The Federal Reserve Board socked a Cayman Islands company and its chairman with more than $1 million in fines for creating a bank holding company without permission.
The Fed ruled Monday that Interamericas Investment Ltd. effectively controlled National Bank of Conroe, Tex., even though it never applied for permission to become a bank holding company.
The Fed said the company engaged in a complicated scheme to avoid regulatory oversight. The plan began in 1985 when Interamericas chairman Peter Ulrich raised funds from Mexican nationals to acquire National Bank of Conroe. (The bank has since been bought by Woodforest National Bancshares, Houston.)
According to the Fed order, Mr. Ulrich used money from the Mexican investors to fund 90-day certificates of deposit at another local bank. This bank, in turn, financed National Bank of Conroe stock purchases by local residents. These residents signed an irrevocable trust giving voting control of their stock to one of Mr. Ulrich's partners. This partner reported directly to Interamericas' executive committee, which itself was controlled by the Mexican investors.
The Fed said this scheme violated the Bank Holding Company Act, which requires companies to receive permission before acquiring a bank.
Legal experts said the fine was unusually large. "It again underscores the continued importance the Fed places on compliance with the Bank Holding Company Act and its growing unwillingness to forgive violations," said Gil Schwartz, a partner at the Washington law firm of Schwartz & Ballen.