

Federal Reserve concluded that MCorp's failure to provide capital

to its subsidiary banks was an unsafe or unsound practice and

entered a cease and desist order directing MCorp to transfer

assets to its banking subsidiaries.    MCorp Fin., Inc., 900 F.2d
at 862.   On review, the court of appeals concluded that Congress

had failed to provide a clear definition of "unsafe or unsound

practice."   Id. at 862.   Limited by Chevron U.S.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), but

relying on Gulf Federal Savings & Loan Association, the court

concluded that the Board of Governors' order directing MCorp to

transfer assets to its troubled subsidiaries was itself contrary
to "'generally accepted standard[] of prudent operation.'"      Id.

at 863 (quoting Gulf Federal Sav., 651 F.2d at 254).     "Such a

transfer of funds would require MCorp to disregard its own

corporation's separate status; it would amount to a wasting of

the holding company's assets in violation of its duty to its

shareholders."   Id.

            We think at least one common element of an unsafe or

unsound banking practice relating to the health of the

institution can be deduced from these cases and the legislative

history.    The imprudent act must pose an abnormal risk to the

financial stability of the banking institution.     This is the

standard that the case law and legislative history indicates we

should apply in judging whether an unsafe or unsound practice has

occurred.

            With this in mind, we turn to the specific imprudent

acts OTS charges against Bailey. They are:
          (a) failing to disclose Seidman's interest in
          Fulton Street Associates to the Senior Loan
          Committee . . ., (b) approving the Levine
          Loan without presenting the loan for review
          to Crestmont's Senior Loan Committee . . .,
          and (c) approving the Levine Loan even though
          Bailey knew that Seidman had an interest in
          Fulton Street Associates.

Bailey App. at 20.     Only one of them has any potential for

causing Crestmont loss--Bailey's premature issuance of the

commitment letter.21

21
 . The first two grounds relied upon by the Director--a failure
to disclose Seidman's interest in FSA to the Senior Loan
Committee and Bailey's approval of the loan without submitting it
          When Bailey issued the commitment letter, he made

Crestmont responsible for the Levine loan.    He did this despite

the fact that Seidman had not extricated himself from the FSA

partnership or from the UJB guarantee.    When Levine accepted the

commitment, Crestmont remained ineligible to make the loan.

Thus, Crestmont became responsible for the loan despite the

potential illegal conflict.    We think this act was imprudent.

Although all parties testified that their understanding was that

the loan would not go through absent Seidman's complete

withdrawal, Bailey had nevertheless obligated Crestmont to a loan

it might not be able to make.    Obligating one's institution to

transactions that might be illegal is not in accord with

"generally accepted standards of prudent operation."    See MCorp

Fin., Inc., 900 F.2d at 862.    After Levine accepted the

commitment letter, Crestmont either had to make the loan, breach

the agreement to make it or place the loan with another

institution regardless of Seidman's position.    Although, as it

turned out, Crestmont was able to place the loan without incident

or loss, we recognize that a risk was present when Bailey issued

the commitment.   Obliging an institution to choose between

(..continued)
to the Senior Loan Committee--were not material to Bailey's act
of approving the loan and issuing a commitment letter. The
record establishes that all the members of the Senior Loan
Committee were fully aware of Seidman's interest and had agreed
that the Levine loan was not to be approved until Seidman fully
disassociated himself from FSA. Moreover, reliance on the
omission of Seidman's interest on the Credit Summary form is
misplaced. Undisputed testimony supported Bailey's claim that
the entry on the form referred to an affiliated party's interest
in the borrower. See supra note 5.
covering fluctuations in the interest rate, engaging in an

illegal transaction or breaching a binding agreement is not

prudent.

           Imprudence standing alone, however, is insufficient to

constitute an unsafe or unsound practice.   A cease and desist

order is designed to prevent actions that if repeated would carry

a potential for serious loss.   Although issuance of even this

single commitment exposed Crestmont to some potential risk of

loss, that potential risk did not begin to approach the abnormal

risk involved in Northwest National Bank, where the bank was

exposed to a serious threat to financial stability by its general

failure to monitor its loans adequately and to maintain adequate

reserves and capital.   The potential loss to which Bailey

subjected Crestmont is rather like that present in Gulf Federal.

Contingent, remote harms that could ultimately result in "minor

financial loss[es]" to the institution are insufficient to pose

the danger that warrants cease and desist proceedings.    Gulf Fed.

Sav. & Loan Ass'n, 651 F.2d at 264.   Though it is not

particularly onerous to require a loan officer to satisfy himself

that the institution may legally make a loan before the

commitment is issued, we cannot conclude that the commitment

Bailey authorized posed such an abnormal risk that Crestmont's

financial stability was threatened.

           We hold that Bailey's approval of the Levine loan and

the commitment he issued on behalf of Crestmont in violation of

its policies, while imprudent, did not pose an abnormal risk to

Crestmont's financial stability and therefore was not an unsafe
or unsound practice within the meaning of section 1818(b).

Accordingly, we will grant Bailey's petition for review and

vacate the part of the Director's order pertaining to Bailey.

                  VI.   The Charges Against Seidman

           Courts have recognized that the power to remove a bank

officer is an extraordinary power that should be carefully

exercised in strict accordance with the law.    Cf. Manges v. Camp,

474 F.2d 97, 100-01 (5th Cir. 1973).    Accordingly, we might

expect that the statute under which OTS sought the far more

serious sanction of Seidman's removal from office and his

permanent prohibition from participation in the thrift industry,

12 U.S.C.A. § 1818(e), requires elements additional to those that

justify the lesser sanction of a cease and desist order.     We are

not disappointed.   By requiring a three part conjunctive test in

section 1818(e)(1), Congress has imposed significant additional

conditions before a banker can be deprived of his office and

permanently barred from banking.    Thus, before an agency

regulating a banking institution can impose this ultimate

administrative sanction on any banker, it must show by

substantial evidence that:    (1) the banker has committed an

unlawful act; (2) the act has either an adverse effect on the

regulated institution or its depositors or confers a benefit on

the actor and (3) the act is accompanied by a culpable state of

mind.22   See Oberstar v. FDIC, 987 F.2d 494, 500 (8th Cir. 1993).

22
 .   The full text of section 1818(e)(1) is:
(..continued)
          (1) . . . Whenever the appropriate Federal
          banking agency determines that--

              (A) any institution-affiliated party
              has, directly or indirectly--

                   (i) violated--

                               (I) any law or
                        regulation; . . .

                   (ii) engaged or participated in any
                   unsafe or unsound practice in
                   connection with any insured
                   depository institution or business
                   institution; or

                   (iii) committed or engaged in any
                   act, omission, or practice which
                   constitutes a breach of such
                   party's fiduciary duty;

              (B) by reason of the violation,
              practice, or breach described in any
              clause of subparagraph (A)--

                   (i) such insured depository
                   institution or business institution
                   has suffered or will probably
                   suffer financial loss or other
                   damage;

                   (ii) the interest 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; and

              (C) such violation, practice, or
              breach--

                   (i) involves personal dishonesty on
                   the part of such party; or
The acts come in three varieties.    The effects also divide into

three subclasses, but there are only two kinds of culpable mental

states.    Under section 1818(e)(1), at least one of the prohibited

acts, accompanied by at least one of the three prohibited effects

and at least one of the two specified culpable states of mind,

must be established by substantial evidence on the whole record

before the regulatory agency can properly remove a person from

office and ban him from the banking or thrift industries.       Id.

            The Director concluded five separate charges warranting

the sanction of removal and prohibition were proven against

Seidman:    (1) acting to gain release from the UJB loan; (2)

failing to notify Crestmont's Senior Loan committee of his

interest in FSA and the Boonton project; (3) destroying material

information during the investigation; (4) giving misleading

testimony in a deposition; and (5) instructing a material witness

to withhold evidence.    We will examine the record as to each to

see if the evidence relevant to each meets the statutory

requirements we have just described.

    A.     Seidman's Release From His Guarantee on the UJB Loan
             1.   Did Seidman Violate "Any Law or Regulation"
                  in Seeking the Release?

(..continued)
                      (ii) demonstrates willful or
                      continuing disregard by such party
                      for the safety or soundness of such
                      insured depository institution or
                      business institution.

