Mr. ROSENTHAL. What I am concerned about is this. Suppose a group of Mafia types-I hate to use the word-or less than respected citizens hired a person of such distinction as Clark Clifford, and he made all of those assurances to you, and they were foreign persons, and they were out of your reach? Would the same scenario follow?

Mr. KOHN. We had no reason to believe that they had any Mafia connections or any other undesirable connections.

Mr. ROSENTHAL. I am just trying to find out the extent of the investigation you conducted into the character and background of these principals.

Mr. KOHN. We had no reason to believe, based upon the information that we had at the time that we acted upon the application, that there was anything undesirable.

Mr. ROSENTHAL. Where did you get that information?

Mr. KOHN. We obtained information from the investors and from their representatives and from other outside sources.

Mr. ROSENTHAL. Did you have the opportunity to look beyond the information, to send investigators out?

Mr. KOHN. We saw no useful purpose served in sending investigators into their home countries, no. We did not.

Mr. ROSENTHAL. My impression is that you did a pretty sloppy job, a very sloppy job. To get a high-level Government job around here with some degree of security clearance, they have 85 FBI agents investigating for 9 months. I am just trying to find out how seriously you saw your responsibility to be to investigate the character and background of the principals. Were you sort of overwhelmed by the fact that Mr. Clifford's office represented these people?

Mr. KOHN. No; we were not.

Mr. ROSENTHAL. If Joe Smith from downtown New York on Worth Street came in, would the results have been the same?

Mr. KOHN. As part of our investigation we did discuss with New York banks which had business relationships with these investors over the years, and we were not able to find anything adverse in that information.

Mr. ROSENTHAL. However, you were never able to do a really thorough character background check on these individuals. That is understandable because they are somewhere else.

Mr. KOHN. Again, based upon the investigation that we did, we found no basis for believing that-

Mr. ROSENTHAL. I am trying to find out whether your investigation was adequate to the responsibility you had.

Mr. KоHN. We believe it was.

Mr. ROSENTHAL. Of course you believe it was. That is why you did what you did. For the record, could you-I do not want to belabor the issue, but could you, for the record, prepare a memorandum of the entire investigation you conducted including all facets of the investigation-the individuals involved, the interviews you had, who you spoke to, who you met, the whole show? I think that is important to put into the record.

Mr. KOHN. We will be happy to do that.

Mr. ROSENTHAL. Without objection, the record will be held open to receive that information.

At the public hearing held by your committee on September 30, you requested that the New York State Banking Department supply you with information concerning the investigation of the investors who applied for permission to acquire control of First American Bankshares, Inc. (First American), formerly known as Financial General Bankshares, Inc.

A review of our records indicates that we made a thorough investigation and that we obtained sufficient information to determine that the investors' character and financial responsibility warranted approval of the application.

The investors had to comply with the stringent information requirements of the Banking Department's Supervisory Procedure CB 117 (copy attached) which provides for an extensive probe into the financial and personal affairs of individual applicants. Among the data required under CB 117 are curricula vitae, employment histories, disclosures of previous or pending civil or criminal proceedings, banking relationships, descriptions of the sources of funds for the proposed investment, details of applicants' businesses, three-year financial statements, explanations of the accounting principles used in their preparation and a description of the qualifications of the accountants who prepared them.

The material submitted under CB 117 was further supplemented by a long list of additional information which we subsequently requested and obtained from applicants. This included interim financial statements, additional bank and non-bank references, further details on their business connections, elaboration of significant items on their financial statements, and background data on the home countries of the applicants.

We also worked closely with the staff of the Federal Reserve Board, who were investigating the same investors, and exchanged information with them continually. They, of course, had at their disposal the vast investigative resources of the federal government. Through them we established contacts at the U. S. State Department and the U. S. Department of Commerce from whom we obtained valuable information about the investors and about their home countries.

Finally, we utilized the resources of multinational banks in New York City, in particular Morgan Guaranty Trust Company, Manufacturers Hanover Trust Company, Irving Trust Company and Citibank. Middle East specialists at these banks knew the major investors, were able to confirm the accuracy of much of the information we have received, and were able to supply us with additional information as well.

From none of the foregoing sources of information did we ever receive any derogatory information about any of the investors. On the contrary, all the information we received indicated that the investors were prestigious and reputable people.

Finally, it should be noted that this application received more scrutiny from more regulatory agencies than any other in recent memory. Over a period of four years, the application was scrutinized by the Federal Reserve Board, the Comptroller of the Currency, the Securities and Exchange Commission, and the banking authorities of the states of Maryland, Virginia and Tennessee as well as New York. None of the regulatory agencies involved found anything derogatory about any of the investors, nor did the former top management of Financial General, who fought the takeover for almost three years.

To reiterate, our investigation was thorough and explored all available sources of information. Our conclusions were consistent with all the standards and criteria set forth in the New York Banking Law.

I want to thank you for this opportunity to set the record straight on this matter.

