Interamericas Investments, Ltd. v. Board of Governors of the Federal Reserve System

• Citation: 111 F.3d 376
• Decision Date: 16 April 1997
• Docket Number: No. 96-60326,96-60326
• Parties: INTERAMERICAS INVESTMENTS, LTD. and Peter Ulrich, Petitioners, v. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 376

111 F.3d 376

INTERAMERICAS INVESTMENTS, LTD. and Peter Ulrich, Petitioners, v. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Respondent.

No. 96-60326.

United States Court of Appeals, Fifth Circuit.

April 16, 1997.

Phillip A. Wittmann, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, LA, Rhonda R. Chandler, Timothy M. McCloskey, Chandler & McCloskey, Houston, TX, for Petitioners.

Douglas Bradford Jordan, William W. Wiles, Katherine Holbrook Wheatley, Stephen Horace Meyer, Federal Reserve System, Board of Governors, Washington, DC, for Respondent.

On Petition for Review from the Board of Governors of the Federal Reserve System.

Before HIGGINBOTHAM, DAVIS and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

The starting point for this challenge to petitioners being found in violation of the Bank Holding Company Act, 12 U.S.C. § 1841 et seq., is whether the bases for that decision, such as prohibited control of a United States bank, constitute continuing violations within the five year limitations period of the applicable statute of limitations, 28 U.S.C. § 2462. The Board of Governors of the Federal Reserve System (the Board) imposed a cease and desist order and civil penalties of $1 million and $10,000 against Interamericas Investments, Ltd., and Peter Ulrich, respectively. We DENY the petition.

I.

The Board concurred in the extremely detailed and extensive findings of the Administrative Law Judge that, through a series of surreptitious transactions, Interamericas Investments, Ltd. (IAI), a Cayman Islands corporation largely owned by Mexican nationals, acquired and retained control of the National Bank of Conroe (NBC), of Conroe, Texas. Such conduct clashed with the Bank Holding Company Act (BHCA), which requires, inter alia, prior approval by the Board for "any action to be taken that causes any company to become a bank holding company". 12 U.S.C. § 1842(a)(1).

A company becomes a bank holding company when it acquires "control" of a bank, defined as: owning, controlling, or having the "power to vote 25 per centum or more of any class of voting securities of the bank"; or "control[ling] in any manner the election of a majority of the directors or trustees of the bank"; or exercising a direct or indirect "controlling influence over the management or policies of the bank". 12 U.S.C. § 1841(a)(2). In addition, a bank holding company is prohibited, with certain exceptions, from acquiring or retaining "direct or indirect ownership or control of any voting shares of any company which is not a bank". 12 U.S.C. § 1843(a). For violation of the Act, civil money penalties and cease and desist orders may issue. 12 U.S.C. §§ 1847(b)(1), 1818(b)(3).

Peter Ulrich, a Mexican national, moved to Conroe in 1982, and, on behalf of others still residing in Mexico, began dealing with United States banks. Disappointed with the service he was receiving from them, Ulrich met with his longtime acquaintance Helmut Eindorf and with Mack Barnhill; the latter introduced Ulrich and Eindorf to Robert Rice, a lawyer in Conroe. Rice, according to Barnhill, was experienced in organizing offshore corporations. The four men decided prior to early 1985 to acquire an existing bank, or create a new one, in the United States, to serve themselves and others in Mexico. Rice informed Ulrich that such an undertaking would be difficult because the Board would not approve foreign investor control of a United States bank.

Ulrich, Rice, and Eindorf then set about finding Mexican national investors for the bank, promising anonymity of investment. The investment goal was speedy acquisition of a United States bank, as well as the use of that bank to launch other business ventures in the United States.

For purposes of acquiring such control, IAI was formed in March 1985 as a Cayman Islands corporation, with two classes of stock. The Class A shares held all voting rights, and were eventually issued to Enrique Pimienta, a Mexican accountant responsible for recruiting many of the Mexican investors.

Also in early 1985, the group began to pursue the purchase of NBC, which had $10 to $11 million in deposits. During these negotiations, Ulrich made clear again that he was not interested in merely investing in NBC.

Rice, with Ulrich's assistance, completed the agreement for acquisition of NBC, with Rice acting on behalf of IAI, the entity truly acquiring NBC. In order to fund the acquisition, but retain the anonymity of the Mexican investors, Conroe residents (United States nationals) were recruited to hold the NBC shares on behalf of IAI. The funding for these nominee resident investors was to come from a Houston bank, Langham Creek.

