[Federal Register Volume 79, Number 71 (Monday, April 14, 2014)]
[Rules and Regulations]
[Pages 20762-20767]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08258]



[[Page 20762]]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 380

RIN 3064-AE05


Restrictions on Sales of Assets of a Covered Financial Company by 
the Federal Deposit Insurance Corporation

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (``FDIC'') is 
adopting a final rule (the ``final rule'') to implement a section of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-
Frank Act''). Under that section, individuals or entities that have, or 
may have, contributed to the failure of a ``covered financial company'' 
cannot buy a covered financial company's assets from the FDIC. The 
final rule establishes a self-certification process that is a 
prerequisite to the purchase of assets of a covered financial company 
from the FDIC.

DATES: This final rule is effective July 1, 2014.

FOR FURTHER INFORMATION CONTACT: Marc Steckel, Deputy Director, 
Division of Resolutions and Receiverships, 202-898-3618; Craig Rice, 
Senior Capital Markets Specialist, Division of Resolutions and 
Receiverships, 202-898-3501; Chuck Templeton, Senior Resolution 
Planning & Implementation Specialist, Office of Complex Financial 
Institutions, 202-898-6774; Elizabeth Falloon, Supervisory Counsel, 
Legal Division, 703-562-6148; Shane Kiernan, Counsel, Legal Division, 
703-562-2632; Federal Deposit Insurance Corporation, 550 17th Street 
NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 210(r) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, 12 U.S.C. 5390(r) (``section 210(r)''), prohibits 
certain sales of assets held by the FDIC in the course of liquidating a 
covered financial company. The Dodd-Frank Act requires the FDIC to 
promulgate regulations which, at a minimum, prohibit the sale of an 
asset of a covered financial company by the FDIC to: (1) Any person who 
has defaulted, or was a member of a partnership or an officer or 
director of a corporation that has defaulted, on one or more 
obligations exceeding $1,000,000 to such covered financial company, has 
been found to have engaged in fraudulent activity in connection with 
such obligation, and proposes to purchase any such asset in whole or in 
part through the use of financing from the FDIC; (2) any person who 
participated, as an officer or director of such covered financial 
company or of any affiliate of such company, in a material way in any 
transaction that resulted in a substantial loss to such covered 
financial company; or (3) any person who has demonstrated a pattern or 
practice of defalcation regarding obligations to such covered financial 
company. Section 210(r) is derived from section 11(p) the Federal 
Deposit Insurance Act, 12 U.S.C. 1821(p) (``section 11(p)''), which 
imposes substantially similar restrictions on sales of assets of failed 
insured depository institutions by the FDIC. Section 210(r) applies 
only to sales of covered financial company assets by the FDIC, however, 
and not to sales of failed insured depository institution assets.

Notice of Proposed Rulemaking

    On October 30, 2013, the Board of Directors approved a notice of 
proposed rulemaking entitled ``Restrictions on Sales of Assets of a 
Covered Financial Company by the Federal Deposit Insurance 
Corporation'' (the ``proposed rule''), which was published in the 
Federal Register on November 6, 2013, with a 60-day comment period that 
ended on January 6, 2014. Two comment letters addressing the proposed 
rule were received by the FDIC. Both were generally supportive of the 
proposed rule. The contents of the comments and the FDIC's responses 
thereto, as well as the differences between the text of the proposed 
rule and the final rule are addressed below.

II. Explanation of the Final Rule

    With one exception, the final rule is unchanged from the proposed 
rule. Language is added to paragraph (f) in the final rule to require 
that a prospective purchaser certify that a sale of assets of a covered 
financial company by the FDIC is not structured to circumvent section 
210(r) or the final rule.
    The final rule is modeled after the FDIC's regulation entitled 
``Restrictions on the Sale of Assets by the Federal Deposit Insurance 
Corporation,'' at 12 CFR part 340 (``part 340''), which implements 
section 11(p), because section 210(r) and section 11(p) share 
substantially similar statutory language. Although the final rule is 
similar to part 340 in many ways, it is distinct because it would apply 
to sales of covered financial company assets by the FDIC and not to 
sales of failed insured depository institution assets.\1\
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    \1\ Prospective purchasers seeking to buy assets of a failed 
insured depository institution from the FDIC should refer to part 
340.
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    The final rule addresses the statutory prohibitions contained in 
section 210(r). It does not address other restrictions on sales of 
assets. For instance, the final rule does not address purchaser 
restrictions imposed by 12 CFR part 366 (``Minimum Standards of 
Integrity and Fitness for an FDIC Contractor'') and 5 CFR part 3201 
(``Supplemental Standards of Ethical Conduct for Employees of the 
Federal Deposit Insurance Corporation''). Further, the final rule is 
separate and apart from any policy that the FDIC has, or may adopt or 
amend, regarding collection of amounts owed by obligors to a failed 
insured depository institution or a covered financial company. The 
focus of a collection policy is to encourage delinquent obligors to 
promptly repay or settle obligations, which is outside the scope of 
section 210(r) and the final rule.

Section-by-Section Analysis

    Paragraph (a)(1) of the final rule states its purpose, which is to 
prohibit individuals or entities who improperly profited or engaged in 
certain acts of wrongdoing at the expense of a covered financial 
company or an insured depository institution, or whose actions resulted 
in serious mismanagement of a covered financial company or an insured 
depository institution, from buying assets of any covered financial 
company from the FDIC. Both comments on the proposed rule agreed that 
the restrictions on sales of assets of a covered financial company by 
the FDIC should apply to individuals or entities who engaged in 
wrongdoing with respect to any covered financial company and not just 
the covered financial company with which those individuals or entities 
were involved. One of the commenters also agreed that it is appropriate 
to prohibit individuals or entities that engaged in wrongdoing at the 
expense of an insured depository institution or seriously mismanaged an 
insured depository institution from buying assets of a covered 
financial company from the FDIC.
    Paragraph (a)(2) describes the final rule's applicability. 
Paragraph (a)(2)(i) states that the final rule applies to sales of 
assets of a covered financial company by the FDIC. The assets of a 
covered financial company vary in character and composition, and range 
from personal property to ownership of subsidiary

[[Page 20763]]

companies and entire operating divisions.
    Paragraph (a)(2)(ii) delineates the applicability of the final rule 
to sales by a bridge financial company. Sales of bridge financial 
company assets are not expressly subject to the statutory prohibition 
under section 210(r) because once such assets are transferred to a 
bridge financial company, they are no longer ``assets of a covered 
financial company'' that are being sold ``by the [FDIC].'' The statute 
sets forth the ``minimum'' standards that the regulation shall meet but 
permits the FDIC to promulgate a more restrictive regulation in its 
discretion. In general, the FDIC anticipates that a bridge financial 
company's charter, articles of incorporation or bylaws will require 
that the bridge financial company obtain approval from the FDIC as 
receiver before conducting certain significant transactions, such as a 
sale of a material subsidiary or line of business. Because a bridge 
financial company would be established by the FDIC to more efficiently 
resolve a covered financial company, the FDIC believes that the 
imposition of the restrictions set forth in the final rule on certain 
sales by a bridge financial company furthers the objective of section 
210(r) by prohibiting the same persons restricted from buying covered 
financial company assets (officers and directors who engaged in 
fraudulent activity or caused substantial losses to a covered financial 
company, for example) from buying those assets after those assets have 
been transferred to a bridge financial company.
    Paragraph (a)(2)(iii) clarifies the final rule's applicability to 
sales of securities backed by a pool of assets (which pool may include 
assets of a covered financial company) by a trust or other entity. It 
provides that the restriction applies only to the sale of assets by the 
FDIC to an underwriter in an initial offering, and not to any other 
purchaser of the securities because subsequent sales to other 
purchasers would not be conducted by the FDIC.
    Paragraph (a)(2)(iv) clarifies the applicability of section 210(r) 
and the final rule to certain types of transactions involving 
marketable securities and other financial instruments by stating that 
the prohibition does not apply to the sale of a security or a group or 
index of securities, a commodity, or any ``qualified financial 
contract'' (as defined in 12 U.S.C. 1821(e)(10)) that customarily is 
traded through a ``financial intermediary'' (as defined in the final 
rule) and where the seller cannot control selection of the purchaser 
and the sale is consummated through that customary practice. For 
example, if the FDIC as receiver for a covered financial company were 
to sell publicly-traded stocks or bonds that the covered financial 
company held, it might well order the covered financial company's 
broker or custodian to conduct the sale. The broker or custodian would 
then tender the securities to the market and accept prevailing market 
terms offered by another broker, a specialist, a central counterparty 
or a similar financial intermediary who would then sell the security to 
another purchaser. In this scenario it is not possible for the FDIC as 
