Banker vindicated after '80s charges again battling with U.S. regulators.

Controversial Michigan banker Stanford C. Stoddard is battling with regulators again, a decade after he was forced out as chairman of Michigan National Corp. and successfully defended himself against allegations of misappropriating funds.

Directors of the Federal Deposit Insurance Corp. have rejected an application for deposit insurance by a stan-up bank of which Mr. Stoddard is a principal organizer.

Bank of Michigan's application for deposit insurance was denied on grounds that Mr. Stoddard, who is putting up about $2.6 million, "poses potential risk to the deposit insurance fund" and "has demonstrated undesirable banking practices in his former position."

The FDIC, which rejects only three or four applications a year, made the decision on June 21, about eight months after Michigan's banking commissioner approved the start-up's charter, and seven months after an FDIC examiner gave Bank of Michigan's earnings prospects a "favorable" rating, according to agency documents.

"It's prejudice," said Mr. Stoddard, who is slated to become chairman and chief executive of the bank. "This is not a random occurrence. To turn down a bank... because of one person, is really prejudicial. I find it abhorrent that they think this bank will be rubber stamped."

Mr. Stoddard said he has appealed the agency's decision and is confident the bank will win deposit insurance.

"They just have to have some confidence in who these principals are and what the facts are behind it," Mr. Stoddard said in a telephone interview. "If they look at one director it is highly prejudiced."

Mr. Stoddard proposes to raise about $8 million in capital and place the Bank of Michigan in Bloomfield Township, about 30 miles north of Detroit in a county that is the nation's sixth-wealthiest. The bank would expand quickly, opening as many as a dozen automated teller machines.

The three FDIC board members who considered the matter either declined to comment or couldn't be reached because they were out of town. Nonetheless, it is clear from the order that it is Mr. Stoddard whom the FDIC board doesn't have confidence in, even though it didn't specifically name him,

In the stinging two-page document, acting FDIC Chairman Andrew "Skip" Hove, acting Office of Thrift Supervision Director Jonathan Fiechter, and Comptroller of the Currency Eugene Ludwig, said "the factors relating to general character and fitness of management and risk to the deposit insurance fund have been resolved as unfavorable."

"The primary organizer, who would also serve as chairman of the board and chief executive officer, has demonstrated undesirable banking practices in his former position as chief executive officer of a multi-billion-dollar banking organization," the FDR's order said. "These practices involved the commingling of personal business with banking business and the charging of personal expenses through the bank's expense records with the explanation that personal funds were later used to repay the bank."

"The practice of commingling personal and business expenses is in and of itself objectionable and considered to be of such a nature as to preclude the individual's approval as a management official of another financial entity," the order continued. "The failure of the proposed official to recognize that such a practice is inappropriate for management of an insured depository institution reflects adversely on the individual's judgment ,and ability to serve as a management official and poses potential risk to the deposit insurance fund."

Mr. Stoddard said he has done nothing out of the ordinary with personal and business expenses.

"Never in my 30 years was I ever criticized for being a risk to depositors," he said. "I am not going to apologize for my career with Michigan National."

Linda D. Bernard, a bank organizer, who is executive director of Wayne County Neighbor-hood Legal Services, was "shocked" by the decision. "There is absolutely no reason to think a depositor's deposits would be at risk;' she said. "It [the decision]0 certainly won't withstand judicial scrutiny."

Ms. Bernard said she believes in Mr. Stoddard despite past controversies. "I think his character is exceptional," she said. "He's always been a maverick. That is what this is all about."

This isn't the first time the 63-year-old Mr. Stoddard has duked it out with federal regulators. After he was forced out in 1984 from the Farmington Hills, Mich., company founded by his father, Howard, he fought Michigan National, the Office of the Comptroller of the Currency, and the Federal Reserve in court.

The Comptroller's office sued Mr. Stoddard alleging he used $150,000 in company funds to defray wedding expenses for his son and daughter as well as to pay for improvements on his winter and summer homes.

And the U.S. Attorney's office in Detroit indicted Mr. Stoddard on criminal fraud charges stemming from allegations that he leased a building he co-owned to the banking company at higher than normal rates. The fraud charges carried a maximum sentence of three years in prison. Mr. Stoddard said he had nothing to do with the leasing arrangement.

Mr. Stoddard beat all of his adversaries. In March 1993, a Michigan judge ruled that Michigan National would have to reimburse Mr. Stoddard for legal expenses. Two months later, the company agreed to pay him $4 million to settle a handful of slander and defamation lawsuits.

Mr. Stoddard said the FDIC's assessment of Bank of Michigan's application is not only prejudicial, but it smacks of retribution. "Every court decision in the world has somebody who loses," he said. "I'm sorry for the Federal Reserve, but that is the way it is."

Mr. Stoddard said letters of recommendation were sent to the FDIC on his behalf, one written by former President Ford.

"The fact that they threw them in the wastebasket galls me," he said. "There would be no greater injustice than to deny deposit insurance to Bank of Michigan."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER