                             In the

United States Court of Appeals
               For the Seventh Circuit

No. 10-3109

R OBERT M ICHAEL and G EORGE M ICHAEL, individually
and as affiliated parties of C ITIZENS B ANK AND
T RUST C OMPANY OF C HICAGO, ILLINOIS,

                                                          Petitioners,
                                 v.

F EDERAL D EPOSIT INSURANCE C ORPORATION,

                                                          Respondent.


              On Petition for Review of an Order of the
               Federal Deposit Insurance Corporation.
                Nos. FDIC-03-106e & FDIC-03-107k.



       A RGUED A PRIL 2, 2012—D ECIDED JULY 18, 2012




 Before R OVNER, S YKES, and T INDER, Circuit Judges.
  T INDER , Circuit Judge. The Federal Deposit Insurance
Corporation (FDIC) brought this case against brothers
George and Robert Michael, former owners, directors,
and in the case of Robert, officer of Citizens Bank and
Trust Company (Citizens Bank), seeking a prohibition
2                                           No. 10-3109

order to prevent them from participation in the affairs
of any insured depository, 12 U.S.C. § 1818(e)(7), and
civil penalties, 12 U.S.C. § 1818(i), for violations of
Federal Reserve regulations, breaches of their fiduciary
duty, and unsafe and unsound practices. After an ex-
tensive evidentiary hearing before an administrative
law judge (ALJ) spanning over more than six days with
a total of seventeen witnesses and numerous docu-
ments, the ALJ issued a 142-page decision with detailed
findings showing that the Michaels engaged in insider
transactions and improper lending practices and recom-
mending that the FDIC Board issue a prohibition order
and civil penalties. The FDIC Board adopted the ALJ’s
findings and affirmed the decision. The Michaels filed
this petition for review.
   The Michaels take great pains to explain the con-
voluted, overlapping, and seemingly oblique transactions
that gave rise to the FDIC Board’s removal order. What
seems to be lost on the Michaels in this appeal is that
we afford great deference to the trier of fact when
making credibility determinations and weighing con-
flicting evidence. The Michaels urge us to overturn num-
erous adverse credibility determinations and draw infer-
ences from the record in a way that paints a picture of
legitimacy despite the Board’s contrary determinations.
That is not our role as an appellate court. Because the
large, voluminous record in this case, thoroughly
analyzed by the ALJ and Board, contains substantial
evidence to support the Board’s decision, we affirm.
No. 10-3109                                             3

                       I. FACTS
  George and Robert formed Citizens Financial Corpora-
tion (CFC), which later became Citizens Bank’s holding
company. Citizens Bank opened in January 2000; the
Michaels were Citizens Bank’s principal shareholders.
George was a director and Robert was chairman and chief
executive officer. Citizens Bank, as an insured state non-
member bank, see 12 U.S.C. § 1813(e)(2), was supervised
by the FDIC, subject to the Federal Deposit Insurance Act
(FDIA), see 12 U.S.C. § 1811-1831, and the regulations
thereunder, and to the laws of the state of Illinois.
  Within months of Citizens Bank’s opening, the FDIC
and Illinois Office of Banks and Real Estate (OBRE) con-
ducted a joint exam identifying a number of regulatory
problems, including concerns about “abusive insider
transactions,” insiders exceeding “their individual
lending authority without obtaining the appropriate
prior approvals,” violations of Regulation O (12 C.F.R.
Part 215) resulting “from inappropriate insider activi-
ties,” lack of oversight, failure to properly document
and report transactions, poor lending practices, and
numerous other administrative shortcomings. The OBRE
issued a cease-and-desist order finding that the bank
was being operated with insufficient supervision, detri-
mental policies, hazardous lending and collection
practices, inadequate record-keeping and controls, and
otherwise in an unlawful manner. Citizens Bank was
instructed, among other things, to refrain from engaging
in unfair and unsound practices and approving loans
to insiders without prior full disclosure.
4                                              No. 10-3109

   In response, in December 2000, Citizens Bank replaced
its president, Nicolas Tanglis, with James Zaring, an
experienced bank officer. Tanglis remained with Citizens
Bank as Vice Chairman until August 2003. The Michaels
also hired Benjamin Shapiro, a former FDIC regional
counsel, as the bank’s counsel to provide regulatory
advice. Citizens Bank, upon Shapiro’s suggestion, hired
Joseph Gunnell, a former bank examiner, as a consultant
to oversee continued compliance with FDIC regula-
tions and the cease-and-desist order. Citizens Bank’s
CAMEL rating—a bank-rating system designed to
measure a bank’s soundness—eventually improved, but
the Michaels’ questionable practices did not.
  The FDIC brought charges against the Michaels based on
three transactions: (1) the Harvey Hospitality loan trans-
action; (2) the double pledging of a stock certificate; and
(3) the Galioto-Irving property transaction. The FDIC
urged that the Michaels’ complicity in any one of these
transactions was alone sufficient to support removal.


    A. Harvey Hospitality Loan Transaction
  In the fall of 2000, Robert was approached about buying
Harvey Hotel, a distressed property in need of substantial
repairs. Robert, who testified that he had no interest in
owning the hotel, suggested to a business acquaintance,
Satish Gabhawala, that the hotel could be purchased
cheaply and “flipped” to other investors for quick profit.
Gabhawala told Robert he did not have enough money
to purchase the hotel, but Robert responded that he
would “take care of the financing.” Gabhawala arranged
No. 10-3109                                                     5

for his mother and brother to form Big 2 Trading Corpora-
tion to acquire the hotel with the plan of selling it at a
higher price to Harvey Hospitality, a company formed
by Big 2 and a group of outside investors (the Patels) to
own and manage the hotel.
  Gabhawala (after consultation with Robert) negotiated
a price of $2.25 million for the hotel, but was unable to
obtain financing to pay that amount in time for closing.
The closing date was extended twice, increasing the
purchase price to $2.58 million and jeopardizing the
sale. Robert and George stepped in and borrowed the
money for Gabhawala in what the Michaels testified
was a “short-term bridge loan.” First Bank and Trust
Company agreed to lend the Michaels $1.4 million with
the hotel as collateral. Even with the First Bank loan, the
escrow deposits of Big 2, and the Patels’ investment,
there was still a $700,000 shortfall.
  In December 2000, the Michaels applied for a loan from
Citizens Bank for the $700,000. The Michaels discussed
the loan and their interest in Harvey Hotel at Citizens
Bank’s December 13, 2000, board meeting. The bank’s
board of directors declined a loan for the full amount
after determining that it would exceed lending limits to
“insiders” under Regulation O. 1 Robert and George were