receiver to control selection of the end purchaser at the time of sale. 
Therefore, the transaction cannot be a sale by the FDIC covered by the 
statute because the FDIC has no way to select the prospective purchaser 
or determine whether that purchaser would or would not be prohibited 
from purchasing the asset. Moreover, a prospective purchaser of such 
assets will not be able to select the FDIC as the seller and therefore 
could not determine whether Section 210(r) and the final rule apply to 
the transaction.
    Under paragraph (a)(2)(v), judicial or trustee's sales of property 
that secures an obligation to a covered financial company would not be 
covered under the final rule. Although the FDIC as receiver would have 
a security interest in the property serving as collateral and therefore 
the authority to initiate a foreclosure action, the selection of the 
purchaser and terms of the sale are not within the FDIC's control. 
Rather, a court or trustee would conduct the sale in accordance with 
applicable state law and select the purchaser. In this situation, the 
sale is not a sale by the FDIC. This exception does not affect sales of 
collateral by the FDIC where the FDIC is in possession of the property 
and conducts the sale itself, however. Where the FDIC has control over 
the manner and terms of the sale, it will require the prospective 
purchaser's certification that the prospective purchaser is not 
prohibited from purchasing the asset.
    Section 210(r) creates an exception from the specified restrictions 
on sales for sales made pursuant to a settlement agreement with the 
prospective purchaser. It states that the restrictions do not apply if 
the sale or transfer of the asset resolves or settles, or is part of 
the resolution or settlement of, one or more claims that have been, or 
could have been, asserted by the FDIC against the person regardless of 
the amount of such claims or obligations. The final rule provides in 
paragraph (a)(2)(vi) that such sales are outside the scope of coverage.
    One of the commenters suggested that the proposed rule provide that 
purchases in connection with a settlement of claims should be subject 
to the requirement that the settlement be submitted to, and approved 
by, a court. The FDIC has authority to settle claims involving 
receivership assets. Where settlements are not in the course of 
litigation, there is no avenue for judicial approval of the settlement, 
nor is such a requirement specified in the statute. Further, part 340 
does not contain a requirement for judicial approval of settlements and 
the proposed rule was consistent with that approach. Thus, the FDIC 
does not believe it is appropriate to require judicial review and 
approval of settlements involving matters that are not in litigation 
and does not adopt this suggested change in the final rule.
    Paragraph (a)(3) of the final rule makes it clear that the FDIC 
retains the authority to establish other policies restricting asset 
sales and expressly contemplates, among other things, the adoption of a 
policy prohibiting the sale of assets to other prospective purchasers, 
such as certain employees or contractors that the FDIC engages, or 
individuals or entities who are in default on obligations to the FDIC. 
The restrictions of the final rule are, however, limited to sales of 
assets of a covered financial company.
    Paragraph (b) sets forth definitions used in the final rule. 
Several of these definitions have been adopted from part 340, such as 
the definitions of ``person,'' ``associated person'' and ``default.'' 
The term ``financial intermediary,'' which is not found in part 340, 
has been defined for use in the final rule as well.
    Paragraph (c) of the final rule sets forth the operative precept 
for restricting asset sales. An individual or entity is ineligible to 
purchase assets from a covered financial company if it or its 
``associated person'' has committed an act that meets one or more of 
the conditions under which the sale would be prohibited. In applying 
the rule, the first step is to determine whether the ``person'' who is 
the prospective purchaser is an individual or an entity. The next step 
is to determine who qualifies as an ``associated person'' (as defined 
in paragraph (b)(1) of the final rule) of that prospective purchaser. 
If the prospective purchaser is an individual, then its associated 
person is (i) that individual's spouse or dependent child or member of 
his or her household, or (ii) any partnership or limited liability 
company of which the individual is or was a member, manager or general 
or limited partner, or (iii) any corporation of which the individual is 
or was an