12 U.S.C.A. § 1818(e)(1) (West 1989).
          On the first charge, we begin with the particular acts

described in section 1818(e)(1)(A).     If Seidman's effort to

secure a release from the UJB guarantee is not among the three

kinds of acts section 1818(e)(1)(A) prohibits, we need not

consider any of the particular effects section 1818(e)(1)(B)

specifies or either of the culpable states of mind section

1818(e)(1)(C) describes because the elements of act, effect and

state of mind are conjunctive.    Oberstar, 987 F.2d at 500.     Each

must be established by substantial evidence before the Director

may issue an order of removal and prohibition under the statute.

          OTS contends Seidman acted in violation of "law or

regulation" under section 1818(e)(1)(A)(i)(I) when he and Risko

took steps to secure Seidman's release from his guaranty of FSA's

indebtedness to UJB.     The ALJ concluded that Seidman violated 12

C.F.R. § 563.43 in securing his release from the UJB guarantee.23

Section 563.43 made it improper for a savings association to

"[m]ake any loan to . . . any third party on the security of real

property purchased from any affiliated person of such

association, unless the property was a single-family dwelling

owned and occupied by the affiliated person as his or her

principal residence."     12 C.F.R. § 563.43(c)(1) (1991) (since

repealed).24   Seidman argues section 563.43(c)(1) does not apply

because it expressly requires consummation of a loan, and

23
 . In his opinion the Director does not expressly find a
violation of section 1818(e)(1)(A)(i)(I) on this ground, but his
acceptance of the ALJ's recommendation implies he did.
24
 .   See supra note 8.
Crestmont never granted any prohibited loan.    We agree with

Seidman.25

             The Director also held, however, that Seidman violated

12 C.F.R. § 571.7, and that violation met section

1818(e)(1)(A)(i)(I)'s requirement of a prohibited act because it

was a violation of a "regulation."    Seidman argues that section

571.7 is a policy statement, not a regulation, and therefore any

violation of it did not meet section 1818(e)(1)(A)(i)(I)'s

requirement.    Section 571.7 is expressly labeled a "Statement of

Policy" and reads, in relevant part:
          [E]ach director, officer, or other affiliated
          person of a savings association has a
          fundamental duty to avoid placing himself or
          herself in a position which creates, or which
          leads to or could lead to, a conflict of
          interest or appearance of a conflict of
          interest. . . .

12 C.F.R. § 571.7(b) (1993).    OTS's predecessor, FHLBB,

consistently drew a distinction between "general statements of

policy" and substantive regulations.     See 12 C.F.R. §§ 508.11,

508.12, 508.14 (1989).26    The enactment of FIRREA does not remove

this distinction because the APA, 5 U.S.C.A. § 553(b)(A) (West

1977), requires more exacting procedures of notice and comment

for the promulgation of rules that have the force of law than it

25
 . Indeed, in his brief and argument on Seidman's petition for
review, the Director appears to place little, if any, reliance on
this regulation.
26
 . After enactment of FIRREA, OTS amended the old FHLBB
regulations. The version applicable to Seidman's case, however,
is the FHLBB version.
does for statements of policy.   A regulated person's failure to

follow the guidance of a policy statement is not sanctionable

under section 1818(e)(1)(A)(i)(I) unless it is also shown that

the failure to follow the policy violated some specific statute,

rule or regulation that has the force of law:
          [C]ourts are in general agreement that
          interpretive rules simply state what the
          administrative agency thinks the statute
          means, and only "remind" affected parties of
          existing duties. In contrast, a substantive
          or legislative rule, pursuant to properly
          delegated authority, has the force of law,
          and creates new law or imposes new rights or
          duties.

Jerri's Ceramic Arts, Inc. v. Consumer Prod. Safety Comm., 874
F.2d 205, 207 (4th Cir. 1989) (citations omitted); see also FLRA

v. Dep't of the Navy, 966 F.2d 747, 762 (3d Cir. 1992) (in banc);

Northwest Nat'l Bank, 917 F.2d at 1117.   The United States Court

of Appeals for the District of Columbia has observed:
          A general statement of policy . . . does not
          establish a binding norm. It is not finally
          determinative of the issues or rights to
          which it is addressed. When the agency
          applies the policy in a particular situation,
          it must be prepared to defend it, and cannot
          claim that the matter is foreclosed by the
          prior policy statement.

Guardian Federal Sav. & Loan Ass'n v. FSLIC, 589 F.2d 658, 666
(D.C. Cir. 1978) (internal quotation and citation omitted).

          FHLBB issued section 571.7 as a caution against the

risk that is added when an affiliated person like Seidman has a

personal stake in a business transaction his savings institution
is considering, a risk inherent in self-dealing.       See generally

First Nat'l Bank v. Smith, 610 F.2d 1258, 1265 (5th Cir. 1980).

The FHLBB first announced section 571.7 in 1968 as a policy

without giving interested persons any opportunity for comment.

See 33 Fed. Reg. 16,382 (1968) (codified at 12 C.F.R. § 571.1).

In 1975, the FHLBB published a request for comment on a number of

conflict of interest proposals that had been adopted on

November 19, 1970.    It included section 571.7.     See 35 Fed. Reg.

12,216, 18,038 (1975).      Nevertheless, section 571.7 continued to

appear in a section of C.F.R. entitled "Statements of Policy."

Accordingly, Seidman argues it is wrong to take away a person's

livelihood under a provision promulgated, codified and described

as a policy statement rather than as a rule or regulation having

the force of law.

          In Northwest National Bank the bank was charged with

violating 12 C.F.R. § 7.3025 (1987).      Northwest Nat'l Bank, 917
F.2d at 1116.    The court concluded that the rule was legislative

in nature because it "clearly purports to create new substantive

requirements."   Id. at 1117.     It considered several factors,

including the text of the rule and the procedure the agency had

used to promulgate it, in deciding whether it was "interpretive"

or "legislative" in nature.      Id. at 1116-17.   The rule's

classification as "interpretive" was an important but not

dispositive factor.   Id.

          The legislative rule the court in Northwest National
Bank considered is materially different from section 571.7, which

imposes no specific substantive requirements.       Moreover,
Northwest National Bank's failure to follow 12 C.F.R. § 7.3025

plainly led to a violation of the statute itself.   Id. at 1116

("The Comptroller found Northwest in violation of [the

regulation] and thereby in violation of 12 U.S.C. § 29.").

          In addition, the text of section 571.7 does not support

OTS's position.   Section 571.7 has not changed since it was first

published as a policy statement.   OTS has since promulgated

regulations with the force of law prohibiting specific conflicts

of interest.   They would be redundant if section 571.7's general

statement independently has the force of law.   See, e.g., 12

C.F.R. §§ 563.40, 563.41, 563.43 (1993).

          Considering the Northwest National Bank factors

together, we hold section 571.1(b), whose text, title and

codification as a policy statement have never changed, is just

that--a policy statement, not a regulation.27   Congress and the

agencies that regulate lending institutions have specifically

prohibited particular acts as conflicts of interest in statutes,

rules and regulations that plainly do have the force of law.28

Congress and the regulators have shown that they know how to

27
 . We need not and do not decide that FIRREA does not give OTS
the authority to expand the duty of loyalty officers of banking
corporations OTS regulates owe their institutions from actual
conflicts of interest to appearances of conflict, but we do hold
that if it wishes to assert such authority its intent to do so
must be more clearly expressed than it is in section 571.7.
28
 . Nothing about policy statements in general nor section
571(b) in particular would indicate to persons who might be
affected by them that violation of the policy against apparent
conflicts could subject them to an order banning them from the
trade or profession they work in.
define specific conduct that gives rise to an illegal conflict of

interest.    We think the sweeping language of section 571.7(b)

indicates it is no more than a statement of policy that a

director of a banking institution, like Seidman, should use as a

guide for personal conduct, not a rule whose violation triggers

the severe penalty section 1818(e) imposes.    Accordingly, we

reject the Director's conclusion that section 571.7(b)'s

"Statement of Policy" is a "regulation or law" within the meaning

of section 1818(e)(1)(A)(i)(I).

            2.   Did Seidman Engage in an Unsafe or Unsound
                 Practice by Seeking the Release?

            Because Seidman did not act in violation of a law or

regulation as required by section 1818(e)(1)(A)(i)(I) when he

sought the release, we next consider whether by doing so he

engaged in an unsafe or unsound practice under section

1818(e)(1)(A)(ii).    The Director summarily concluded that

Seidman's conduct in seeking a release from the UJB guarantee

without informing the Board or the Senior Loan Committee of his

interest in FSA, the second charge against him, constituted an

unsafe or unsound practice.    OTS urges us to affirm this holding.