1
  The restrictions of Regulation O (save a few exceptions) have
been made applicable to state nonmember banks by 12 U.S.C.
§ 1828(j)(2) and 12 C.F.R. § 337.3(a). The record reveals that the
board may have been willing to lend up to $600,000 to the
                                                    (continued...)
6                                                   No. 10-3109

able to obtain the $700,000 loan from United Trust Bank.
The Michaels, in a memo dated December 31, 2000, in-
formed Citizens Bank’s board of directors that they had
secured a $1.4 million loan from First Bank and a $700,000
loan from United Trust for the purchase of the Harvey
Hotel. The memo stated that “[i]t is anticipated that
th[ese] loan[s] will be repaid with proceeds of a sale
planned to consummate prior to 31 March 2001.”
  The closing on Harvey Hotel occurred on December 20,
2000, and the property was conveyed to Big 2. At
closing, Robert received an excess proceeds check in the
amount of $513,600, which he deposited into an escrow
account in the name of R&G Properties, the Michaels’
primary real estate business, a portion of which was
used to rehabilitate the hotel. Big 2 quitclaimed the
hotel personal property to the Michaels and deeded the
hotel real property to a land trust with the Michaels as
sole beneficiaries. The Michaels and Harvey Hospitality
executed an Installment Agreement for Deed (Install-
ment Agreement) and an Asset Purchase Agreement
to transfer the real and personal property to Harvey
Hospitality for a purported purchase price of $3.95 million:
$2.58 million for the real property and $1.365 million
for the personal property. (The only explanation for


1
  (...continued)
Michaels pursuant to Regulation O. As an executive officer,
Robert could obtain a $100,000 loan. See 12 C.F.R. § 337.3(c)(2).
George, as a director, could possibly borrow up to $500,000,
and more by complying with certain approval requirements.
See 12 C.F.R. § 337.3(b); 12 C.F.R. § 215.4(b).
No. 10-3109                                                7

this rapid increase in purchase price was to provide
Gabhawala with a promoted equity interest in the hotel.)
An amendment to the Asset Purchase Agreement
reduced the personal property purchase price. The Install-
ment Agreement required monthly installments of
$60,600 beginning February 1, 2000 (to pay the interest on
the First Bank and United Bank loans), and $2,585,000
(plus taxes) at closing scheduled for April 2, 2001. The
Michaels quitclaimed the personal property to Harvey
Hospitality immediately without payment.
  Gabhawala testified that Harvey Hospitality did not
make the monthly payments under the parties’ Install-
ment Agreement. Robert, however, took money out of a
Harvey Hospitality account (despite Gabhawala’s objec-
tions) and purportedly credited this amount against the
outstanding debt. Harvey Hospitality was also unable
to secure financing for the hotel to pay the purchase
price, a problem for the Michaels because their First
Bank and United Trust loans were set to mature in
June 2001.
  In May 2001, Harvey Hospitality applied for a $2.9
million loan from Citizens Bank, representing that the
purchase price was $3.95 million. The Michaels and three
other bank directors signed the loan approval sheet
dated May 7. The remaining two directors were unavail-
able. Zaring testified that the Harvey Hospitality loan
was approved at the May 30 board meeting, but the
meeting minutes do not reflect this vote. The meeting
minutes also do not reflect that the details of the loan were
discussed, nor do they reflect disclosure of the Michaels’
8                                                 No. 10-3109

interest in the loan, the artificially inflated purchase price,
or Harvey Hospitality’s default under the Installment
Agreement. The meeting minutes merely state that the
board members discussed the final stage of the loan
request and gave the projected date for the closing.
  Conflicting testimony was presented as to what the
board members knew about the transaction. Zaring
testified that he knew Harvey Hospitality was
purchasing the property from the Michaels and that
everybody knew the Michaels were getting the funds
to pay their loans. (This testimony is supported by the
Michaels’ December 13 memo to the board discussing
their acquisition of the hotel.) Shapiro also testified that
the board members were informed that the hotel was
being flipped. Zaring and others in attendance, how-
ever, could not recall being informed that the hotel was
originally purchased for $2.58 million or that the full
purchase price was not being paid.
  According to Zaring, the Michaels were in attendance
when the board discussed approval of the loan. Shapiro,
Tanglis, and the Michaels, on the other hand, testified
that the Michaels left the room. The meeting minutes do
not reflect that they left. The ALJ credited Zaring’s testi-
mony (at least in this respect) and found Shapiro’s and
Tanglis’ testimony unpersuasive and unbelievable. The
lack of any meeting minutes discussing the details of the
Harvey Hospitality loan, the ALJ found, was telling.
  Regulators in 2000 admonished Citizens Bank to keep
accurate and complete minutes of their meetings and it
appeared that the directors had been heeding this instruc-
No. 10-3109                                              9

tion in prior board meetings. Shapiro and Gunnell had
also informed the directors a few months earlier
that an extension of credit to an “insider” invokes Regula-
tion O requirements and therefore, the details of the
meeting must be reflected in the board’s minutes. They
also informed the directors that “insiders” must abstain
from discussion and voting on the loan and the minutes
must reflect their abstention. Accordingly, because the
meeting minutes were lacking, the ALJ found that the
Michaels participated in the vote and failed to inform
the board of directors of their interest in the loan or
other unfavorable details about the deal.
  Citizens Bank made the loan, but dispersed only
$2,389,000. The Michaels received approximately $2.1
million at closing to pay off their First Bank and United
Trust loans. The Michaels, however, worked out a re-
structuring agreement with United Trust to only pay down
a portion of that loan at the time. Robert received an
excess check of $55,000, which according to him was for
payment due under the Installment Agreement.