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officer or director. If the prospective purchaser is a partnership or 
other entity, then its associated person is (i) its managing or general 
partner or managing member, or (ii) an individual or entity that owns 
or controls 25% or more (individually or in concert) of the entity.
    Under paragraph (c)(1), a person is ineligible to purchase any 
asset of a covered financial company from the FDIC if, prior to the 
appointment of the FDIC as receiver for the covered financial company, 
it or its associated person: (A) Has participated as an officer or 
director of a covered financial company or an affiliate thereof in a 
``material way in a transaction that caused a substantial loss to a 
covered financial company'' (as defined in paragraph (c)(2) of the 
final rule and discussed below); (B) has been removed from, or 
prohibited from participating in the affairs of, an insured depository 
institution, an insurance company or a financial company pursuant to 
any final enforcement action by its primary financial regulatory 
agency; (C) has demonstrated a pattern or practice of defalcation 
regarding obligations to any financial company; (D) has been convicted 
of committing or conspiring to commit any offense under 18 U.S.C. 215, 
656, 657, 1005, 1006, 1007, 1008, 1014, 1032, 1341, 1343 or 1344 
(having generally to do with financial crimes, fraud and embezzlement) 
affecting any covered financial company and is in default with respect 
to one or more obligations owed by that person or its associated 
person; or (E) would be prohibited from purchasing assets from a failed 
insured depository institution under 12 U.S.C. 1821(p) and part 340.
    The final rule establishes parameters to determine whether an 
individual or entity has participated in a ``material way in a 
transaction that caused a substantial loss to a covered financial 
company'' as this concept is used but not defined in the statute. Under 
paragraph (c)(2), a person has participated in a material way in a 
transaction that caused a substantial loss to a covered financial 
company if, in connection with a substantial loss to a covered 
financial company, that person has been found in a final determination 
by a court or administrative tribunal, or is alleged in a judicial or 
administrative action brought by the FDIC or by any component of the 
government of the United States or of any state: To have violated any 
law, regulation, or order issued by a federal or state regulatory 
agency, or breached or defaulted on a written agreement with a federal 
or state regulatory agency or breached a written agreement with a 
covered financial company; or to have breached a fiduciary duty owed to 
a covered financial company.
    One commenter suggested that the FDIC should have standards and 
procedures under which it makes findings that a person, entity, or 
financial group has engaged in mismanagement or contributed to 
significant losses of a covered financial company so that it can be 
readily determined that such person, entity or financial group is 
ineligible to purchase or acquire assets of covered financial 
companies. Under the proposed rule, the basis for these determinations 
was set forth with specificity and varied based upon the cause for 
ineligibility. For instance, a person has participated in a ``material 
way in a transaction that caused a substantial loss to a covered 
financial company'' if found by a court or alleged by a regulatory 
agency to have violated law or breached an agreement or fiduciary duty 
in connection with the loss. In addition, the definitions of 
``default,'' ``substantial loss,'' and ``pattern or practice of 
defalcation'' clarify the final rule's scope of coverage. This approach 
has been used under part 340 since that rule was promulgated in 2000 
and has been found to be clear and effective based on practical 
experience. Therefore, the suggested change is not made in the final 
rule.
    A ``substantial loss,'' defined in paragraph (b), means: (i) An 
obligation that is delinquent for ninety (90) or more days and on which 
a balance of more than $50,000 remains outstanding; (ii) a final 
judgment in excess of $50,000 remains unpaid, regardless of whether it 
becomes forgiven in whole or in part in a bankruptcy proceeding; (iii) 
a deficiency balance following a foreclosure or other sale of 
collateral in excess of $50,000 exists, regardless of whether it 
becomes forgiven in whole or in part in a bankruptcy proceeding; or 
(iv) any loss in excess of $50,000 evidenced by an IRS Form 1099-C 
(Information Reporting for Cancellation of Debt). There is no reprieve 
for a prospective purchaser who has participated in a material way in a 
transaction that caused a substantial loss to a covered financial 
company. Such prospective purchaser is indefinitely prohibited from 
purchasing assets of any covered financial company from the FDIC 
notwithstanding the passage of any amount of time. The approach to 
determine whether a person has participated in a material way in a 
transaction that has caused a substantial loss to a covered financial 
company is comparatively similar to the approach under part 340. In the 
proposed rule, the dollar threshold for a substantial loss was set at 
$50,000, just as it is in part 340. The FDIC believes that the $50,000 
threshold is consistent with Section 210(r) because the statute sets 
the standards that the FDIC shall, at a minimum, establish by 
regulation and leaves the interpretation of subjective terms within the 
FDIC's discretion. This threshold is retained in the final rule.
    Under paragraph (c)(3) of the final rule, a person or its 
associated person has demonstrated a ``pattern or practice of 
defalcation'' with respect to obligations to a covered financial 
company if the person or associated person has engaged in more than one 
transaction that created an obligation on the part of such person or 
its associated person with intent to cause a loss to a covered 
financial company or with reckless disregard for whether such 
transactions would cause a loss and the transactions, in the aggregate, 
caused a substantial loss to one or more covered financial companies.
    Although the statute restricts only the sale of assets of the 
covered financial company that held the defaulted obligation of the 
prospective purchaser, the restrictions in the final rule apply 
regardless of which covered financial company's assets are being sold. 
The FDIC continues to believe that adopting this more stringent 
approach is consistent with Section 210(r) because the statute sets 
only the minimum standards that the FDIC must meet with implementation 
of the final rule. Moreover, both commenters agreed that the 
restrictions should apply to individuals or entities who engaged in 
wrongdoing with respect to any covered financial company and one 
expressed agreement with extension of the restrictions to individuals 
or entities who engaged in wrongdoing at the expense of an insured 
depository institution.
    Paragraph (d) of the final rule restricts asset sales when the FDIC 
provides seller financing, including financing authorized under section 
210(h)(9) of the Dodd-Frank Act. It restricts a prospective purchaser 
from borrowing money or accepting credit from the FDIC in connection 
with the purchase of covered financial company assets if there has been 
a default with respect to one or more obligations totaling in excess of 
$1,000,000 owed by that person or its associated person and the person 
or its associated person made any fraudulent misrepresentations in 
connection with such obligation(s).
    The FDIC does not intend to imply that it will provide seller 
financing in connection with any asset sales nor that, if it elects to 
provide seller financing, it

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will do so to a person who does not meet other criteria that the FDIC 
may lawfully impose, such as creditworthiness. The FDIC has no 
obligation to provide seller financing even if the person is not in any 
way prohibited from purchasing assets from the FDIC under the 
restrictions set forth in the final rule.
    Paragraph (f) sets forth the requirement that a prospective 
purchaser certify, before purchasing any asset from the FDIC and under 
penalty of perjury, that the sale would not be prohibited under the 
final rule. This requirement creates an effective mechanism to comply 
with section 210(r) and the final rule. The FDIC will provide the form 
for the certification and the final rule contemplates that the form may 
change over time.
    One of the commenters suggested that the proposed rule provide that 
no proxies or indirect purchasers may be used with the objective of 
ultimately providing ownership, management or control to an individual 
or entity that would otherwise be prohibited from purchasing assets of 
a covered financial company and, further, that prospective purchasers 
certify that they are not acting on behalf of or for the benefit of any 
individual or entity that would be prohibited from purchasing assets of 
a covered financial company. The FDIC recognizes the risk that a straw 
buyer may be used and has included a statement in its form Purchaser 
Eligibility Certificate requiring a prospective purchaser to certify 
that neither the identity nor form of the prospective purchaser, nor 
any aspect of the contemplated transaction, has been created or altered 
with the intent, in whole or in part, to allow an individual or entity 
who otherwise would be ineligible to purchase assets from the FDIC to 
benefit directly or indirectly from the sale. The FDIC agrees that the 
proposed rule would be strengthened by adding this requirement to the 
text of the final rule and has done so in paragraph (f).
    Certain types of entities are exempt from the self-certification 
requirement under paragraph (f)(1), unless the Director of the FDIC's 
Division of Resolutions and Receiverships (or designee) determines that 
a certification is required. These exempted entities are: (1) State or 
political subdivisions of a state; (2) federal agencies or 
instrumentalities such as the Government National Mortgage Association; 
(3) federally-regulated, government-sponsored enterprises such as the 
Federal National Mortgage Association or the Federal Home Loan Mortgage 
Corporation; and (4) bridge financial companies established by the 
FDIC. Because of the nature of these entities, including their 
organizational purposes or goals and the fact that they are subject to 
strict governmental control or oversight, it is reasonable to presume 
compliance with the final rule without requiring self-certification.
    One of the commenters noted that the proposed rule does not specify 
the actions to be implemented if an improper, prohibited purchase is 
later found and suggested that the final rule provide that if a person 
is later found to have engaged in a prohibited purchase, then such 
purchase or acquisition is voidable. The FDIC has considered this 
suggestion and found that such a condition could pose significant 
practical issues with respect to conveyance of title to assets 
purchased from the FDIC. A conveyance that is potentially voidable 
could create uncertainty as to whether an acquirer or subsequent 
purchaser of an asset holds marketable title. Such a cloud on title 
could adversely affect the value of all assets sold by the FDIC if the 
market were to apply a discount for the risk that a sale could be 
voided on this basis. The proposed rule stated that the purchaser's 
certification is made under penalty of perjury and this is stated in 
the final rule as well.