Langham Creek, however, did not have the financial resources for the acquisition. As a result, Ulrich and Pimienta raised all of the necessary funds, then placed them, in the form of certificates of deposit (CD's), with Langham Creek. These CD's served to collateralize fully Langham Creek loans to the Conroe investors. Rice offered Langham Creek not only this full collateralization, but also the promise that the loans would be repaid within the first year of their issuance, before any principal or interest payments came due.

Rice then told the Conroe investors that their notes would be purchased from them by Mexican investors within the first year, but did not tell them that the notes were collateralized by the latters' CD's. As a result of this structuring, none of the Conroe investors paid for their NBC shares, with the exception of Rice and four others.

Through the Conroe investors, approximately $43 million was funneled for the purchase of NBC. Rice, however, acquired the right to vote the shares of each of the Conroe investors through a ten year irrevocable voting trust agreement which allowed him to control NBC.

In May 1985, Rice submitted a Loan Commitment Letter and a Notice of Change in Bank Control to the Office of the Comptroller of the Currency (OCC). The notice listed the acquiring parties as Rice, Barnhill, and the other Conroe investors; did not list the Mexican nationals; and did not disclose that IAI and the foreign investors provided the CD's for the Langham Creek notes, or that IAI would be the majority owner of NBC. For NBC's board, the notice proposed two holdover directors, two holdover managers, and Rice and four Conroe investors, giving Rice and the four investors majority control of NBC.

The OCC in June 1985 advised that it was not disapproving the change in control of NBC. The acquisition closed in July, at which point Rice and the Conroe investors became owners of approximately 80 percent of the shares in NBC. Rice elected a new board of directors, making himself chairman.

After the closing, Ulrich, Eindorf and Pimienta began depositing the Mexican funds in NBC. Most of the accounts opened by Ulrich named IAI as the depositor, in order to preserve the anonymity of the actual investors, and now depositors, in NBC. In addition, NBC began making "back to back" loans for Mexican nationals (loans secured by a CD at NBC), although those loans were often hidden through IAI, or an unrelated party, again in order to maintain the anonymity of the Mexican nationals.

Rice also formed a one bank holding company, Sun Belt Bancshares, which would own the NBC shares purchased by the Conroe investors. Twice in 1985, Rice submitted applications to the Federal Reserve Board at Dallas, Texas (FRB-Dallas), seeking approval of Sun Belt as a bank holding company (BHC), under the BHCA, 12 U.S.C. § 1842(a)(1). Both were returned: the first, for being substantially incomplete; the second, which did not mention any relation between Sun Belt and IAI, NBC, or even Rice, for failing to meet the FRB-Dallas' equity structure requirements.

That November, Rice again applied to the FRB-Dallas, using an exchange of two NBC shares for one of Sun Belt. Among other things, the application stated that it represented the exchange that would occur between Rice and the Conroe investors, and that there would be a new voting trust agreement through which Rice would vote the Conroe investors' Sun Belt shares. The application did not mention IAI, Ulrich, or Pimienta as principals of Sun Belt, even though the application was required to list all principals. It also did not disclose that IAI's CD acted as full collateral for Rice's Langham Creek loan, and that that loan was non-recourse, even though the application required the applicant to disclose all indebtedness and collateral retained in connection with the acquisition of the shares of the bank. Finally, the application did not disclose that Sun Belt would issue 95 percent of the equity to IAI in non-voting shares, even though the application required full disclosure of any plans to raise capital, long term debt, or capital notes.

The BHC was approved in December 1985. The approval letter stated that the Federal Reserve System was relying on the representations and commitments of the applicant, and that Rice should notify the FRB-Dallas of any significant adverse deviations from the application, in that they could bring about action under the BHCA.

After BHC status was approved, Ulrich and Eindorf, acting as "trustee and ministerial agents" for IAI, agreed with Langham Creek to purchase from it the loans and accompanying collateral of Rice and the other Conroe investors. Ulrich and another IAI official also gave gifts of about three percent of the non-voting shares of Sun Belt to those Conroe investors.

Later that December, Rice amended Sun Belt's articles of incorporation, creating two classes of shares. The class A shares had all voting rights (despite the fact that the BHC application made no mention of non-voting stock). After Sun Belt took over the control of NBC, the Conroe investors executed a new voting trust agreement which gave Rice all power to vote Sun Belt shares, similar to the earlier agreement for the NBC shares.

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