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Banned from Banking

— San Diego entrepreneur Roque "Rocky" De La Fuente II has enjoyed amazing litigation success in local courts against local governments, but he is not doing so well with federal courts against the Federal Deposit Insurance Corp., the government agency that insures savings deposits up to $100,000 and also regulates banking institutions.

The Rocky/bank regulator feud has deep roots. In 1998, the agency charged De La Fuente with "personal dishonesty" and recommended that he be banned from the banking industry. An administrative law judge later agreed. The entrepreneur appealed, and this year, the Ninth Circuit Court of Appeals generally agreed with the agency, flaying De La Fuente's "shocking disregard of sound banking practices," although asking the agency to reconsider some of its rulings. The agency has not yet decided whether to do so.

Next, De La Fuente tried to arrange a merger between one San Diego bank and another in which he controls a majority of the stock. The agency nixed the deal, pointing out that he was banned from banking. So De La Fuente sued the agency, charging it with everything from "overreaching, arbitrary, irrational and overly harsh interpretation of its orders" to ethnic discrimination, or "personal animus toward him because of his Hispanic ethnicity." The agency was improperly keeping him from selling his stock in the bank, he charged.

At least De La Fuente's lawyers used slightly less inflammatory rhetoric than their client did. At the 1998 hearing at which the agency called him personally dishonest, the volatile De La Fuente called the agency "worse than the Gestapo."

Early this month, U.S. district court judge Rudi M. Brewster, ruling on the banking agency's motion for a dismissal of the entrepreneur's suit, said that De La Fuente could not claim that his constitutional rights -- such as due process and equal protection -- had been violated. Also, the judge said that the agency had clearly not blocked De La Fuente from selling his stock. But the judge ruled partly in the entrepreneur's favor, so the trial goes forward in January.

De La Fuente finds local courts much more accommodating. A decade ago, he won a judgment against the county for $56 million and settled for $38 million. In January of 2001, he won a staggering $94.6 million judgment against the city. One reason: superior court judge Vincent Di Figlia refused to permit the city to discuss in court the banking agency's opinions about De La Fuente's character -- or his past bankruptcies.

The city appealed. In August, the city and De La Fuente's attorneys went into mediation on the size of a possible settlement. The city was expected to blink because an Orange County judge had already said there was no basis for the city's posttrial claim that Judge Di Figlia had a questionable relationship with De La Fuente's attorney. But in all the intervening months, there has been no agreement, says Vincent Bartolotta Jr., De La Fuente's lawyer in both the earlier county and present city cases.

Rocky's rocky relationship with the banking agency goes back many years. In the mid-1980s, Chula Vista's First International Bank, which serves the Hispanic community, was in deep trouble and under a cease and desist order from the banking agency. The bank recruited De La Fuente, scion of a wealthy Mexican family, to infuse some capital.

De La Fuente plunked money in and eventually, through his family members, came to control about 60 percent of the small bank's stock. The federal insurance agency approved the deal but almost immediately suspected self-dealing and violations of banking laws. The bank was hit with another cease and desist order, and in 1993 the agency tried unsuccessfully to remove De La Fuente as a director.

In 1998, the deposit insurance agency put on a 20-day case against De La Fuente in San Diego. He was charged with unsafe and unsound banking practices, banking-law violations, and self-dealing that injured First International Bank, as well as personal dishonesty. An agency lawyer showed how De La Fuente's startlingly complex empire is intertwined, with various entities under the names of his family members and friends. Two companies in the web were owned by De La Fuente's mother through offshore tax havens. De La Fuente would mix funds of companies he admitted controlling with those that he pretended not to control, said the agency.

In shelling out funds to the various De La Fuente-related companies, the bank exceeded permissible lending limits to affiliates or insiders, said the agency. Often, the loans were made without the board's knowledge.

De La Fuente represented himself at the hearing, loudly and emotionally denouncing the agency. But in late 2000, the administrative law judge sided with the agency, which banned De La Fuente from the banking industry for life.

De La Fuente appealed. On June 18 of this year, the Ninth Circuit Appeals Court upheld most of the agency's decision. "We agree that De La Fuente's actions evidenced personal dishonesty and/or willful or continuing disregard for the safety and soundness of [First International Bank]," said the appellate court.

In some technical instances, the appellate court found for De La Fuente. And the lifetime banking ban may have been "extraordinary," said the appeals court.

Early this year, the agency learned that De La Fuente was involved in an attempted purchase of First International. The agency reminded him that he was banned from banking and could not participate. De La Fuente sued, claiming the agency, pursuing "a relentless campaign of harassment" against him, was preventing him from selling his stock.

First Community Bancorp, the Rancho Santa Fe-based holding company that has bought several San Diego banks -- including First National Bank, Bank of Coronado, and Rancho Santa Fe National Bank -- wanted to buy the deposits, investments, and loans of both First International branches. First Community's financial advisor sent a letter to David L. Wick, an associate of De La Fuente, suggesting the acquisition.

Matthew Wagner, chief executive of First Community, heatedly says that the bank only sent a "letter of interest" in such a purchase. The letter was clearly worded that way, but it spelled out the terms and requested a quick deal.

The day after he received the letter, Wick wrote to the First International board, saying he was presenting "an offer to purchase" the bank's business. After Rocky sued, the agency quoted Wick's own words in saying that it has never told De La Fuente that he could not sell his own stock -- but he can't sell the bank because he is banned from the banking business. It's "crystal clear" that the offer was a proposal to buy First International's banking business, not a proposal to buy De La Fuente's stock, said Judge Brewster, agreeing with the agency.

Meanwhile, First International is in purgatory. Early this year, the bank made arrangements to sell more than half its stock to another bank. De La Fuente's family and Wick sued the bank, claiming the First Community deal was better. That suit was settled out of court. "We paid him nothing, but the legal fees cost our shareholders a lot," says Tom King, president of First International.

Later, a proposed buyout by another bank fell through because regulators wouldn't approve the deal. King doesn't think that De La Fuente was the cause.

However, First International is out of compliance with the agency's capital requirements and needs a capital infusion, but potential suitors are turned off by De La Fuente's presence, says King. Although De La Fuente can't vote his own shares, his family has 25 percent, and it can vote. Essentially, although the entrepreneur is banned from banking, he can still block the financial rescue of First International.

De La Fuente and his lawyer in the federal case did not respond to phone calls.

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— San Diego entrepreneur Roque "Rocky" De La Fuente II has enjoyed amazing litigation success in local courts against local governments, but he is not doing so well with federal courts against the Federal Deposit Insurance Corp., the government agency that insures savings deposits up to $100,000 and also regulates banking institutions.

The Rocky/bank regulator feud has deep roots. In 1998, the agency charged De La Fuente with "personal dishonesty" and recommended that he be banned from the banking industry. An administrative law judge later agreed. The entrepreneur appealed, and this year, the Ninth Circuit Court of Appeals generally agreed with the agency, flaying De La Fuente's "shocking disregard of sound banking practices," although asking the agency to reconsider some of its rulings. The agency has not yet decided whether to do so.

Next, De La Fuente tried to arrange a merger between one San Diego bank and another in which he controls a majority of the stock. The agency nixed the deal, pointing out that he was banned from banking. So De La Fuente sued the agency, charging it with everything from "overreaching, arbitrary, irrational and overly harsh interpretation of its orders" to ethnic discrimination, or "personal animus toward him because of his Hispanic ethnicity." The agency was improperly keeping him from selling his stock in the bank, he charged.

At least De La Fuente's lawyers used slightly less inflammatory rhetoric than their client did. At the 1998 hearing at which the agency called him personally dishonest, the volatile De La Fuente called the agency "worse than the Gestapo."

Early this month, U.S. district court judge Rudi M. Brewster, ruling on the banking agency's motion for a dismissal of the entrepreneur's suit, said that De La Fuente could not claim that his constitutional rights -- such as due process and equal protection -- had been violated. Also, the judge said that the agency had clearly not blocked De La Fuente from selling his stock. But the judge ruled partly in the entrepreneur's favor, so the trial goes forward in January.

De La Fuente finds local courts much more accommodating. A decade ago, he won a judgment against the county for $56 million and settled for $38 million. In January of 2001, he won a staggering $94.6 million judgment against the city. One reason: superior court judge Vincent Di Figlia refused to permit the city to discuss in court the banking agency's opinions about De La Fuente's character -- or his past bankruptcies.

The city appealed. In August, the city and De La Fuente's attorneys went into mediation on the size of a possible settlement. The city was expected to blink because an Orange County judge had already said there was no basis for the city's posttrial claim that Judge Di Figlia had a questionable relationship with De La Fuente's attorney. But in all the intervening months, there has been no agreement, says Vincent Bartolotta Jr., De La Fuente's lawyer in both the earlier county and present city cases.

Rocky's rocky relationship with the banking agency goes back many years. In the mid-1980s, Chula Vista's First International Bank, which serves the Hispanic community, was in deep trouble and under a cease and desist order from the banking agency. The bank recruited De La Fuente, scion of a wealthy Mexican family, to infuse some capital.

De La Fuente plunked money in and eventually, through his family members, came to control about 60 percent of the small bank's stock. The federal insurance agency approved the deal but almost immediately suspected self-dealing and violations of banking laws. The bank was hit with another cease and desist order, and in 1993 the agency tried unsuccessfully to remove De La Fuente as a director.

In 1998, the deposit insurance agency put on a 20-day case against De La Fuente in San Diego. He was charged with unsafe and unsound banking practices, banking-law violations, and self-dealing that injured First International Bank, as well as personal dishonesty. An agency lawyer showed how De La Fuente's startlingly complex empire is intertwined, with various entities under the names of his family members and friends. Two companies in the web were owned by De La Fuente's mother through offshore tax havens. De La Fuente would mix funds of companies he admitted controlling with those that he pretended not to control, said the agency.

In shelling out funds to the various De La Fuente-related companies, the bank exceeded permissible lending limits to affiliates or insiders, said the agency. Often, the loans were made without the board's knowledge.

De La Fuente represented himself at the hearing, loudly and emotionally denouncing the agency. But in late 2000, the administrative law judge sided with the agency, which banned De La Fuente from the banking industry for life.

De La Fuente appealed. On June 18 of this year, the Ninth Circuit Appeals Court upheld most of the agency's decision. "We agree that De La Fuente's actions evidenced personal dishonesty and/or willful or continuing disregard for the safety and soundness of [First International Bank]," said the appellate court.

In some technical instances, the appellate court found for De La Fuente. And the lifetime banking ban may have been "extraordinary," said the appeals court.

Early this year, the agency learned that De La Fuente was involved in an attempted purchase of First International. The agency reminded him that he was banned from banking and could not participate. De La Fuente sued, claiming the agency, pursuing "a relentless campaign of harassment" against him, was preventing him from selling his stock.

First Community Bancorp, the Rancho Santa Fe-based holding company that has bought several San Diego banks -- including First National Bank, Bank of Coronado, and Rancho Santa Fe National Bank -- wanted to buy the deposits, investments, and loans of both First International branches. First Community's financial advisor sent a letter to David L. Wick, an associate of De La Fuente, suggesting the acquisition.

Matthew Wagner, chief executive of First Community, heatedly says that the bank only sent a "letter of interest" in such a purchase. The letter was clearly worded that way, but it spelled out the terms and requested a quick deal.

The day after he received the letter, Wick wrote to the First International board, saying he was presenting "an offer to purchase" the bank's business. After Rocky sued, the agency quoted Wick's own words in saying that it has never told De La Fuente that he could not sell his own stock -- but he can't sell the bank because he is banned from the banking business. It's "crystal clear" that the offer was a proposal to buy First International's banking business, not a proposal to buy De La Fuente's stock, said Judge Brewster, agreeing with the agency.

Meanwhile, First International is in purgatory. Early this year, the bank made arrangements to sell more than half its stock to another bank. De La Fuente's family and Wick sued the bank, claiming the First Community deal was better. That suit was settled out of court. "We paid him nothing, but the legal fees cost our shareholders a lot," says Tom King, president of First International.

Later, a proposed buyout by another bank fell through because regulators wouldn't approve the deal. King doesn't think that De La Fuente was the cause.

However, First International is out of compliance with the agency's capital requirements and needs a capital infusion, but potential suitors are turned off by De La Fuente's presence, says King. Although De La Fuente can't vote his own shares, his family has 25 percent, and it can vote. Essentially, although the entrepreneur is banned from banking, he can still block the financial rescue of First International.

De La Fuente and his lawyer in the federal case did not respond to phone calls.

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