 B. Double Pledging of Stock Certificate
  The Michaels pledged two stock certificates to United
Trust as security for their $700,000 loan. One of those
certificates—certificate #3—had already been pledged to
Mount Prospect Bank in July 1999 as security for two
unrelated loans that were renewed in December 2000
(just two weeks before certificate #3 was pledged to
United Trust). George owned certificate #3, which repre-
sented 35,440 shares of Citizens Bank and had a book
value of $1,063,200.
10                                            No. 10-3109

  The Michaels presented evidence that Tanglis was
solely responsible for securing the Mount Prospect loan.
George testified that he had delivered certificate #3 to
Robert and was unaware that it had been used as
collateral for the Mount Prospect loan even though he
signed loan documents listing the stock certificate as
collateral. Tanglis testified that he mistakenly assumed
that Mount Prospect held only Robert’s certificate #2.
  When Tanglis could not find certificate #3 to pledge
for the Union Trust loan (Mount Prospect had it), Robert
instructed him to “make another one.” Robert signed
the duplicate certificate (which had no markings to indi-
cate it was a duplicate) and turned it over to United
Trust as collateral. George signed the United Trust loan
documents dated December 20, 2000, but testified that
he was not otherwise involved with the loan application
or transaction and had no awareness of the duplication
of his certificate. The Michaels warranted that they
owned the collateral “free and clear of all security
interests, liens, encumbrances and claims of others,” that
they had the right to pledge the collateral, and that the
collateral had not otherwise been encumbered. They
also agreed that they would keep United Trust’s “claim
in the property ahead of claims of other creditors.”
Similar warranties had been made to Mount Prospect.
  Robert testified that he first discovered the double
pledge when he applied for a loan with Cole Taylor Bank
around March 2001. He asked Zaring to contact Union
Trust about substituting new collateral in exchange for
the release of duplicate certificate #3. Zaring discussed
No. 10-3109                                               11

the matter with United Trust and at that time, presented
a second mortgage encumbering Citizens Bank as a
collateral swap. According to Zaring, he informed
Robert that United Trust needed to take the request
for release to United Trust’s board of directors but pre-
sumed it would be granted.
  United Trust, however, did not release certificate #3.
In fact, in June, the Michaels signed a one-page debt
modification agreement on the $700,000 United Trust
loan listing certificate #3 as collateral. A month later, the
Michaels pledged certificate #3 as collateral on the Cole
Taylor loan, making similar representations and war-
ranties as in their other transactions with respect to the
collateral. Cole Taylor did not receive certificate #3
until August 2001. The Michaels drew on the Cole Taylor
line of credit to pay down one of the Mount Prospect
loans, prompting Mount Prospect to release original
certificate #3 to Cole Taylor. In September, the Michaels
again signed an agreement securing a United Trust loan
with the same collateral.
  The Michaels ultimately defaulted on the United Trust
loan, resulting in a foreclosure action, before eventually
paying it in full. The president of United Trust subse-
quently submitted a letter stating that the collateral
provided by the Michaels without regard to the certificate
was sufficient to secure the outstanding balance of the
loan.
  In the summer of 2002, the FDIC discovered the double
pledge during an examination of Citizens Bank. Subse-
quently, the Illinois Commissioner of Banks and Real
12                                            No. 10-3109

Estate entered an order of prohibition against Tanglis
and found that he failed to notify George that he had
created a duplicate of his certificate.


 C. The Galioto-Irving Property Transaction
  In the summer of 2001, a real estate agent contacted
George about purchasing an unoccupied building on
West Irving Park in Chicago (Irving property) that was
in foreclosure and located next door to an office
building the Michaels owned. George subsequently
entered into a contract with Bank One to purchase the
property for the low price of $210,000. Before closing,
Bank One gave George access to the property to begin
repairs. George spent about $100,000 on renovations
and rented out the space through Michael Realty. In the
spring of 2002, Bank One was finally ready to close on
the transaction, whereby Bank One would transfer the
note, mortgage, and assignment of rents to the Michaels
(or their assignee), who would then substitute Bank One
in the foreclosure action. The Michaels, however, could
not get the funds necessary to close on the property
and were unable to close on three scheduled dates.
Bank One warned that it was withdrawing its offer. The
Michaels scrambled to find financing.
  Earlier, Robert had approached John Galioto, a business
acquaintance and friend, seeking capital for Citizens
Bank. Galioto told Robert that he did not have cash to
contribute, but offered an unencumbered residential
property that he owned on Vogay Lane (Vogay property).
At the time, Galioto had several loans in process at
No. 10-3109                                              13

Citizens Bank. Galioto had also taken over management
of the food and beverage operations at Harvey Hotel.
  Around the time the Michaels received notice of Bank
One’s intention to withdraw its offer, Robert’s assistant
asked Galioto to sign certain Citizens Bank loan docu-
ments. Galioto testified that he believed they were related
to the refinancing of one of his properties. But instead,
according to Galioto, he unknowingly signed a $216,000
promissory note for a line of credit secured by the Vogay
property. The line of credit was approved by Citizens
Bank board of directors; the Michaels did not inform
the board that they had any interest in the property.
  Galioto testified that he did not read the loan docu-
ments—some were just blank and he was simply given
the signature page of others; the documents included a
commitment letter, a promissory note, a mortgage, and
an assignment of rents related to the Vogay property, in
addition to a HUD 1 statement. Among the documents
was also a purported blank authorization for draws on
the credit line, one of which was later filled out (based
on Zaring’s directive) to authorize a $210,000 draw.
Galioto testified that he did not receive any of the pro-
ceeds from this draw. The $210,000 was instead paid to
Bank One for the Irving property along with a $6,000 check
from R&G Properties. The Irving property was sold to
R&G Properties (the Michaels’ company), and R&G
Properties was substituted in the foreclosure action.
  The Michaels held the note and mortgage on the Irving
property for over four months. They managed the prop-
erty, paid the utilities, collected the rents, and deposited
14                                              No. 10-3109