III. Regulatory Analysis and Procedure

A. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501, et seq.) (the ``PRA''), the FDIC may not 
conduct or sponsor, and the respondent is not required to respond to, 
an information collection unless it displays a currently valid Office 
of Management and Budget (``OMB'') control number. As indicated by 
paragraph (f), the FDIC has developed a purchaser eligibility 
certification form relating to this final rule. The form will be used 
to establish compliance with the final rule by a prospective purchaser 
of assets of a covered financial company from the FDIC. The FDIC 
believes that the certification is a collection of information under 
the PRA and, consistent with the requirements of 5 CFR 1320.11, the 
FDIC has submitted the form to OMB for review under section 3507(d) of 
the PRA.
    Title of Information Collection: Covered Financial Company 
Purchaser Eligibility Certification.
    Affected Public: Prospective purchasers of covered financial 
company assets.
    Frequency of Response: Event generated.
    Estimated Number of Respondents: 20.
    Time per Response: 30 minutes.
    Total Estimated Annual Burden: 10 hours.
    The FDIC has a continuing interest in comments on paperwork burden. 
Comments are invited on (a) whether the collection of information is 
necessary for the proper performance of the FDIC's functions, including 
whether the information has practical utility; (b) the accuracy of the 
estimates of the burden of the information collection, including the 
validity of the methodology and assumptions used; (c) ways to enhance 
the quality, utility, and clarity of the information to be collected; 
and (d) ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601, et seq., 
requires that each Federal agency either certify that a final rule will 
not have a significant economic impact on a substantial number of small 
entities or prepare an initial regulatory flexibility analysis of the 
rule and publish the analysis for comment. The RFA provides that an 
agency is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities. 
The FDIC hereby certifies pursuant to 5 U.S.C. 605(b) that the final 
rule would not have a significant economic impact on a substantial 
number of small entities within the meaning of the RFA.
    Under regulations issued by the Small Business Administration (13 
CFR 121.201), a ``small entity'' includes those firms in the ``Finance 
and Insurance'' sector whose size varies from $7 million or less in 
assets to $175 million or less in assets. The final rule is promulgated 
under Title II of the Dodd-Frank Act, which establishes a regime for 
the orderly liquidation of the nation's largest, and most systemic 
companies. For instance, companies subject to enhanced supervision 
under the Dodd-Frank Act include bank holding companies with assets in 
excess of $50,000,000.00. The orderly liquidation of assets of such a 
large, systemic financial company generally will involve the sale of 
significant subsidiaries and business lines rather than smaller asset 
sales, and such sales are unlikely to impact a substantial number of 
small entities. Accordingly, there will be no significant economic

[[Page 20766]]

impact on a substantial number of small entities as a result of this 
final rule.
    Moreover, the burden imposed by the final rule is the completion of 
a certification form described above in the Paperwork Reduction Act 
section. Completing the certification form does not require the use of 
professional skills or the preparation of special reports or records 
and has a minimal economic impact on those individuals and entities 
that seek to purchase assets from the FDIC. Thus, any impact on small 
entities will not be substantial.

C. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the final rule will not affect family 
wellbeing within the meaning of section 654 of the Treasury and General 
Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

D. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (``SBREFA'') (Pub. L. 104-
121, 110 Stat. 857) which provides for agencies to report rules to 
Congress and for Congress to review such rules. The reporting 
requirement is triggered in instances where the FDIC issues a final 
rule as defined by the APA (5 U.S.C. 551 et seq.). Because the FDIC is 
issuing a final rule as defined by the APA, the FDIC will file the 
reports required by the SBREFA.

E. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act of 1999 (Pub. L. 106-102, 
113 Stat. 1338, 1471) requires the Federal banking agencies to use 
plain language in all proposed and final rules published after January 
1, 2000. The FDIC has sought to present the final rule in a simple and 
straightforward manner.

Text of the Final Rule

Federal Deposit Insurance Corporation

12 CFR Chapter III

List of Subjects in 12 CFR Part 380

    Asset disposition, Bank holding companies, Covered financial 
companies, Financial companies, Holding companies, Insurance companies, 
Nonbank financial companies.

Authority and Issuance

    For the reasons set forth in the Supplementary Information, the 
Federal Deposit Insurance Corporation amends Part 380 of Chapter III of 
Title 12, Code of Federal Regulations as follows:

PART 380--ORDERLY LIQUIDATION AUTHORITY

0
1. Amend the authority for part 380 to read as follows:

    Authority: 12 U.S.C. 5389; 12 U.S.C. 5390(s)(3); 12 U.S.C. 
5390(b)(1)(C); 12 U.S.C. 5390(a)(7)(D); 12 U.S.C. 5381(b); 12 U.S.C. 
5390(r).


0
2. Part 380 is amended by adding Sec.  380.13 to read as follows:


Sec.  380.13  Restrictions on sale of assets of a covered financial 
company by the Federal Deposit Insurance Corporation.