            As stated previously,
            an "unsafe or unsound practice" embraces any
            action, or lack of action, which is contrary
            to generally accepted standards of prudent
            operation, the possible consequences of
            which, if continued, would be abnormal risk
            of loss or damage to an institution, its
            shareholders, or the agencies administering
            the insurance funds.
MCorp Fin., Inc., 900 F.2d at 862 (quotation omitted).    An unsafe

or unsound practice has two components:    (1) an imprudent act (2)

that places an abnormal risk of financial loss or damage on a

banking institution.   See supra Part V.   OTS contends that

Seidman's conduct in seeking a release from his UJB guarantee and

failing to inform the Board or the Senior Loan Committee of his

interest meets these requirements.

          OTS and the Director equate the imprudence component of

an unsafe or unsound practice with a breach of the fiduciary duty

of due care, once called the "prudent man rule" and now more

often described as the "business judgment" rule.    See Revised

Model Business Corporation Act ("RMBCA") § 8.30 comment (1992).

In its brief, OTS asserts "[t]he prudent operation of Crestmont

certainly requires that its directors and officers comply with

OTS regulations concerning conflicts of interest as well as

Crestmont's own policy governing conflicts."    Appellee Brief at

31.29

          While the same act may be both an unsafe or unsound

practice under section 1818(e)(1)(A)(ii) and a breach of a

fiduciary duty under section 1818(e)(1)(A)(iii), we hesitate to

make one a proxy for the other.30    If OTS seeks to prove a

29
 . OTS also relies on Hoffman v. FDIC, 912 F.2d 1172 (9th Cir.
1990), but that case dealt with self-dealing, a breach of the
fiduciary duty of loyalty, not the fiduciary duty of care.
30
 . Congress obviously thought the concepts were distinct enough
to require separate specification in section 1818(e)(1)(A).
Here, we need not consider the details of any overlap between
acts that are unsafe or unsound practices and those that are
breaches of fiduciary duty because we apply different tests to
determine which category applies to any particular act. It is
violation of section 1818(e)(1)(A)(ii), it must satisfy the

definition of an unsafe or unsound practice.   Conversely, if OTS

wishes to prove a violation of section 1818(e)(1)(A)(iii), it

must do so under the standards that define a fiduciary's duty.

Our present inquiry is only whether the first charge against

Seidman concerning his successful efforts to obtain a release

from his guarantee of FSA's obligations to UJB was an unsafe and

unsound practice.   So considered, we conclude Seidman's attempt

to secure a release was not an unsafe and unsound banking

practice with respect to Crestmont.   OTS not only placed Seidman

in the position of selecting between his business life and his

banking life but also compelled him to deprive Crestmont of

potentially desirable loans.   OTS told Seidman he had to

relinquish his outside interests and disengage himself from the

obligations he had incurred while a partner in FSA and then, when

he did so, charged him with an unsafe and unsound practice.

Seidman's successful effort to secure a release from his

guarantee was potentially beneficial to Crestmont by giving it an

added source of desirable loans.   The record does not support a

conclusion that Seidman's attempts to extricate himself from the

UJB guarantee were contrary to accepted banking practices for

persons acting on behalf of Crestmont.

(..continued)
important, however, in deciding cases and in imposing sanctions
to separately compare the act under consideration with all the
elements of each category. The Director's failure to do so is a
source of many of the problems and much of the confusion in this
case.
          Even if we were to conclude that Seidman behaved

imprudently in seeking the release, OTS would still have to show

that his actions created an abnormal risk of financial loss for

Crestmont.   See supra Part V.   Unable to identify any specific

harm to Crestmont, OTS argues, "if directors are free to make

choices for the institutions they control based on the personal

benefit that would result from their choice there would be an

inherent risk that the interests of the depositors and the

institution would take a back seat to the personal interest of

the director."    Appellee App. at 31.   OTS again fails to

recognize any distinction between the separate requirements of

section 1818(e).    Its argument conflates the act of engaging in

an unsafe practice with the prohibited effect of personal gain.

Compare 12 U.S.C.A. § 1818(e)(1)(A)(ii) with id.

§ 1818(e)(1)(B)(iii).    This record does not show that Seidman's

attempt to obtain relief from his guarantee and free Crestmont

from OTS's prohibition against end-user financing on FSA's

Boonton development created an abnormal risk of loss or damage to

Crestmont.   We therefore turn to section 1818(e)(1)(A)(iii).

             3.   Did Seidman Violate Any Fiduciary Duty

                        In Seeking the Release?

          In a final attempt to demonstrate that Seidman's

release from the UJB guarantee was an "act" under section

1818(e)(1)(A) and therefore one of the three elements needed to

justify a removal and prohibition order, OTS argues that the

Director correctly concluded that Seidman's efforts to secure his
release constituted self-dealing and violated his fiduciary duty

of loyalty to Crestmont under section 1818(e)(1)(A)(iii).31   As a

member of the board and an officer of Crestmont, Seidman did owe

a duty of loyalty to Crestmont.   Section 8.42 of the RMBCA

states:
               (a) An officer with discretionary
          authority shall discharge his duties under
          that authority:

                    (1)   in good faith;

                    (2) with the care an ordinarily
               prudent person in a like position would
               exercise under similar circumstances;
               and

                    (3) in a manner he reasonably
               believes to be in the best interests of
               the corporation.

RMBCA § 8.42 (1992).   Common law also imposes on a director a

duty of loyalty to the corporation served.   See Fleishacker v.

Blum, 109 F.2d 543, 547 (9th Cir.), cert. denied, 311 U.S. 665

(1940).   The duty of loyalty includes a duty to avoid conflicts

of interest.   See Pepper v. Litton, 308 U.S. 295, 306, 310-11

(1939).

           In In re Bush, OTS AP 91-16, 1991 OTS DD LEXIS 2
(April 18, 1991), the Director discussed both a director's duty

31
 . The Director also concluded that Seidman breached his duty
of candor when he failed to inform the Senior Loan Committee or
the Crestmont Board of his interest in FSA before the Levine loan
commitment. This argument is addressed infra at Part VI.B. The
Director did not conclude either of these acts violated Seidman's
fiduciary duty of care, only the duty of loyalty.
of loyalty and the initial inquiry of whether a director has a

conflicting interest in a transaction:
               A fundamental component of the fiduciary
          duties of directors in every jurisdiction,
          however, is that directors owe a duty of
          loyalty to the institution they serve. This
          duty prohibits directors from engaging in
          transactions that involve conflicts of
          interest with the institution. . . .

                    *   *   *

               The threshold inquiry in assessing
          whether a director violated his duty of
          loyalty is whether the director has a
          conflicting interest in the transaction.
          Directors are considered to be "interested"
          if they either "appear on both sides of a
          transaction []or expect to derive any
          personal financial benefit from it in the
          sense of self-dealing, as opposed to a
          benefit which devolves upon the corporation
          or all stockholders generally."