the money into R&G Properties’ bank account. Galioto
had no involvement with the property. He testified that
in October 2002, Robert asked him to sign a sublease
for Harvey Hotel, as well as some other documents.
Among those documents, unbeknownst to Galioto, were
assignments of the mortgage and promissory note for
the Irving property to Galioto.
  Galioto subsequently signed a motion to substitute in
as a party in the Bank One foreclosure proceeding. Galioto
testified that he did not recall the document. He also
admitted signing a document accepting an assignment
of the Bank One loan documents but explained that he
signed the document in the dark and did not know what
he was signing. Galioto obtained legal title to the
property in November 2002.
  R&G Properties continued to manage the property, pay
for utilities and insurance, and collect rents. In July 2003,
George drew up a sales contract for the property, listing
Galioto as the seller, the Michaels as the purchasers, and
the purchase price as $400,000. Galioto testified that
Robert went to his house and induced him to sign the
contract by representing that the document would be
used to help Robert in a bidding war. Galioto testified,
“He told me that he was in a bidding—he was trying
to buy a building and he just needed another bid that
would be lower than the bid he was putting on for this
building. So I was very tired. He said, John, just sign it,
don’t worry about it, you’re just doing me a favor and
that’s what I did. My signature appears there and that
was the premise of my signature.”
No. 10-3109                                            15

  According to Galioto, he discovered that Citizens Bank
had a lien on the Vogay property in August 2003 when
putting it up for sale. Galioto confronted Robert, and
according to Galioto, Robert admitted that he had
obtained a loan collateralized by the Vogay property
but promised to repay him within four to six weeks.
Galioto ended up selling the Vogay property and paying
off the line of credit.
  In the meantime, George proceeded to arrange
financing for the sale of Irving property by obtaining a
$320,000 loan from First Commercial Bank. The Michaels
did not disclose to First Commercial that they had an
existing business and personal relationship with Galioto,
that the purchase price was not negotiated, or that they
had originally purchased the property for half that
amount. Galioto (unaware of the sale) did not show up at
the closing and so, George signed his name to the deed.
The title company issued a check to Galioto for $214,000
and the remainder (most anyway) to R&G Properties
and George. Galioto testified that he had no awareness
of the Irving property transaction until he obtained
the $214,000 check along with a document listing the
property.
  Not surprisingly, the Michaels have a very different
account of the events leading to the Vogay property credit
line. According to them, in the spring of 2002, Robert
asked George to walk away from the purchase of the
Irving property because Galioto wanted to buy it. Galioto
sought to buy the property, Robert testified, so that they
could develop it together. Another witness testified that
16                                              No. 10-3109

Galioto told her he was going to develop the property on
Irving Park Road with his banker (presumably Robert).
Galioto denied this conversation took place. Robert’s
assistant testified that she explained to Galioto the con-
tents of the promissory note and other loan documents
he signed. She also testified that Galioto regularly paid
on the Vogay line in cash. (Six cash payments of $1,500
were made on the loan.) The ALJ did not credit this
testimony.


                      II. ANALYSIS
  The Administrative Procedure Act, 5 U.S.C. § 706,
governs our review. See 12 U.S.C. § 1818(h)(2). We will set
aside the Board’s findings only if unsupported by sub-
stantial evidence on the record as a whole. See Grubb v.
FDIC, 34 F.3d 956, 961 (10th Cir. 1994). Substantial
evidence is such relevant evidence a reasonable person
would deem adequate to support the ultimate conclusion.
Id. The Board’s inferences and conclusions drawn from
the facts are entitled to deference. See Nat’l Steel Corp. v.
NLRB, 324 F.3d 928, 931 (7th Cir. 2003). Credibility de-
terminations should not be overturned “absent extraordi-
nary circumstances,” such as “a clear showing of bias by
the ALJ, utter disregard for uncontroverted sworn testi-
mony, or acceptance of testimony which on its face is
incredible.” Cent. Transp., Inc. v. NLRB, 997 F.2d 1180, 1190
(7th Cir. 1993).
  We will set aside the Board’s legal conclusions only if
“arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law.” 5 U.S.C. § 706(2)(A); see also
No. 10-3109                                             17

Proffitt v. FDIC, 200 F.3d 855, 860 (D.C. Cir. 2000). The
Board is entitled to discretion in imposing sanctions
against violators. See Grubb, 34 F.3d at 963. The Board
abuses its discretion only when it imposes a sanction
that “is unwarranted in law” or “without justification in
fact.” Id. We cannot simply “substitute our judgment for
that of the FDIC.” Lindquist & Vennum v. FDIC, 103
F.3d 1409, 1412 (8th Cir. 1997); see also Brickner v. FDIC,
747 F.2d 1198, 1203 (8th Cir. 1984) (“The relation of
remedy to statutory policy is peculiarly a matter for the
special competence of the administrative agency.”).
Although we focus on the Board’s decision; “as a
practical matter, we look to the ALJ’s opinion on issues
where the Board affirmed without additional comment.”
Loparex LLC v. NLRB, 591 F.3d 540, 545 (7th Cir. 2009).


 A. Prohibition Order
  Congress has provided the FDIC Board with the author-
ity to ban bank officers and directors from participation
in the operation of a federally insured depository institu-
tion when the bankers’ actions threaten the integrity of
the industry. The Board imposed that harsh sanction
here after concluding that the Michaels engaged in re-
peated acts of self-dealing and unsafe and unsound
banking practices. The Board found, upon adopting the
ALJ’s findings, that a common theme emerges when ex-
amining all three interrelated, complicated, and overlap-
ping transactions: “Respondents exploited their positions
as Bank directors, deliberately overstated the value of
assets, and concealed their true financial interest to
18                                              No. 10-3109