SUPERVISORY PROCEDURE CB 117

APPLICATION FOR COMPANIES SEEKING TO EXERCISE CONTROL
OF A BANKING INSTITUTION UNDER BANKING LAW, SECTION 143-b

Historical Note

Procedure filled Mar. 12, 1970; amd. filed

April 11, 1977, eff. April 11, 1977.

Section 117.1 General information. (a) The instructions set forth in this Supervisory Procedure shall apply to an application to exercise voting control of a banking institution pursuant to Banking Law, section 143-b.

(b) Six copies of a letter application and a check for $1,000 payable to the "Superintendent of Banks of the State of New York" shall be submitted to the superintendent at Two World Trade Center, New York, N.Y. 10047. Except as otherwise stated in this procedure or as otherwise provided in the specific written approval of the superintendent:

(1) an application submitted by an individual shall include the information required by section 117.4 of this Supervisory Procedure and the exhibits required by section 117.5(b) of this Supervisory Procedure;

(2) an application submitted by a bank-created holding company shall include only the information required by sections 117.3(a), (b) and (f) of this Supervisory Procedure, together with a copy of the application submitted to the Board of Governors of the Federal Reserve System pursuant to the provisions of the Federal Bank Holding Company Act of 1956, as amended;

(3) an application submitted by any other person shall include the information required by section 117.3 of this Supervisory Procedure, and the exhibits required by section 117.5(a) of this Supervisory Procedure;

(4) the information required by this Supervisory Procedure shall be set forth in the order and under item numbers and captions which correspond to the order, item numbers and captions used in the applicable sections of this Supervisory Procedure. If the information requested in any item is inapplicable, a statement to that effect shall be made; and

(5) if the information required by any item has been given in a sworn application or report filled with the Banking Department pursuant to any regulation of the department and no additional information is needed to make the information previously filed accurate, complete and up to date, the required information may be incorporated by a specific reference to the page or pages of the previous flling which contain such information.

(c) Each copy of the application shall be signed by the applicant. If the applicant is a partnership, corporation or other entity, the application shall be signed by a partner or duly authorized executive officer thereof. Each person signing the application shall:

(1) state whether control has been acquired by or tendered to the applicant as of the time the application is formally submitted for filing*;

(2) certify that he will promptly advise the superintendent of any changes which may occur in the information furnished in the application subsequent to the date upon which the information was furnished; and

(3) subscribe the application and affirm, under penalties of perjury, that he has reviewed the application and that the application does not make any untrue

• No applicant shall be deemed to have been tendered control unless such applicant shall have made a tender offer or a request or invitation for tenders of any class of equity security, pursuant to either the Securities Exchange Act of 1934, as amended, and any rules and regulations promulgated thereunder, or section 105(b) of the Depository Institutions Act of 1974 and any rules or regulations promulgated thereunder by the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Comptroller of the Currency.

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SUPERVISORY PROCEDURE CB 117

statement of a material fact or omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

(d) If an application filed pursuant to this Supervisory Procedure is subject to the statutory period for approval or disapproval set forth in subdivision (1) of Banking Law section 143-b, the statutory period shall commence on the date that the department receives the filing fee and a completed application which complies with this Supervisory Procedure.

(e) The superintendent reserves the right to require additional information in connection with the application. The applicant may, of course, submit any additional information which it deems pertinent to the application.

117.2 Definitions. For purposes of this Supervisory Procedure:

(a) affiliate means any person that directly or indirectly, through one or more intermediaries, controls, or is controlled by or is under common control with the person specified;

(b) bank-created holding company means a company, (1) formed by a banking institution which is the only banking subsidiary of such company, (2) which owns, controls or holds with power to vote all of the voting securities, except directors' qualifying shares, of such banking institution, (3) which is required to file an application with the Board of Governors of the Federal Reserve System under the Federal Bank Holding Company Act of 1956, as amended, and (4) which is required to file an application under Banking Law, section 143-b;

(c) banking institution refers to the banking institution control of which is sought to be exercised by the applicant;

(d) banking organization means a state-chartered, federally-chartered or foreign bank, trust company, private bank, investment company, banking association, or bank holding company.

(e) control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a banking institution, whether through the ownership of voting stock of such banking institution, the ownership of voting stock of any company which possesses such power, by contract or otherwise. Control shall be presumed to exist if any person, directly or indirectly, owns, controls or holds with the power to vote 10 per centum or more of the voting stock of any banking institution or of any company which owns, controls or holds with power to vote 10 per centum or more of the voting stock of such banking institution, but no person shall be deemed to control a banking institution solely by reason of his being an officer or director of such banking institution or company;

(f) person means a corporation, partnership, association or other business entity, a trust or an individual; and

(g) subsidiary means any company a majority of whose voting stock is directly or indirectly, or through a subsidiary or subsidiaries, owned, controlled or held with power to vote, by an applicant or by any company owned or controlled by the applicant.

117.3 Information required in applications filed by corporate or other entities. (a) General. Set forth the name and address of the applicant; the name and address of the officer or partner to whom all communications from the Banking Department should be addressed and the name and address of the banking institution. (b) Control.

(1) Set forth the date on which and the manner in which control was or will be acquired;

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