In re Bush, OTS AP 91-16 at 11, 15-16, 1991 OTS DD LEXIS at *18,

*21 (footnote and citations omitted).    The RMBCA defines a

director's conflicting interest transaction as "a transaction

effected or proposed to be effected by the corporation . . .
respecting which a director of the corporation has a conflicting

interest."   RMBCA § 8.60(2) (1992).    Perhaps because this

definition tautologically defines the defined in terms of itself,

the Commissioners, in commentary, observed that "[t]o constitute

a director's conflicting interest transaction, there must first

be a transaction by the corporation, its subsidiary, or

controlled entity in which the director has a financial

interest."   RMBCA § 8.6 comment 2(1) (emphasis added).
            As Seidman points out, Crestmont never granted any loan

secured by property whose sale could reduce Seidman's obligation

on his guarantee or UJB's exposure on its loan to FSA, nor did

Seidman ever promise anyone that Crestmont would make such loans

in exchange for his release.   OTS clearly suspected that Seidman

promised UJB Crestmont's favorable consideration for end-user

loans on FSA properties in return for UJB's release.   Suspicion

is not enough, however, and OTS's suspicion that Seidman had

promised he would use his position at Crestmont to insure end-

user financing on the FSA project is not supported by substantial

evidence.   Risko's letter does not show any such quid pro quo in

either of its versions.   Indeed, if we accept the Director's

finding that Seidman prepared the original draft, the version of

the evidence most favorable to OTS, it appears that Risko took

pains to make it clear to UJB that no quid pro quo was promised

in the version Risko finally sent to UJB without any objection

from Seidman.   The evidence on this record is just as consistent

with a finding that UJB released Seidman because Crestmont was a

good prospect for the end-user financing it needed to reduce its

own exposure on a worrisome project as it is with the conclusion

that UJB granted the release in exchange for Seidman's unlawful

promise to use his influence to obtain Crestmont's approval of

loans that would reduce its exposure on FSA's Boonton project and

to favor end-user loans on the Levine property or any other

property in the Boonton project.32

32
 . Additional evidence which supports a conclusion that UJB's
recognition that Crestmont could not lawfully supply end-user
           OTS's position puts Seidman in a "Catch-22."   If he

remained liable on his guarantee to UJB, Crestmont would be

unable to consider potentially profitable end-user loans on the

Boonton project; but when Seidman acted to secure a release from

the guarantee, he subjected himself to removal from Crestmont's

Board.   The only way Seidman could avoid the conflict of interest

that OTS saw in his relation to FSA was to extricate himself from

the FSA partnership and all the entanglements it entailed,

including the guarantee.   This record shows that this is what he

did.   Moreover, when we consider the whole record, as we must, we

see substantial evidence that Seidman did not act as he did to

benefit himself at Crestmont's expense, but rather because he

wished to eliminate outside interests that could have a potential

for conflict with Crestmont's interests.33   Corporate law imposes

(..continued)
loans on the Boonton project unless UJB released Seidman's
guarantee motivated its approval of the release. It shows that
the release was good business for UJB, Seidman and Crestmont
because it increased the pool of potential lenders in a tight
market and gave Crestmont an opportunity to acquire good loans on
their merits.
33
 . The situation would be entirely different if OTS had shown
that Seidman had committed Crestmont to underwrite risky loans in
exchange for his personal release, but there is no evidence that
the Levine loan or any other end-user financing Crestmont
considered was more risky than any other loan Crestmont might
grant, nor is there evidence that Seidman promised to look
favorably on any Boonton loan. Until OTS decided loans could not
be made on property developed with loans which a thrift director
has guaranteed, Seidman was seeking only to withdraw from FSA as
a partner against a promise of indemnity from the partner who was
acquiring Seidman's interest. This record shows Seidman was
trying to meet OTS regulations rather than trying secretly to
seek a release from his own potential liability at Crestmont's
expense.
a duty of loyalty not because the conflict appears improper to a

third party but to "'prevent[] a conflict of opposing interest in

the minds of fiduciaries, whose duty it is to act solely for the

benefit of their beneficiaries."     FSLIC v. Molinaro, 889 F.2d
899, 904 (9th Cir. 1989) (quoting Restatement of Restitution

§ 197 comment c (1937)) (emphasis added).    This record shows

Seidman acted to avoid that conflict, not because of it.

          We do not think every appearance of wrongdoing

justifies the sanction of removal and prohibition.     Rather, we

believe such a drastic sanction should require some evidence of

actual misconduct or evidence from which a reasonable person

acquainted with the facts could conclude there was misconduct.

Here, Crestmont never made any loan to an end-user on the FSA

project, and Seidman told Bailey to stop considering any loans in

which Seidman had an interest before OTS began its investigation.

Seidman did so as soon as he realized he could not persuade OTS

that his guarantee did not matter.    Seidman's earlier attempts to

persuade OTS to the contrary were not improper.     Viewed as a

whole, we think this record contains substantial evidence that

Seidman acted to further the interests of Crestmont, not just his

own, when he attempted to obtain a release from his guarantee,

and therefore his actions did not constitute a breach of the

fiduciary duty of loyalty contained in section

1818(e)(1)(A)(iii).

          In summary, we hold Seidman's conduct in seeking a

release from the UJB guarantee did not violate any "law or

regulation" under section 1818(e)(1)(A)(i)(I) or constitute an
"unsafe or unsound" practice under section 1818(e)(1)(A)(ii) or a

breach of fiduciary duty under section 1818(e)(1)(A)(iii).   To

the extent the Director relied on Seidman's conduct of seeking a

release from his guarantee of FSA's indebtedness to UJB to

support the order of removal and prohibition, the Director erred.

          B.   Seidman's Failure to Remind Crestmont's Board
               or Senior Loan Committee of His Interest in FSA

          Next, we consider whether the Director erred in

concluding that Seidman's failure to remind Crestmont's Board or

Senior Loan Committee of his interest in FSA constitutes an act

under section 1818(e)(1)(A) that could support an order of

removal and prohibition.   The record shows Seidman had already

made his interest in the Boonton project known through disclosure

on the conflict forms he filed with Crestmont.   The Director,

however, thought Seidman had to bring his interest in FSA to the

specific attention of Crestmont's Board or Senior Loan Committee

before it began processing the proposed loan to Levine.    Neither

OTS nor the Director points to any general regulation or

Crestmont policy that imposes any duty on Seidman more specific

than his general duty to disclose his interest in FSA to

Crestmont.34   OTS does not cite any law or regulation requiring

34
 . A fiduciary's duty of candor is encompassed within the duty
of loyalty. The duty of candor requires "corporate fiduciaries
[to] 'disclose all material information relevant to corporate
decisions from which they may derive a personal benefit.'" In re
Bush, OTS AP 91-16 at 19, 1991 OTS DD LEXIS at 19 (quoting Mills
Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1280 (Del.
1989)).
Seidman to remind the Board or Senior Loan Committee of what he

had already disclosed to them, nor does OTS argue Seidman's

failure to repeat his disclosure constitutes an unsafe or unsound

practice.   Even if the Director were technically correct in

finding that Seidman breached a fiduciary duty of candor when he

failed specifically to remind the Senior Loan Committee of his

interest in FSA each time the Levine loan came before the

Committee, that breach would not be material because the record

plainly shows that all three of the members of the Senior Loan

Committee, Bailey, Seidman and arguably McClellan,35 were fully

aware of Seidman's interest in FSA.36   Therefore, the Director

erred when he decided Seidman breached his fiduciary duty of

candor in not specifically reminding the Board or the Senior Loan

35
 . Before the ALJ, McClellan testified that as President of
Crestmont he would review conflict of interest disclosure forms
filed by relevant Crestmont personnel. It is further undisputed
that Seidman had disclosed his FSA interest on the most recent
two conflict of interest forms filed prior to the Levine loan.
Thus, McClellan had imputed knowledge of Seidman's interest in
FSA.
36
 . There is another reason why a renewed specific disclosure to
the Senior Loan Committee was not material to Crestmont's
decision to grant or deny the Levine loan. Crestmont's internal
regulations do not require the Senior Loan Committee to review
applications for loans of less than $500,000 unless they are for
loans to "affiliated parties." The Levine application did not
exceed $500,000, and the evidence on this record indicates that
Crestmont would not have granted the loan if Seidman had not
completed his withdrawal from FSA. Crestmont's President
McClellan testified that it was the understanding in other
similar situations that Seidman would withdraw his interest
before Crestmont made any loans. See Bailey App. at 191. While
Bailey should not have issued a commitment letter before Seidman
completed his formal withdrawal from FSA, there is no evidence
showing that Seidman anticipated Bailey's premature action.
Committee about his interest in FSA, and this second charge

cannot be grounds for a removal and prohibition order under

section 1818(e)(1)(A)(iii).

     C.   Seidman's Attempt to Hinder the OTS Investigation

          Finally, we must consider whether Seidman's actions

during the pendency of the OTS investigation support removal and

prohibition.   The Director found Seidman lied in his deposition

of September 13, 1991, destroyed material evidence and encouraged

Risko to testify falsely about events surrounding the draft of

Risko's letter to UJB. The Director stated:
               The OTS has a right to accurate and
          reliable information in the course of its
          examinations and investigations. Seidman's
          lack of integrity, evidenced by his
          misleading testimony, his attempts to destroy
          evidence and his attempts to solicit false
          and misleading testimony, poses as a natural
          consequence an abnormal risk of loss or
          damage to the institution, the very essence
          of an unsafe or unsound practice. The
          Director concludes that Seidman committed an
          unsafe and unsound practice by these attempts
          to obstruct the OTS investigation.