entice lenders and investors to fund their business ven-
tures.” The Michaels’ complicity in any one of these
transactions, the Board found, was sufficient to
support removal. For the following reasons, we agree.
  Section 1818(e)(1) authorizes the Board to permanently
remove an “institution-affiliated party” (bank officer,
director, employee, or controlling shareholder, see
§ 1813(u)) and prohibit that person from returning to the
banking industry if (1) the person, either directly or
indirectly, violated a law, rule, or regulation, participated
in an unsafe or unsound banking practice, or breached
his fiduciary duty; (2) as a result of this conduct, the bank
suffered or will probably suffer a financial loss or the
person received a financial benefit; and (3) the conduct
involved personal dishonesty or demonstrated a willful
or continuing disregard for the safety or soundness of the
bank. Stated more succinctly, the Board must prove (1) an
improper act, (2) that had an impermissible effect, and
(3) was accompanied by a culpable state of mind. See
De La Fuente v. FDIC, 332 F.3d 1208, 1222 (9th Cir. 2003);
see also In re Seidman, 37 F.3d 911, 930 (3d Cir. 1994)
(stating that the Board must show substantial evidence
of “at least one of the prohibited acts, accompanied by
at least one of the three prohibited effects and at least
one of the two specified culpable states of mind.”).


     1. Harvey Hospitality loan transaction
  The Board found that the Michaels violated Regula-
tion O, engaged in an unsafe and unsound practice, and
breached their fiduciary duty by obtaining the Harvey
No. 10-3109                                               19

Hospitality loan. See 12 U.S.C. § 1818(e)(1)(A). Regula-
tion O is aimed at preventing abuse of bank funds by
placing limits on the ability of a bank to lend to its
officers, directors, and shareholders. See Lindquist &
Vennum, 103 F.3d at 1416 n.9. Regulation O prohibits a
bank from extending credit to insiders unless (1) the
loan is made on substantially the same terms as to non-
insiders; and (2) the loan does not involve more than
the normal risk of repayment or present other unfavor-
able terms. See 12 C.F.R. § 215.4(a)(1). Loans to insiders
must also conform to certain numerical limits and board
approval requirements. See generally § 215.4(b)-(d).
  Under Regulation O’s tangible economic benefit rule,
“[a]n extension of credit is considered made to an
insider to the extent that the proceeds are transferred to
the insider or are used for the tangible economic benefit
of the insider.” 12 C.F.R. § 215.3(f). The rule’s only excep-
tion requires that (1) the bank extend credit on terms that
meet § 215.4(a) and (2) the borrower use the proceeds in
a bona fide transaction to acquire property, goods,
or services from the insider. 12 C.F.R. § 215.3(f)(2). The
Michaels concede that they received a tangible economic
benefit from the loan, but argue that they fall within the
exception because the loan met the requirements of
§ 215.4(a)(1) and they received the proceeds in a bona
fide transaction.
  The Michaels cannot find solace in the exception; the
facts show that this was not a bona fide transaction, and
instead, was a loan that involved more than the normal risk
of repayment. The Michaels contend that they merely
20                                             No. 10-3109

provided a short-term bridge loan to Gabhawala and
legitimately obtained the loan proceeds to retire their
debt with First Bank and United Trust. This may be one
way to view the evidence but as we explain below, is
certainly not the only way.
  Harvey Hotel was initially transferred to Big 2 (formed
by Gabhawala’s mother and brother) for $2.95 million.
The Michaels financed the purchase through their loans
with First Bank and United Trust. Big 2 immediately
transferred the hotel to the Michaels, who executed an
Installment Agreement to sell it back to Harvey
Hospitality (formed by Big 2 and the Patels) for the pur-
ported purchase price of $3.95 million, although the
Michaels never intended to obtain that amount. The
Michaels transferred the personal property (originally
valued in the Installment Agreement at $1.365 million)
to Harvey Hospitality immediately without payment.
  The Michaels fictitiously represented to at least some
of its board members that the purchase price for the
hotel was $3.95 million. This led to a misrepresentation of
the loan-to-value ratio in the loan approval documents,
which if considering the actual transaction value, was
likely over or near 100 percent and thus, exceeded
Citizens Bank’s loan policy. Further, the Michaels did not
disclose that Harvey Hospitality was in default under
the Installment Agreement and was unable to secure
financing elsewhere. These facts would have alerted
Citizens Bank that the loan presented a “more than the
normal risk of repayment,” see 12 C.F.R. § 215.4(a)(1)(ii),
such that an objective lender would not have ex-
No. 10-3109                                              21

tended credit, see Bullion v. FDIC, 881 F.2d 1368, 1375 (5th
Cir. 1989).
  The Michaels’ relentless efforts to otherwise explain
the Harvey Hospitality transaction as a legitimate arm’s-
length bona fide transaction ring hollow. Substantial
evidence shows that Robert played an integral role in
Gabhawala’s acquisition of the hotel and the Michaels’
interest in the transaction went well beyond providing
a short-term bridge loan to help a business acquaintance.
In the initial closing on Harvey Hotel, the Michaels ob-
tained an excess proceeds check for $513,600, which in
part was used to rehabilitate the hotel. The Michaels’
company held a lease to operate the food and beverage
part of the hotel. The Installment Agreement between
the parties contained a fabricated purchase price, re-
sulting in the Michaels transferring the hotel’s personal
property to Harvey Hospitality for nothing. The Michaels
did not use the Citizens Bank loan proceeds to pay off
the $700,000 United Trust loan (they restructured and
paid down on the loan) even though they assert that the
proceeds were meant to retire that debt. The Michaels’
personal stake in the loan and hotel, failure to disclose
all pertinent information to its board members con-
cerning the loan’s risks, and their direct involvement in
the loan approval process further support the Board’s
finding that the Michaels are not entitled to the tangible
economic benefit exception.
  Regulation O required that the loan be approved by a
majority of the board of directors and that the in-
sider abstain from participating directly or indirectly in
22                                                  No. 10-3109