    (a) Purpose and applicability. (1) Purpose. The purpose of this 
section is to prohibit individuals or entities that profited or engaged 
in wrongdoing at the expense of a covered financial company or an 
insured depository institution, or seriously mismanaged a covered 
financial company or an insured depository institution, from buying 
assets of a covered financial company from the FDIC.
    (2) Applicability. (i) The restrictions of this section apply to 
the sale of assets of a covered financial company by the FDIC as 
receiver or in its corporate capacity.
    (ii) The restrictions in this section apply to the sale of assets 
of a bridge financial company if:
    (A) The sale is not in the ordinary course of business of the 
bridge financial company, and
    (B) The approval or non-objection of the FDIC is required in 
connection with the sale according to the charter, articles of 
association, bylaws or other documents or instruments establishing the 
governance of the bridge financial company and the authorities of its 
board of directors and executive officers.
    (iii) In the case of a sale of securities backed by a pool of 
assets that may include assets of a covered financial company by a 
trust or other entity, this section applies only to the sale of assets 
by the FDIC to an underwriter in an initial offering, and not to any 
other purchaser of the securities.
    (iv) The restrictions of this section do not apply to a sale of a 
security or a group or index of securities, a commodity, or any 
qualified financial contract that customarily is traded through a 
financial intermediary, as defined in paragraph (b) of this section, 
where the seller cannot control selection of the purchaser and the sale 
is consummated through that customary practice.
    (v) The restrictions of this section do not apply to a judicial 
sale or a trustee's sale of property that secures an obligation to the 
FDIC where the sale is not conducted or controlled by the FDIC.
    (vi) The restrictions of this section do not apply to the sale or 
transfer of an asset if such sale or transfer resolves or settles, or 
is part of the resolution or settlement of, one (1) or more claims or 
obligations that have been, or could have been, asserted by the FDIC 
against the person with whom the FDIC is settling regardless of the 
amount of such claims or obligations.
    (3) The FDIC retains the authority to establish other policies 
restricting asset sales. Neither 12 U.S.C. 5390(r) nor this section in 
any way limits the authority of the FDIC to establish policies 
prohibiting the sale of assets to prospective purchasers who have 
injured the respective covered financial company, or to other 
prospective purchasers, such as certain employees or contractors of the 
FDIC, or individuals who are not in compliance with the terms of any 
debt or duty owed to the FDIC in any of its capacities. Any such 
policies may be independent of, in conjunction with, or in addition to 
the restrictions set forth in this part.
    (b) Definitions. Many of the terms used in this section are defined 
in the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 
U.S.C. 5301, et seq. Additionally, for the purposes of this section, 
the following terms are defined:
    (1) Associated person. An ``associated person'' of an individual or 
entity means:
    (i) With respect to an individual:
    (A) The individual's spouse or dependent child or any member of his 
or her immediate household;
    (B) A partnership of which the individual is or was a general or 
limited partner or a limited liability company of which the individual 
is or was a member; or
    (C) A corporation of which the individual is or was an officer or 
director;
    (ii) With respect to a partnership, a managing or general partner 
of the partnership or with respect to a limited liability company, a 
manager; or
    (iii) With respect to any entity, an individual or entity who, 
acting individually or in concert with one or more individuals or 
entities, owns or controls 25 percent or more of the entity.

[[Page 20767]]