                . . .

                Seidman benefitted from his efforts by
          depriving the OTS of reliable and material
          evidence, thwarting the OTS enforcement
          action and hampering the prompt resolution of
          the self-dealing charges. Seidman
          demonstrated personal dishonesty by giving
          misleading testimony and omitting material
          facts during an OTS investigation and
          examination; destroying evidence; and
          soliciting another witness to give false
          testimony and destroy material evidence.
Seidman App. at 119-20.   While the Director did not directly

relate his conclusions to the statutory requirements, it is clear

he concluded that Seidman's conduct during the investigation

constituted an unsafe or unsound practice under section

1818(e)(1)(A)(ii)37 and that Seidman satisfied the effect

component of section 1818(e)(1)(B)(iii) by receiving a personal

benefit.

           We agree with the Director that hindering an OTS

investigation is an unsafe or unsound practice as that term has

come to be used in the banking industry.   Section 1818(e)(1)(A)

can be satisfied by evidence showing the conduct with which an

affiliated person like Seidman is charged falls within section

1818(e)(1)(A)(ii)'s proscription of unsafe or unsound practices

because it "is contrary to generally accepted standards of

prudent operation" and "the possible consequences of [the act],

if continued, would be abnormal risk or loss or damage to . . .

the agenc[y] administering the insurance fund[]."   Gulf Federal

Sav. & Loan Ass'n, 651 F.2d at 264 (quotation omitted); see also

supra Part V.   We believe an attempt to obstruct an OTS

investigation is such an act.   OTS is statutorily charged with

preserving the financial integrity of the thrift system.      See 12
U.S.C.A. § 1462(a) (West Supp. 1994); id. § 1463(a).     To meet

that responsibility, OTS has the power to investigate.     See 12

C.F.R. § 509.16 (1993).   Where a party attempts to induce another

37
 . The Director also concluded that Seidman's conduct violated
a law or regulation under section 1818(e)(1)(A)(i)(I). We do not
question that conclusion.
to withhold material information from the agency, the agency

becomes unable to fulfill its regulatory function.   Such

behavior, if continued, strikes at the heart of the regulatory

function.   Seidman's attempt to obstruct the investigation, if

continued, would pose an abnormal risk of damage to OTS.

Accordingly, we hold that an attempt to hinder an OTS

investigation constitutes an "unsafe or unsound practice," thus

satisfying the act requirement of section 1818(e)(1)(A).38

38
 . We believe that Seidman's act of soliciting false testimony
was an attempt on Seidman's part to hinder the OTS investigation.
We also believe his attempt to destroy material evidence could be
viewed as hindering an OTS investigation, although, in this
respect, the Director failed to state his reasons for
disregarding the ALJ's credibility finding that Seidman acted
without intent to hinder the investigation. See infra note 37.
In addition, we note our disagreement with the Director's
conclusion that Seidman gave deposition testimony that was
"intentionally misleading as to material facts concerning
Seidman's knowledge of the letter's contents and omitted material
facts concerning the drafting of the letter." Seidman App. at 119
(footnote omitted). The transcript of Seidman's deposition
reveals that the OTS investigator never directly questioned
Seidman about the draft of the letter OTS charged him with
concealing. Instead, the investigator asked only whether Risko
and he had discussed OTS's investigation of the circumstances
surrounding Seidman's release from the UJB guarantee. Seidman
truthfully admitted that he had discussed the topic with Risko
"two or three times." Seidman App. at 46. The investigator
failed to ask Seidman about the initial draft of Risko's letter
in support of the release, who had prepared the letter or what it
meant, even though OTS not only knew about the early draft but
had secretly obtained a copy of it.

    Likewise, we do not think Seidman's failure to volunteer
information about the draft of the Risko letter can, in and of
itself, show an intent necessary to satisfy the culpable states
of mind section 1818(e)(1)(C) requires. To satisfy section
1818(e)(1)(C) it must be shown that Seidman's act was either
personally dishonest or in willful disregard of the safety of
Crestmont. See 12 U.S.C.A. § 1818(e)(1)(C). OTS never directly
asked Seidman the questions it now charges him with evading. A
deponent's failure to volunteer information that the deponent
           Our conclusion that Seidman's attempts to obstruct the

OTS investigation constitute a prohibited act does not end our

section 1818(e) inquiry.   The act must still have a prohibited

effect with a culpable intent before the severe sanction of a

removal and prohibition order may issue.   See Oberstar, 987 F.2d

at 502.   Section 1818(e)(1)(C)'s culpability element of personal

dishonesty is shown by the undisputed evidence that Seidman asked

Risko to forget about the draft of the letter to UJB.39   The

requirements of section 1818(e)(1)(B) remain.

(..continued)
might wish to conceal but is not directly asked about does not
show an intent to deceive. Accordingly, we believe Seidman's
deposition testimony is, by itself, insufficient to show either
of the states of mind section 1818(e)(1)(C) requires. Cf.
Bronston v. United States, 409 U.S. 352, 362 (1973) ("Precise
questioning is imperative as a predicate for the offense of
perjury. It may well be that petitioner's answers were not
guileless but were instead shrewdly calculated to evade.
Nevertheless, . . . any special problems arising from the
literally true but unresponsive answer are to be remedied through
the 'questioner's acuity' and not by a federal perjury
prosecution.").
39
 . We note, however, that the Director's determination that
Seidman intentionally destroyed the draft letter to thwart the
investigation may not be adequately supported. The Director
gives no reason for his decision to disregard the ALJ's finding
that Seidman's testimony that he acted in anger and frustration
without intent to destroy material evidence was credible.
Seidman admits that he ripped up the initial draft of Risko's
letter to UJB but says he acted in the heat of passion without an
intent to conceal any improper conduct. The ALJ who heard
Seidman made a specific finding that this testimony was credible.
See Seidman App. at 49 ("The finding of fact is . . . while
Seidman destroyed the documents intentionally, it was done in a
fit of anger and not for the purpose of destroying material and
relevant evidence."). The Director, without explanation,
reversed this finding and concluded instead that Seidman's act of
tearing up the draft was still another basis for the order of
removal and prohibition.
            The Director concluded that section 1818(e)(1)(B)'s

requirement of an untoward or prohibited effect was satisfied

because Seidman had benefitted from the release of his guarantee

of FSA's loan to UJB.   We conclude, however, that none of

Seidman's attempts to obstruct the OTS investigation resulted in

any benefit to Seidman, the sole basis the Director relied on to

satisfy section 1818(e)(1)(B)'s condition of an untoward or

prohibited effect.   The Director made no other finding concerning

any effect of Seidman's conduct that could satisfy section

1818(e)(1)(B) other than his conclusion that "Seidman benefitted

from his [attempt to obstruct the OTS investigation] by depriving

OTS of reliable and material evidence, thwarting OTS enforcement

action and hampering the prompt resolution of the self-dealing

charges."   Seidman App. at 120.   Section 1818(e)(1)(B)(iii)

proscribes an act from which the actor "has received financial

gain or other benefit by reason of such violation, practice, or

breach . . . ."    12 U.S.C.A. § 1818(e)(1)(B)(iii) (emphasis

added).

            Seidman's attempt to solicit false testimony from Risko

was rebuffed; therefore, Seidman received no benefit from his

request that Risko forget about the draft letter. Similarly,
(..continued)
    The Director's finding, contrary to the finding of the ALJ,
that Seidman acted with one of the culpable states of mind the
statute specifies when he attempted to destroy evidence of the
draft is not explained in the record now before us. We recognize
that the Director owes no deference to the findings of an ALJ,
see supra, typescript at 28-29, but if he rejects an ALJ's
finding on a witness's credibility we think it would be better
practice for him to state his reasons for disregarding it. See
Citizens State Bank v. FDIC, 718 F.2d 1440, 1444 (9th Cir. 1983).
Seidman's destruction of a draft letter that OTS already

possessed and his unwillingness to volunteer information in his

deposition failed to thwart the OTS investigation.