voting. See 12 C.F.R. § 215.4(b)(1). The loan application
was signed by five of the seven board members, but the
Michaels represented two of those votes. Although the
Michaels presented evidence that they left the May 30
board meeting when the actual vote took place, the ALJ
acted within his authority in discrediting their evidence.
Contradictory evidence shows that they did not leave
the room and they undisputedly signed the May 7
loan approval sheet. Therefore, even if there had
been full disclosure, they violated Regulation O by par-
ticipating in the voting. In addition, the Michaels know-
ingly received from Citizens Bank, via the Harvey Hos-
pitality loan, an extension of credit in excess of the
limits on borrowing to insiders in violation of §§ 337.3
and 215.4.
  These same facts support the Board’s finding that the
Michaels violated their fiduciary duties. Directors and
officers owe a duty of good faith and loyalty to their bank.
In re Seidman, 37 F.3d at 933. They should act in “good
faith[,] with the care an ordinarily prudent person in a
like position would exercise under similar circumstances[,]
and in a manner he reasonably believes to be in the best
interests of the corporation.” Id. (citing Revised Model
Business Corporation Act § 8.42). The duty of loyalty
includes a duty to avoid conflicts of interests and self-
dealing. Id. “Self-dealing, conflicts of interest, or even
divided loyalties are inconsistent with fiduciary responsi-
bilities.” Howell v. Motorola, Inc., 633 F.3d 552, 566 (7th Cir.),
cert. denied by 132 S. Ct. 96 (2011).
 A fiduciary’s duty of candor is encompassed within the
duty of loyalty. See De La Fuente, 332 F.3d at 1222 (“A
No. 10-3109                                                23

person can breach a fiduciary duty by failing to disclose
material information, even if not asked.”). The duty of
candor requires “corporate fiduciaries [to] disclose all
material information relevant to corporate decisions
from which they may derive a personal benefit.” In re
Seidman, 37 F.3d at 935 n.34 (emphasis in added) (quota-
tions omitted). Courts have found a breach where the
violater failed to disclose “everything he knew relating to
the transaction.” De La Fuente, 332 F.3d at 1222.
  The Michaels engaged in self-dealing by not ab-
staining from voting on the loan even though they had
a clear conflict of interest and by failing to disclose perti-
nent information necessary for the remaining board
members to assess the loan’s risk. It matters not that
the loan was paid in full through a refinance with
another bank; the concept of risk is independent of the
outcome in a particular case. See Landry v. FDIC, 204
F.3d 1125, 1139 (D.C. Cir. 2000).
  Having found a violation of Regulation O and
breach of fiduciary duty, we do not have to address
whether the Michaels also engaged in an unsafe or
unsound banking practice. We merely note that the same
act may be both an unsafe or unsound practice and a
breach of fiduciary duty. See Kaplan v. U.S. Office of
Thrift Supervision, 104 F.3d 417, 421 & n.2 (D.C. Cir. 1997).
  The effects tests is also met with respect to this transac-
tion because the Michaels benefitted from the loan. See
12 U.S.C. § 1818(e)(1)(B)(iii); see also In re Watts, FDIC-98-
046e, FDIC-98-044k, 2002 WL 31259465, at *8 (FDIC). The
loan enabled them to repay their First Bank loan and
24                                             No. 10-3109

restructure their United Trust loan and resulted in
them receiving a $55,000 excess check.
  The FDIC also presented evidence to show that
the Michaels’ conduct involved personal dishonesty or
demonstrated a willful or continuing disregard for
the safety or soundness of the bank. See 12 U.S.C.
§ 1818(e)(1)(C). These standards of culpability require
some showing of scienter. See Landry, 204 F.3d at 1139.
The term “personal dishonesty” has been held to mean
“a disposition to lie, cheat, defraud, misrepresent, or
deceive. It also includes a lack of straightforwardness
and a lack of integrity.” In re Watts, 2002 WL 31259465, at
*7; see also Van Dyke v. Bd. of Governors of Fed. Reserve
Sys., 876 F.2d 1377, 1379 (8th Cir. 1989) (accepting
Board’s definition of personal dishonesty which in-
cluded “deliberate deception by pretense and stealth”
and “want of fairness and straightforwardness” (brackets
omitted)).
  The Michaels’ failure to disclose obvious pertinent
information relating to the loan, including the fabrication
of the purchase price, is enough to establish personal
dishonesty. Courts have found personal dishonesty
where a bank director failed to disclose to board members
his business relationship with the parties obtaining the
loans or that the proceeds of the loans would pass to
entities he controlled. See Hutensky v. FDIC, 82 F.3d 1234,
1241 (2d Cir. 1996); see also Landry, 204 F.3d at 1139.
The Michaels similarly acted untruthfully.
  George attempts to escape liability by arguing that
he had no involvement in the Harvey Hospitality loan
No. 10-3109                                              25

transaction. The record belies George’s argument. George
(along with his brother) obtained loans to finance the
first purchase of Harvey Hotel when Gabhawala was
unable to obtain financing. George (again along with
his brother) subsequently entered into the Installment
Agreement and both signed the Citizens Bank loan ap-
proval sheet. And George, with full knowledge of his
stake in the transaction, did not recuse himself from
voting on the loan.
  At the very least, George’s conduct met the alternative
“willful disregard” test. See 12 U.S.C. § 1818(e)(1)(C)(ii).
“Willful disregard” is deliberate conduct that exposes
“the bank to abnormal risk of loss or harm contrary to
prudent banking practices.” De La Fuente, 332 F.3d at 1223
(quoting Grubb, 34 F.3d at 961-62). Citizens Bank board
of directors had previously been under close regulatory
scrutiny for unsound banking practices, had been ad-
monished by the FDIC and OBRE to refrain from
improper lending to insiders and to keep accurate and
complete minutes of their board meetings, and had been
educated by Shapiro and Gunnell about Regulation O
requirements, such as the requirement to abstain from
discussion and voting on insider loans. See Grubb, 34 F.3d
at 963 (affirming the Board’s conclusions that extensions
of credit to bank director for his personal benefit consti-
tuted a willful or continuing disregard for the safety
and soundness of the bank where director had been
admonished to cease and correct such violations).
  George, a bank director, cannot claim ignorance by
turning a blind eye to obvious violations of his statutory
26                                              No. 10-3109

and fiduciary duties. See Cavallari v. Office of Comptroller
of Currency, 57 F.3d 137, 145 (2d Cir. 1995) (culpability
standard is met where the violater evidences a willing-
ness to turn a blind eye to the bank’s interest in the face
of a known risk); see also Hutensky, 82 F.3d at 1241
(finding that bank director’s willingness to forgo any
consideration of whether personally advantageous deals
were consistent with his legal and fiduciary obligations
was enough to establish personal dishonesty).