    (2) Default. The term ``default'' means any failure to comply with 
the terms of an obligation to such an extent that:
    (i) A judgment has been rendered in favor of the FDIC or a covered 
financial company; or
    (ii) In the case of a secured obligation, the lien on property 
securing such obligation has been foreclosed.
    (3) Financial intermediary. The term ``financial intermediary'' 
means any broker, dealer, bank, underwriter, exchange, clearing agency 
registered with the SEC under section 17A of the Securities Exchange 
Act of 1934, transfer agent (as defined in section 3(a)(25) of the 
Securities Exchange Act of 1934), central counterparty or any other 
entity whose role is to facilitate a transaction by, as a riskless 
intermediary, purchasing a security or qualified financial contract 
from one counterparty and then selling it to another.
    (4) Obligation. The term ``obligation'' means any debt or duty to 
pay money owed to the FDIC or a covered financial company, including 
any guarantee of any such debt or duty.
    (5) Person. The term ``person'' means an individual, or an entity 
with a legally independent existence, including: A trustee; the 
beneficiary of at least a 25 percent share of the proceeds of a trust; 
a partnership; a limited liability company; a corporation; an 
association; or other organization or society.
    (6) Substantial loss. The term ``substantial loss'' means:
    (i) An obligation that is delinquent for ninety (90) or more days 
and on which there remains an outstanding balance of more than $50,000;
    (ii) An unpaid final judgment in excess of $50,000 regardless of 
whether it becomes forgiven in whole or in part in a bankruptcy 
proceeding;
    (iii) A deficiency balance following a foreclosure of collateral in 
excess of $50,000, regardless of whether it becomes forgiven in whole 
or in part in a bankruptcy proceeding; or
    (iv) Any loss in excess of $50,000 evidenced by an IRS Form 1099-C 
(Information Reporting for Cancellation of Debt).
    (c) Restrictions on the sale of assets. (1) A person may not 
acquire any assets of a covered financial company from the FDIC if, 
prior to the appointment of the FDIC as receiver for the covered 
financial company, the person or its associated person:
    (i) Has participated as an officer or director of a covered 
financial company or of an affiliate of a covered financial company in 
a material way in one or more transactions that caused a substantial 
loss to a covered financial company;
    (ii) Has been removed from, or prohibited from participating in the 
affairs of, a financial company pursuant to any final enforcement 
action by its primary financial regulatory agency;
    (iii) Has demonstrated a pattern or practice of defalcation 
regarding obligations to a covered financial company;
    (iv) Has been convicted of committing or conspiring to commit any 
offense under 18 U.S.C. 215, 656, 657, 1005, 1006, 1007, 1008, 1014, 
1032, 1341, 1343 or 1344 affecting any covered financial company and 
there has been a default with respect to one or more obligations owed 
by that person or its associated person; or
    (v) Would be prohibited from purchasing the assets of a failed 
insured depository institution from the FDIC under 12 U.S.C. 1821(p) or 
its implementing regulation at 12 CFR part 340.
    (2) For purposes of paragraph (c)(1) of this section, a person has 
participated in a ``material way in a transaction that caused a 
substantial loss to a covered financial company'' if, in connection 
with a substantial loss to the covered financial company, the person 
has been found in a final determination by a court or administrative 
tribunal, or is alleged in a judicial or administrative action brought 
by a primary financial regulatory agency or by any component of the 
government of the United States or of any state:
    (i) To have violated any law, regulation, or order issued by a 
federal or state regulatory agency, or breached or defaulted on a 
written agreement with a federal or state regulatory agency, or 
breached a written agreement with a covered financial company; or
    (ii) To have breached a fiduciary duty owed to a covered financial 
company.
    (3) For purposes of paragraph (c)(1) of this section, a person or 
its associated person has demonstrated a ``pattern or practice of 
defalcation'' regarding obligations to a covered financial company if 
the person or associated person has:
    (i) Engaged in more than one transaction that created an obligation 
on the part of such person or its associated person with intent to 
cause a loss to any financial company or with reckless disregard for 
whether such transactions would cause a loss to any such financial 
company; and
    (ii) The transactions, in the aggregate, caused a substantial loss 
to one or more covered financial companies.
    (d) Restrictions when FDIC provides seller financing. A person may 
not borrow money or accept credit from the FDIC in connection with the 
purchase of any assets from the FDIC or any covered financial company 
if:
    (1) There has been a default with respect to one or more 
obligations totaling in excess of $1,000,000 owed by that person or its 
associated person; and
    (2) The person or its associated person made any fraudulent 
misrepresentations in connection with any such obligation(s).
    (e) No obligation to provide seller financing. The FDIC still has 
the right to make an independent determination, based upon all relevant 
facts of a person's financial condition and history, of that person's 
eligibility to receive any loan or extension of credit from the FDIC, 
even if the person is not in any way disqualified from purchasing 
assets from the FDIC under the restrictions set forth in this section.
    (f) Purchaser eligibility certificate required. (1) Before any 
person may purchase any asset from the FDIC that person must certify, 
under penalty of perjury, that none of the restrictions contained in 
this section applies to the purchase. The person must also certify that 
neither the identity nor form of the person, nor any aspect of the 
contemplated transaction, has been created or altered with the intent, 
in whole or in part, to allow an individual or entity who otherwise 
would be ineligible to purchase assets from the FDIC to benefit 
directly or indirectly from the proposed transaction. The FDIC may 
establish the form of the certification and may change the form from 
time to time.
    (2) Notwithstanding paragraph (f)(1) of this section, and unless 
the Director of the FDIC's Division of Resolutions and Receiverships, 
or designee, in his or her discretion so requires, a certification need 
not be provided by:
    (i) A state or political subdivision of a state;
    (ii) A federal agency or instrumentality such as the Government 
National Mortgage Association;
    (iii) A federally-regulated, government-sponsored enterprise such 
as Federal National Mortgage Association or Federal Home Loan Mortgage 
Corporation; or
    (iv) A bridge financial company.

    Dated at Washington, DC, this 8th day of April, 2014.

    By Order of the Board of Directors, Federal Deposit Insurance 
Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2014-08258 Filed 4-11-14; 8:45 am]
BILLING CODE 6714-01-P