           Subsection (iii) requires a person who has committed an

act that supports removal under section 1818(e)(1)(A) to have

received an actual benefit from the act.   In that respect, it is

unmistakenly different from 12 U.S.C.A. § 1818(e)(1)(B)(ii),

which uses the subjunctive "could be prejudiced" to describe a

potential effect on the depositors as one of the untoward results

that are a necessary condition of an order removing an affiliated

person like Seidman from his office and banning him from banking

forever.   Section 1818(e)(1)(B)(iii)'s text is clear as to mode

and tense, and we are bound by its text unless the result of

following the text would be demonstrably at odds with Congress's

intent.    See, e.g., Griffin v. Oceanic Contractors, Inc., 458
U.S. 564, 571 (1982); Dutton v. Wolpoff and Abamson, 5 F.3d 649,

654 (3d Cir. 1993).   The statute does not permit removal and

prohibition for acts which fail to confer a benefit on the actor.

It requires a benefit that has been received.    An unsuccessful

attempt to secure a benefit is not one of the effects that can

support removal and prohibition under section 1818(e)(1).

Seidman has not received any actual benefit from his alleged

attempts to obstruct the OTS investigation.    Therefore, we hold

that the Director erred in concluding that section 1818(e)(1)(B)

had been satisfied.

           It therefore follows that the Director's order removing

Seidman from office and banning him for life from the banking
business was "unwarranted in law."   See Butz v. Glover Livestock

Comm'n Co., 411 U.S. 182, 185-86 (1973); Oberstar, 987 F.2d at

503.   Accordingly, we will grant Seidman's petition for review

and vacate the Director's order as it pertains to him.   This is

not to say, however, that we approve of Seidman's conduct during

the course of the OTS investigation.   We conclude only that OTS

may not, on this record, impose the draconian sanction of removal

and prohibition under section 1818(e) because all the conditions

that statute imposes on that ultimate penalty have not been met.

However, we believe, for the reasons discussed supra, that

Seidman's attempts to obstruct the OTS investigation into his

dealings with FSA and UJB, particularly his act of counseling

Risko to withhold potentially material facts, do constitute an

unsafe or unsound practice and so could support a cease and

desist order and monetary penalties as authorized by section

1818(b)(1).   While the notice of charges did not specifically

request a cease and desist order with respect to Seidman's

obstructionist conduct, it did ask for "[a]ny other relief deemed

appropriate by the Director of OTS."   Seidman App. at 20.   Thus,

we will remand so that the Director may consider whether a cease

and desist order with accompanying civil penalties is appropriate

in this instance.40

40
 . We believe the notice provisions of section 1818(b)(1) have
been satisfied. Seidman was put on notice of the facts alleged
to constitute an unsafe or unsound practice by the notice of
charges issued pursuant to section 1818(e)(4). Compare 12
U.S.C.A. § 1818(b)(1) and 12 U.S.C.A. § 1818(e)(4).
             VII.     The Preliminary Suspension Order

          Because we conclude we must vacate that part of the

Director's order removing Seidman from his office at Crestmont

and banning him from the banking industry, we find it unnecessary

to address Seidman's argument that the district court erred in

dismissing his action to enjoin enforcement of the OTS

preliminary suspension.    Though we will remand for the Director

to consider whether a cease and desist order should be entered

against Seidman pursuant to 12 U.S.C.A. § 1818(b), that section

of the governing statute, unlike section 1818(e), does not

authorize entry of a preliminary suspension order.       See 12

U.S.C.A. § 1818(b) and (e).    We will therefore vacate the

Director's order suspending Seidman from his office at Crestmont

and from participating in Crestmont's business activities.

                            VIII.   Summary

          In sum, we will grant Seidman's petition for review of

that part of the Director's order removing Seidman as a director

of Crestmont and prohibiting him from participating in the

banking industry and reverse that particular part of the order

because the Director's conclusion that Seidman's attempts to

obstruct OTS's investigation conferred a benefit upon him is not

supported by substantial evidence on this record and is erroneous

as a matter of law.    Nevertheless, because of the nature of

Seidman's attempt to obstruct OTS and our conclusion that this

attempt does constitute an unsafe or unsound practice, we will

remand Seidman's case to the Director for him to consider whether
Seidman should on this record be subjected to the lesser sanction

of a cease and desist order along with any monetary penalties

that may be properly imposed.     Because section 1818(b), unlike

section 1818(e), does not authorize Seidman's removal from office

and his prohibition from banking, we will also vacate the

preliminary suspension order that the Director entered pursuant

to section 1818(e)(3).41

                           IX.   Conclusion

          For these reasons, we will grant Bailey's petition for

review and reverse that part of the Director's order commanding

him to cease and desist.    We will also grant Seidman's petition

for review of that portion of the Director's order removing him

from his position as director and chairman of the board of

Crestmont, reverse it and remand Seidman's case to the Director

41
 . Because we will vacate the Director's temporary suspension
order, Seidman's challenge to the district court's order
declining jurisdiction at our Docket No. 92-5392 is moot. This
resolution also renders Seidman's and Bailey's challenge to the
propriety of the remand to determine civil penalties moot.
Seidman and Bailey both argued the Director's remand to the ALJ
for further findings concerning the assessment of civil penalties
unfairly gave OTS a second chance to make out its case. While
this issue is now moot, we nevertheless note that the applicable
regulations expressly authorize the Director to remand the
"action or any aspect thereof" to the ALJ. 12 C.F.R.
§ 509.40(c)(2) (1993). In the cases now before us, the Director
determined that the agency incorrectly assigned the burden of
production on the assessment and mitigation of penalties to
Seidman and Bailey. Exercising his regulatory authority to
remand, the Director therefore sent the penalty issues back to
the ALJ. Other courts have permitted similar remands when
questions about the burden of production and proof were present.
See, e.g., Dazzio v. FDIC, 970 F.2d 71, 75 (5th Cir. 1992);
Merritt v. United States, 960 F.2d 15, 18 (2d Cir. 1992).
for further proceedings consistent with this opinion.   Finally,

we will vacate that part of the Director's order temporarily

suspending Seidman from his office at Crestmont and from

participating in Crestmont's business activities.
IN THE MATTER OF SEIDMAN AND BAILEY

Nos. 92-3722 and 92-3729

SEIDMAN V. OFFICE OF THRIFT SUPERVISION

No. 92-5392

STAPLETON, J., Dissenting:

          I agree that we have jurisdiction to review the cease

and desist order against Bailey and the removal and prohibition

order against Seidman.   Unlike my colleagues, I would deny both

petitions for review.    As the Director noted at the beginning of

his opinion, "[u]se of institutions by insiders for their own

benefit has been one of the greatest threats to the safe and

sound operation of savings associations and has exposed the

Federal deposit insurance funds to significant risks."   App. 94.

Fortunately, the risk created by the conduct of Seidman and

Bailey in this matter did not result in actual loss to their

savings association or to the Federal deposit insurance funds.

That fortuity, however, does not mandate that we overturn the

orders before us.

          The Director found that Seidman had engaged in

undisclosed negotiations with UJB to secure release of a

substantial personal obligation by representing to UJB

Crestmont's willingness to make end-user loans to financially

qualified purchasers of a UJB debtor and had later obstructed the

OTS's investigation of the matter.    The Director concluded that

the self-dealing and the obstructive conduct provided independent

bases for a removal and prohibition order.   With respect to
Bailey, the Director concluded that he had engaged in an unsafe

and unsound banking practice by causing a commitment to be made

on a loan to a partnership in which Seidman had a financial

interest without disclosing the transaction to the Board of

Directors or the Senior Loan Committee.   I will examine each

charge in turn.

                                I.

           The ALJ and the Director found that Seidman had

arranged with Poole & Co. to pursue a request by him that UJB

release him from his $4.45 million personal guarantee.   They

further found that Seidman drafted a letter for Risko to send on

his behalf, along with a brief letter of his own asking for the

release, pointing out that Seidman was the CEO of Crestmont, that

Crestmont was entertaining requests for $1.7 million from

prospective purchasers of property from Fulton Street Associates

("FSA"), a developer financed by UJB, and that Seidman's personal

guarantee created a conflict of interest problem which would

foreclose Crestmont from acting favorably on those requests.

Seidman was also found to have approved an addition to his draft

representing that "Crestmont would be willing to consider future

financing [of such purchasers], assuming qualified buyers."     App.