     2. Double pledging of stock certificate
  The FDIC argued that the Michaels engaged in an
unsafe or unsound banking practice by double pledging
stock certificate #3. A banking practice is unsafe or un-
sound if it embraces action which is contrary to generally
accepted standards of prudent operation and potentially
exposes the bank to an abnormal risk of loss or harm
contrary to prudent banking practices. See Van Dyke,
876 F.2d at 1380. An unsafe or unsound practice
therefore has two components: (1) an imprudent act
(2) that places an abnormal risk of financial loss or
damage on a banking institution. See In re Seidman, 37 F.3d
at 932; see also Landry, 204 F.3d at 1138 (stating that an
“unsafe or unsound practice” is one that poses a “rea-
sonably foreseeable undue risk to the institution” (quota-
tions omitted)).
  The FDIC presented evidence through Tom Wilkes, FDIC
field office supervisor, that a failure to verify collateral
being pledged, as well as actually double-pledging col-
No. 10-3109                                              27

lateral, constitutes an unsafe and unsound practice.
The Michaels respond that the double pledges did not
result in any abnormal risk of loss to United Trust and
were inadvertent. As to risk of loss, they argue that
their loan with United Trust (who held the duplicate
certificate) was adequately securitized without certif-
icate #3. The United Trust $700,000 loan was originally
secured by duplicate certificate #3 (valued at $1,063,200),
original certificate #20 (valued at $350,000), and a
second lien on certain real property owned by the
Michaels (with $630,000 in equity). The Michaels pre-
sented evidence from the president of United Trust that
the other collateral pledged was sufficient to secure
the outstanding balance of the loan “even without Stock
Certificate No. 3” and that “from a collateral and other
support point of view, the Bank was never at risk of
experiencing a loss.”
  The record, however, supports a contrary finding.
United Trust did not release stock certificate #3 as
collateral even when Zaring, on behalf of Robert, sought
to swap the collateral. (Instead, United Trust released a
second lien on the real property pledged and subsequently
released certificate #20). The Board found the collateral
initially pledged (without certificate #3) insufficient
because the Michaels had not completed the purchase
of certificate #20. The Michaels argue that they held title
to the certificate but it is undisputed that payment for
the certificate was not made until several months
after it was pledged. The Board’s conclusion that the
potential for challenge to either certificate #3 or #20 pre-
sented an abnormal risk of loss to United Trust was
28                                            No. 10-3109

supported by substantial evidence, especially con-
sidering the risky nature of the collateral.
  The Board also had substantial evidence to find the
culpability prong of the test satisfied. The Michaels con-
tend that the double pledging was inadvertent, but
they both signed the numerous loan documents listing
stock certificate #3 as unencumbered collateral on more
than one loan. Before pledging it to United Trust, Robert
was aware that original certificate #3 was “missing,” yet
without investigating its whereabouts or following CFC
by-laws, he asked Tanglis to simply make a duplicate.
The pledging of certificate #3 under these circumstances
suffices to show, at the very least, willful disregard for
the safety or soundness of United Trust. See 12 U.S.C.
§ 1818(e)(1)(C); see also De La Fuente, 332 F.3d at 1222.
  Robert testified that when he discovered the double
pledge, he asked Zaring to swap the collateral. Ac-
cording to Zaring, he informed Robert that although
he presumed United Trust would release certificate #3,
it was contingent upon approval of United Trust’s
board of directors. Robert never secured the duplicate
certificate from United Trust or verified that it had been
released. And after securing the Cole Taylor loan with
certificate #3, the Michaels renewed their loan with
United Trust, which listed certificate #3 as collateral.
The Board, relying on the ALJ findings and credibility
determinations, properly found that Robert acted with
culpability.
 George argues that he had no involvement in the
double pledge other than signing the loan documents.
No. 10-3109                                            29

He testified that he did not read those documents and
did not negotiate the loans at issue. Unfortunately for
George, this argument gets him nowhere. Although
inadvertence alone is not sufficient to establish culpa-
bility, recklessness suffices. See Kim v. Office of Thrift
Supervision, 40 F.3d 1050, 1054 (9th Cir. 1994). Given his
position as a bank director, his repeated failure to
read loan documents and verify the collateral being
pledged constitutes a continuing disregard—i.e., conduct
that has been “voluntarily engaged in over a period of
time with heedless indifference to the prospective con-
sequences,” Grubb, 34 F.3d at 962; see also Brickner, 747
F.2d at 1203 & n.6—for the safety or soundness of the
banks.
  But even accepting that George was not culpable for
either the Harvey Hospitality transaction or double
pledge, he was directly and personally involved in the
Galioto-Irving property transaction, which as we find
below, subjects him to removal just the same.


   3. The Galioto-Irving property transaction
  The final transaction subjecting the Michaels to
removal involves the acquisition of the Irving property.
The court found that the Vogay credit line used to pur-
chase the property was a nominee loan in the name of
Galioto for the benefit of the Michaels. We agree with
the Michaels that Galioto’s testimony that he signed
numerous documents on several different occasions
relating to the transaction without reading any of the
documents or knowing what he was signing is a hard
30                                              No. 10-3109

