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Purdy banker takes on FDIC regulators

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by Karen E. Culp

SBJ Staff

For Glen Garrett, the battle with Federal Deposit Insurance Corporation regulators will not end until he knows he's done what his father would have wanted him to do.

For more than six years, Glen Garrett, chief executive officer and president of the board of directors of First State Bank of Purdy, has been involved with the FDIC over allegations that he is in violation of its regulations.

The proceedings could end any time Garrett agrees to pay a $25,000 civil money penalty assessed against him by the bank regulatory agency. Garrett says he's done nothing wrong, and that his father "wouldn't be too happy if I

said I did something I didn't."

The case is now focused on six loans the FDIC alleges are "straw party" or "nominee," made for the benefit of Garrett, began back in 1991. The case has been in hearings since 1996.

Garrett's attorney, Stephens B. Woodrough, who is himself formerly an FDIC regional counsel, said the Sept. 27, 1991, examination by the FDIC was the result of an anonymous letter written in February of 1991. That letter is now a part of public record in the case.

In March of 1991, the Missouri Division of Finance examined First State Bank of Purdy and found no evidence of any wrongdoing, Woodrough said. Just a few months later, in September 1991, Tom Griffin, then the examiner in charge for the FDIC, began the FDIC examination.

Phil Battey, spokesman for the FDIC, said that the examinations are routine, and that this examination was one of the periodic examinations conducted on banks subject to FDIC regulation.

"In this case, we started with a routine examination. The examinations are periodic, occurring about once a year, and are standard," Battey said.

Woodrough said that it is unusual for the FDIC to re-examine a bank after the state has fully examined it. And while the examination was not unexpected and is part of normal proceedings, Woodrough said he believes that the examiners had received information in the anonymous letter which led to their suspecting that something was wrong at the Purdy bank.

First State Bank of Purdy was in 1991 a three-facility bank, with branches at Monett and Pierce City. When the examination commenced, the FDIC was concerned with the construction of a new bank building in Monett. That bank would ultimately become the headquarters for the First Bank of Purdy.

When Garrett set out to get his bank a permanent, larger building, he fired up his own bulldozers, gathered his own crew and got to work.

"When I say he built the building, I mean he did it physically, himself,"

Woodrough said.

The problems arose because Garrett built the new building with no competitive bids or written contracts, and he served as the general contractor.

"He just believed he could save the bank some money by doing the work himself, and he knows how to do this type of work. Admittedly, however, there should have been some better documentation than what there was," Woodrough said.

At that time, there was an effort to prove that Garrett had padded his own bank accounts during the building process,

Woodrough said. It took until 1994 to disprove any wrongdoing. The bank ultimately hired an independent appraisal firm to appraise the facility and estimate what the cost would have been to build it in 1991. They found that Garrett had actually saved the bank more than $300,000,

Woodrough said.

The FDIC then raised the issue of the six loans. Those loans were made from First State Bank of Purdy to John Garrett, Glen's son; Garrett's foreman on his farm; and a longtime business associate and friend. One loan made to the foreman and the two loans made to John Garrett were part of a cattle deal the men were in together.

"I sold my son and a hired hand that has worked for me for 20 years some cattle, and they got a loan to pay me back what they owed me," Garrett said.

"What is clear here is that Mr. Garrett was using those loans for his benefit. And in doing that, he violated the trust the bank had placed in him, the trust the board had given him and the trust the customers of the bank had given him," said the FDIC's Battey.

Three of the six loans were made to an old friend and business partner of Garrett's. In that situation, as with Garrett's son and foreman, the individual applied for and received the loan on his own, and then used the money to pay Garrett what he owed him as part of a business venture between the two.

The aggregate of those six loans totaled $137,000 spread over an 18-month period. All of the loans have since been paid in full by the borrowers, Woodrough said.

"The FDIC spent a lot of time second-level tracing during the 1991 examination, looking for where this money went after the loans were made. They were looking for a motive that Glen needed the money and was getting others to make 'straw party' or 'nominee' loans," Woodrough said.