41.   The letter was dispatched on May 31, 1991.

           That the intended message was heard and understood is

evidenced by the internal documents generated by UJB in response

to Seidman's request.   The memo that went to UJB's Real Estate

Asset Management Committee stated:
                UJB has been approached by Lawrence B.
           Seidman, principal and guarantor of Fulton
           Street, requesting the release of his
           personal guaranty. Mr. Seidman is Chairman
           of the Board of Crestmont Federal Savings and
           Loan, the institution providing end loan
           takeouts of our warehouse loan. Mr. Seidman
           has conflict of interest in approving these
           takeouts while serving as UJB's guarantor and
           the project's principal. Crestmont is
           currently reviewing $1.7MM in end loan
           financing requests in an illiquid market. In
           order to reduce our exposure in the project,
           it becomes necessary to release Mr. Seidman.
           The only other alternative would be to
           provide the end loan financing ourselves at
           roughly twice the dollar UJB already has out
           to Borrowers . . . .

                Although Mr. Seidman shows a net worth
           of $1.4MM, his liquidity is only $116M. In
           addition, he has recently contributed equity
           to the project, further depleting his
           liquidity. He does generate an income of
           $225M p.a. as CEO of Crestmont; however, he
           can be more valuable to the repayment of our
           loan as a source of end loan financing.

App. 42.   UJB's Executive Vice President Eberhardt initialed this

memorandum and added:   "Agree.   End loan financing has been

critical to recent sales success."

           Eberhardt testified that there was not a broad market

for financing industrial condominium projects and that Crestmont

was one of the few institutions willing to provide financing to

potential purchasers of FSA's industrial condominiums at the

Boonton site.   The other members of the Committee agreed with

Eberhardt's views and Seidman was notified on June 7, 1991, that

UJB would release his guarantee.
          Seidman did not advise Crestmont's Board of Directors

or its President that he was seeking a release of his guarantee

or that in pursuing a release he was trading on Crestmont's

ability to provide end loan financing.

          On June 1, 1991, an OTS examiner conducting an

examination at Crestmont saw the first page of the draft letter

sent in Risko's name to UJB.   OTS immediately commenced a formal

investigation and Seidman's deposition was taken.    When

questioned concerning the source of the arguments set forth in

the letter favoring a grant of the release, Seidman gave the

following testimony:
               Q. Did you discuss with Mr. Risko what
          he would write?

               A. I won't say we discussed it.      I saw
          the letter, but --

               Q. Did you see the letter before he
          sent it to Mr. Eberhardt?

               A. He thinks he sent it to me the day
          he sent it, and my secretary called him and
          told him I said it was okay, but I don't
          recall seeing it, but I may have.

               Q.   Okay.

               A.   I wasn't really -- I'm sorry,

               Q. Did you discuss with him what
          position you would take with UJB to seek
          release from your personal guarantee?

               A.   No.

               Q. How did he know? Was it typical for
          him to write letters of this nature without
          discussing it with you?
     A. He knew the details backwards,
forward and upside down. He knew the deal
much better than I did./ He was intimately
involved in this transaction. I was the
outside guy. I mean I was just the financial
guy in this deal. I knew almost nothing
about this transaction. He knew the tenants
better than I did. He stayed on it much
better than I did.

                     * * *

     Q. Did you ask Mr. Risko -- I am sorry.
Let me show you OTS No. 7, which is a letter
from James Risko to Robert Eberhardt, dated
May 31, 1991 and ask you if you recall seeing
that letter.

     A. Yes. This is the letter that I
referred to before that Mr. Risko thinks he
sent me the day he sent it to Mr. Eberhardt.

     Q. Okay. And that is the letter where
you thought your secretary said you had read
it and that you didn't have any problems with
it?

     A.   Right.

     Q.   Do you recall reviewing that letter?

     A.   No.

     Q. Okay. Now, how did Mr. Risko come
up with those reasons? Did you ever discuss
with him, first of all, the fact that, and
why don't you give me the letter for a
second.

     Did you discuss with him the fact that
your position as Chairman of Crestmont
Federal Savings & Loan may make the financing
of certain condo purchasers impossible if you
were also a partner in Fulton Street?

     A.   No.

     Q. Okay. Did you discuss with Mr.
Risko the fact that the inability to finance
the end users, does not serve the United
          Jersey Bank's position or that of the
          developer?

               A. Mr. Risko and I had a discussion two
          or three times. We had that discussion, like
          I said before. Even Bob Eberhardt, who
          stated either Bob or George Rinneman or
          Stackhouse, that if there were any end users
          that they felt to be qualified, that they
          should send them to UJB, and most likely UJB
          would make a considerate effort to do those
          end loan financing.

               So, I mean that was discussed at one of
          the meetings. I don't know if Mr. Risko was
          in that part of the conversation or not.

App. 44-46.

          As I have noted, the ALJ and the Director found, with

ample record support, that Seidman was the author of all but the

concluding sentence of the Risko letter and that he had approved

the addition of that sentence.   While acknowledging that Seidman

had not been asked direct questions in his deposition about the

authorship of the letter, both the ALJ and the Director found the

above quoted testimony to be "intentionally misleading" with

respect to the source of the message conveyed in the Risko

letter.

          During the remainder of the investigation, Seidman was

found to have (1) asked Risko and another principal of Poole &

Co. to destroy relevant documents, (2) requested Risko to make

false statements and avoid full disclosure and (3) personally

destroyed material evidence in a fit of rage.

          It is apparent to me from the text of the statute that

Congress intended courts to defer the agency's determination of
what constitutes an "unsafe and unsound practice".42   As my

colleagues acknowledge, Seidman's efforts to obstruct the

investigation of the regulating agency undeniably constituted an

"unsafe and unsound practice."43   Since I cannot say the Director

was arbitrary or capricious in similarly characterizing Seidman's

secret negotiations with UJB, I would sustain the conclusion of

the Director that Seidman's conduct satisfied § 1818(e)(1)(A) in

two different ways.

          The legislative history of the

                         Act provides

                         the following

                         general insight

                         into what

                         Congress meant

                         by an "unsafe

                         and unsound"

                         practice:

42
 . As the court noted in Groos Nat'l Bank v. Comptroller of
Currency, 573 F.2d 889, 897 (5th Cir. 1978):

          [t]he phrase "unsafe or unsound banking
          practice" is widely used in the regulatory
          statutes and in case law, and one of the
          purposes of the banking acts is clearly to
          commit the progressive definition and
          eradication of such practices to the
          expertise of the appropriate regulatory
          agencies.
43
 . My colleagues do not acknowledge that Seidman's deposition
testimony constituted "an unsafe and unsound practice" apparently
because they do not find it materially misleading. As I explain
hereafter in applying § 1818(c)(1)(B), I disagree.
          [A]n "unsafe or unsound practice" embraces
          any action, or lack of action, which is
          contrary to generally accepted standards of
          prudent operation, the possible consequences
          of which, if continued, would be abnormal
          risk of loss or damage to an institution, its
          shareholders, or the agencies administering
          the insurance funds.

MCorp Fin., Inc. v. Bd. of Governors, 900 F.2d 852, 863 (5th Cir.
1990) (quoting from 112 Cong.Rec. 26474 (1966)), aff'd in part,

rev'd in part on other grounds, Board of Governors v. MCorp Fin.,

Inc., 502 U.S. 32 (1991).   I do not disagree with my colleagues

that the required "abnormal risk of loss or damages" refers to

something more serious than the consequences of a breach of

contract in the regular course of the bank's business.    On the

other hand, it seems clear from the above-quoted legislative

history that the relevant "risk" is not that occasioned by the

specific conduct engaged in in this particular case, but rather

the risk that would be occasioned if similar conduct were

"continued" as a way of doing business.

          The record reflects that the market for end-user loans
for industrial condominiums was thin.   It further reflects that

Boonton project had experienced financial difficulties, that few

commercial lenders were willing to undertake end user financing

for that project, and the UJB, Boonton's principal debt financer,

was concerned about getting its money back.     Crestmont had loan

applications for a substantial amount of end user financing from

prospective purchasers of Boonton properties.    It had not

previously engaged in such financing and it was faced with a
decision on whether it was in the bank's best interest to extend

credit under these circumstances.   Seidman's was a very

influential voice in Crestmont's decision making process on such

matters.