sell. But the ALJ credited his testimony and credibility
determinations should not be overturned “absent extra-
ordinary circumstances.” Cent. Transp., 997 F.2d at 1190.
We do not need to decide whether extraordinary cir-
cumstances exist here because the evidence at best
shows that Galioto was knowingly a nominee borrower
for the Michaels.
  The Michaels were the true borrowers on the loan. The
evidence shows that the Vogay line of credit (although
in Galioto’s name) was used to benefit the Michaels in
their acquisition of the Irving property. A loan officer
breaches his fiduciary duty when making loans to a
straw or nominee borrower for his exclusive use and
benefit. See In re Candelaria, FDIC-950-62e, 1997 WL 211341,
at *4 (FDIC). Nominee loans are illegal if they are used
to deceive a financial institution about the true identity
of a borrower. See United States v. Waldroop, 431 F.3d 736,
741 (11th Cir. 2005); see also United States v. Weidner, 437
F.3d 1023, 1034 (10th Cir. 2006). “[N]either a nominal
borrower’s knowledge about the terms of a nominee
loan nor the nominal borrower’s ability to pay back a
nominee loan is a defense.” Waldroop, 431 F.3d at 741.
  Galioto’s name never appeared in connection with the
Irving property until October 2002—over four months
after the line of credit was drawn. And even then, the
Michaels continued to maintain control and possession
of the property. The Michaels’ company leased the space
and collected rents, none of which were paid to Galioto.
The Board had substantial evidence to find that this
was a nominee loan to an insider and subject to Regula-
tion O’s prior approval requirements because it exceeded
No. 10-3109                                            31

the aggregate lending limits for insiders. See 12 C.F.R.
§ 337.3(b). The Michaels’ failure to abstain from voting
on approval of the loan and failure to disclose their
interest in the loan proceeds violated their fiduciary
obligations and Regulation O.
  The sale of the property back to the Michaels supports
the conclusion that they were the true borrowers on
the Vogay credit line. The Michaels had Galioto sell the
property back to them for the non-negotiated price of
$400,000—almost $200,000 more than the initial purchase
price even though only $100,000 worth of repairs had
been made. Galioto received $210,000 from the loan
proceeds as, the Board found, reimbursement for the
Michaels’ use of the Vogay credit line. The Michaels
retained most of the remaining proceeds from the loan.
Galioto never received the earnest money listed in
the purchase agreement (originally $40,000, increased to
$100,000 at closing); the Michaels contend that this
was for reconciliation of debts, but documents do not
support this claim and Galioto testified, credibly the
ALJ found, that he did not owe the Michaels any money
at the time.
  We have no difficulty concluding that substantial
evidence in the record supports a finding that the
Michaels violated their statutory and fiduciary duties by
obtaining the Vogay credit line through a nominee loan.
We therefore do not need to decide whether they also
engaged in unsound and unsafe banking practices by
failing to properly disclose certain aspects of the trans-
action to First Commercial.
32                                               No. 10-3109

  George attempts to argue that he had no active role in
the Galioto loan. We simply fail to see how George’s
approval of the Vogay credit line, his participation in
the closing where R&G Properties acquired the Irving
property, his drafting of the real estate sales contract
transferring the property from Galioto to the Michaels
for the non-negotiated price of $400,000, and his par-
ticipation in closing the First Commercial loan where
he signed Galioto’s name to the deed, could be viewed
as anything but an active role in the transaction.


  B. Civil Monetary Penalties
  The Board, accepting the ALJ’s recommendation, also
imposed modest civil monetary penalties (CMP) against
the Michaels: $100,000 against Robert and $75,000
against George. First tier CMPs may be imposed for any
violation of law or regulation, such as Regulation O
violations. See 12 U.S.C. § 1818(i)(2)(A). Second tier CMPs
require proof of “misconduct,” i.e., either a violation
described in § 1818(i)(2)(A), or breach of a fiduciary duty,
or recklessly engaging in an unsafe or unsound practice
in connection with the bank, see 12 U.S.C. § 1818(i)(2)(B)(i);
and “effects,” i.e., either a pattern of misconduct, or
conduct which caused or was likely to cause more than
minimal loss to the institution, or which resulted in
a gain or benefit to the participant, see 12 U.S.C.
§ 1818(i)(2)(B)(ii). A first tier CMP carries a penalty of up
to $5,000 per day and a second tier CMP carries a
penalty of up to $25,000 per day. Id.
No. 10-3109                                            33

  In assessing the CMP, the ALJ considered the statutory
mitigating factors found at 12 U.S.C. § 1818(i)(2)(G): the
size of financial resources and good faith of the person
charged; the gravity of the violations; the history of
previous violations; and such other matters as justice
may require. The ALJ also considered the 13-factor
analysis found in the Interagency Policy Regarding the
Assessment of Civil Money Penalties by the Federal
Financial Institutions Regulatory Agencies, 45 Fed. Reg.
59,423 (“Interagency Policy”), which includes, among
other factors, consideration of whether the violation was
intentional, the duration and frequency of the violation,
failure to cooperate with the agency, evidence of con-
cealment, previous admonishment not to engage in
such conduct, threat of or actual loss to bank, and
evidence of financial gain or benefit to the participant.
  The ALJ concluded that the Michaels were men of
substantial means with ready access to credit. The ALJ
also found that they flagrantly disregarded Regulation O
restrictions, abused their management roles to further
their personal financial interests, and that their incon-
sistent testimony evidenced a lack of good faith. The
ALJ determined that their conduct exposed Citizens
Bank to abnormal risks of loss and that the FDIC and
state regulators had earlier warned the bank about Reg-
ulation O violations and careless record-keeping.
  The Board affirmed the ALJ’s assessment of penalties,
explaining that the Michaels were eligible for first tier
penalties that far exceeded the amounts actually imposed.
The Board reasoned “that the frequency and duration
34                                           No. 10-3109

of the Michael’s misconduct justify CMPs far in excess of
the amount imposed,” ranging in the millions of dollars.
The Harvey Hospitality loan, the Board concluded,
which was on the bank’s books for a year and a half,
alone could generate a penalty of at least $2.7 million.
We find no abuse of discretion in the Board’s reasoning
and imposition of the relatively modest CMPs against
the Michaels.


                    III. Conclusion
   We conclude that the FDIC Board properly exercised
its discretion in issuing a prohibition order under
§ 1818(e)(7) and monetary sanctions under § 1818(i)
against the Michaels for their misconduct. The Board’s
factual findings are supported by substantial evidence,
its legal conclusions are reasonable, and the remedy it
has imposed is rational. We therefore deny the Michaels’
petition for review.




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