Garrett "had some obligations coming due, but there's nothing wrong with the way the whole thing proceeded. The individuals simply paid Garrett what they owed him so that Garrett could use that money to pay what he owed," Woodrough said.

Ultimately, the FDIC would say that the six loans were subject to Regulation O, a regulation governing loan-making which is to prevent insider or preferential loans. It places a ceiling on the amount of any given loan and requires that the loan be subject to the prior review and approval of the board of directors.

The loans were subject to the regulation because of "other unfavorable features," Woodrough said.

"Other unfavorable features is a catch-all phrase in Regulation O. There are two characteristics of the unfavorable features: they have to exist at the time the loan is made, and they have to exacerbate the risk of nonpayment of the loan," Woodrough said.

The unfavorable feature in this case was that Garrett did not tell the board of directors that the money from those loans was being transferred to him by the borrowers in order to repay obligations the borrowers owed Garrett, Woodrough said.

In 1995, Garrett was notified of six charges based solely on those loans. The loans are in violation of Regulation O "in that the extensions of credit presented the unfavorable features of being made on the basis of inaccurate of misleading information as to, among other things, the actual use of bank funds for respondent's personal benefit and the true nature and purpose of the extensions of credit," according to the notice of assessed civil money penalty from the FDIC.

Garrett was assessed a civil money penalty in the amount of $25,000, which "he could pay at any time and end these proceedings," Battey said.

Between July and December 1994, the FDIC and Garrett were in extensive settlement discussions; there were no charges filed at that time. The parties reached a settlement agreement, which was approved in the FDIC's regional Kansas City office, but disapproved once it reached the top policy-maker in the FDIC's Division of Supervision in Washington, D.C., Woodrough said.

On Sept. 5, 1995, a notice of charges was filed, and an amended notice followed in April of 1996. That amended notice contains the charges the current proceedings are based on.

Garrett contested and continues to oppose the charges. Since then, the hearings have been ongoing, off and on at various times. They are going on now at the council chambers in Springfield. The parties involved have had to move from courtroom to courtroom as space became available and was then lost to other proceedings.

The administrative law judge hearing the case now is Arthur Shipe. No concluding hearing for the case has been set.

Garrett owns 100 percent of the stock in Purdy Bancshares, which is the holding company for the First State Bank of Purdy. The bank continues to grow and expand; it will soon place a branch bank in the Wal-Mart Supercenter being built in Monett. In addition to the locations in Monett, Pierce City and Purdy, the bank has a location in Cassville, established in 1996.

Garrett's flame is somewhat diminished by the proceedings, but he continues to fight the $25,000 penalty from which it has cost him more than $1 million to try to defend himself.

"I am not a liar, and I am not a cheat. I've still got light to shave my face by in the morning, and I'll keep fighting this until I have proven that I did no wrong. I keep thinking about what my father would think of me if I said I did something I didn't. ... That means more to me than the money," Garrett said.

Garrett admits it will be a long time before he can repay the money he's spent to go up against the FDIC, but that it is worth it.

Woodrough said he has always questioned the legitimacy of the proceedings.

"At the end of the day, the question I keep asking is 'what legitimate regulatory purpose is served by the FDIC in this case?' There is no legitimate regulatory purpose served here; what lesson that was to be taught has been taught. This case is about a man defending his personal reputation and integrity. Throughout it all there has been not a penny of loss to the bank, and there has been no threat to the Federal Deposit Insurance Fund. I challenge the FDIC to point to a single legitimate regulatory purpose being served by these proceedings,"

Woodrough said.

Battey said the FDIC "stands in the place of depositors" in ensuring that banking practices are fair. He said in this case, the proceedings are about banking regulations, not about "the big regulators beating up on the little banker."


Glen Garrett

has been fighting this battle for more than

six years.


The case now concerns six loans totaling an aggregate of $137,000.[[In-content Ad]]


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