           It was against this background that Seidman approached

UJB seeking release of his guarantee without informing his fellow

officers and directors.   To secure that release, he drafted,

approved, and caused to be dispatched, the Risko letter.     It was

clearly not unreasonable for the ALJ and the Board to understand

this as a successful effort by Seidman to use the bank's ability

to provide Boonton financing in order to secure a personal

benefit.   To be sure, Seidman testified that his letter was

motivated by his desire to put Crestmont in a position to make

loans he thought were desirable from its point of view and

neither the ALJ nor the Director made a finding that this

subjective motivation did not exist.   It thus may be that

Crestmont, as well as Seidman, under other circumstances might

have benefitted from the release of Seidman's guarantee.     But

Seidman's reliance on his motivation ignores the fact that he

failed to disclose his release and the representation he made as

to Crestmont's willingness to provide end user financing to

purchasers of Boonton property who were financially qualified.

           While it is true that Seidman made no legally binding

commitment on behalf of Crestmont in the course of seeking the

release of his $4.5 million guarantee, it was not arbitrary and

capricious for the Director to recognize that communications like

Seidman's Risko letter and responsive actions like those of UJB
would have a significant potential for affecting decision making

at the bank, a potential that was greatly increased by Seidman's

failure to disclose his activities.    It is not unrealistic, it

seems to me, to believe that the judgment of someone in Seidman's

position on whether to undertake Boonton end-user financing would

be influenced, if not altogether controlled, by his release.

Nor, I believe, is it unrealistic, given Seidman's failure either

to reveal the release transaction to his co-fiduciaries or to

disqualify himself from participating in discussions of Boonton's

financing, for the Director to perceive an abnormal risk that the

bank's decision making process regarding that financing would be

substantially skewed.

          In short, I do not think the Director acted arbitrarily

or capriciously in concluding that a continuing practice of

undisclosed trading on the chief executive's corporate influence

for personal benefit would hold an abnormal risk of loss or

damage to the bank.

          Turning to Section 1818(e)(1)(B), I would sustain the

Director's conclusions once again.    While Seidman contends

otherwise, the Director was clearly justified in concluding that

Seidman benefitted from the release of his $4.5 million

guarantee.   I believe he was also entitled to find that Seidman

benefitted from his obstructive tactics during the investigation.

While I agree that, fortuitously, Seidman did not benefit from

his efforts to suborn perjury and destroy evidence, this leaves

his materially misleading deposition testimony.    In the words of

the Director, "Seidman benefitted from his efforts by depriving
the OTS of reliable and material evidence, thwarting the OTS

enforcement action and hampering the prompt resolution of the

self-dealing charges."   App. 120.

          I do not agree with my colleagues' apparent position

that misleading testimony before an investigating regulatory

agency cannot constitute an "unsafe and unsound practice" unless

it is perjurious.   Accordingly, I have no difficulty with the

failure of the examiners to ask more specific questions.      Nor

can I agree with my colleagues that Seidman's testimony was not

materially misleading.   As I read the transcript, Seidman did not

acknowledge that he was the source of the strategy reflected in

the Risko letter and, indeed, purposefully led the examiner to

believe he was not.   At the time of the deposition, the agency

did not know that Seidman was the author of that strategy and

that fact was clearly material to an investigation into whether

Seidman had secretly traded on his influence at the bank to

secure a release of his personal guarantee.

          Finally, I turn to § 1818(e)(1)(C).   Based on my

reading of the Seidman deposition, the ALJ and the Director were

justified in concluding that Seidman's conduct involved "personal

dishonesty" within the meaning of subsection (i).   I also believe

they were justified in finding that Seidman's undisclosed

negotiations with UJB demonstrated a "willful . . . disregard for

the safety and soundness" of the bank within the meaning of

subsection (ii).

          "Willful" is a word that has different meaning in

different contexts, and the courts have not yet defined it in the
context of subsection (ii).    Whatever the precise definition may

turn out to be, however, I am satisfied that the "willful

disregard" requirement of subsection (ii) is met in this case.

The undisclosed negotiations with UJB found by the Director to be

an unsafe and unsound practice were intentional and deliberate.

That Seidman has a subjective appreciation of the wrongfulness of

his conduct and of the risk conduct of that kind poses for a bank

can reasonably be inferred from the fact that he tried to cover

up his conduct when the investigation commenced.

                                II.

            Mr. Bailey's case is a more sympathetic one, but it

seems relatively clear to me that the Director did not abuse his

discretion in issuing a cease and desist order directing that

Bailey's conduct with respect to the Levine loan application not

be repeated.

            Steven Levine applied to Crestmont in December of 1990

for end-user financing for the purchase of a commercial

condominium at the Boonton project.    The Boonton Project was

owned by FSA, a partnership in which Bailey knew Seidman was a

general partner.

            A mortgage commitment on the Levine application was

issued by Crestmont on March 19, 1991, and modified on April 12,

1991.   For some reason, Levine and FSA did not consummate the

purchase at that time, and the commitment was not timely

accepted.   Negotiations continued, however, and a contract for

the purchase, for the price of $466,680, was entered into on May
10, 1991.    A superseding commitment letter was issued by

Crestmont on May 19, 1991, through Bailey, committing to a loan

of $375,000.    The purchaser accepted the commitment letter after

its expiration date, with delivery of a deposit check for $2,000,

which was deposited by Crestmont.

            Under Crestmont's internal operating rules, any loan

transaction in which an officer or director of Crestmont had an

interest had to be submitted to the Senior Loan Committee for

approval.    Bailey, Seidman, and Crestmont's then president, Mr.

McClellan constituted the Senior Loan Committee.    The bank's

commitments to the Levine financing were made without the

approval of the Senior Loan Committee.    Neither Mr. McClellan nor

anyone else on Crestmont's Board of Directors were informed

before these commitments were made that Levine wished financing

for a purchase of property from a partnership in which Seidman

had a financial interest.44

            Bailey asked Seidman and his partners on three

occasions about the fact that Seidman had an interest in the

transaction Levine wished to finance.    On each occasion, he was

advised that Seidman was "getting out" of FSA and it was Bailey's

understanding that Levine wouldn't actually be given any money

44
 . It is true, as my colleagues stress, that Seidman had
disclosed his interest in FSA on the conflict of interest forms
he had filed with the bank prior to the approval of the Levine
financing and that McClellan testified he reviewed those forms
from time to time. But the ALJ and the Director concluded, with
record support, that because of Bailey's failure to submit the
Levine application to the Senior Loan Committee, McClellan was
not exposed to any communication alerting him to the fact that
Levine's application related to a purchase from FSA.
unless and until Seidman was "out."   As I have noted, Seidman did

not get all the way "out" until UJB released his $4.45 million

guarantee at some point after June 7, 1991.   Indeed, when the

commitments were made, Seidman and his partners were attempting

to renegotiate FSA's financing with UJB and Seidman's

participation was understood by all to be necessary to reaching

an agreement with UJB on a reorganization.    Agreement was reached

on May 20, 1991, and it was on that day that Seidman signed his

guarantee.   Thus, at the time of each of the three bank

commitments made to Levine with Bailey's approval, Seidman had an

interest in the transaction Levine intended to finance.

          Bailey's understanding that Levine would get no money

until Seidman was "out" of FSA does not mean the Director erred

in finding an "unsafe and unsound practice" and issuing a cease

and desist order.   Conflicts of interest are important because of

the potential they hold for undermining an institution's decision

making process.   Here Seidman and Bailey made the decisions to

commit the bank to Levine when Seidman had a conflicting interest

and when Seidman's and Bailey's judgments were susceptible to

being influenced by that conflicting interest.    That is the

crucial fact that makes Bailey's conduct an "unsafe and unsound

practice" in the Director's eyes.   Seidman and Bailey obviously

had no plans to submit Levine's loan application to the Senior

Loan Committee or anyone else before the financing was issued.

For better or for worse, if events had transpired as Seidman and

Bailey anticipated in the Spring of 1991 they would, the bank

would have made a substantial loan based on the judgment of
Seidman and Bailey exercised when Seidman's personal fortunes

were very much still tied to those of FSA.

          Crestmont's loan policy prohibited loans being approved

in the manner Seidman and Bailey approved the Levine financing

precisely because a continuing practice of approving loans in

that manner would pose an abnormal risk to the financial

stability of the bank.   I am unwilling to fault the Director for

reaching the same conclusion Crestmont's management did when it

established its rules.

                               III.

          I would deny the petitions of Seidman and Bailey for

review.