The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5293

March 30, 1978

BANKS & BANKING:

Ownership of shares in a bank by commissioner, deputy commissioner or examiner of the bureau

Inasmuch as the Banking Code prohibits the commissioner, a deputy commissioner or an examiner of the bureau from being a shareholder of an institution subject to the provisions of the act, any such officer or employee may not establish a trust holding bank shares of which he or she is the beneficiary.

Keith Molin

Director

Michigan Department of Commerce

Fourth Floor

Law Building

Lansing, Michigan 48909

You have requested my opinion as to whether a deputy commissioner of the Financial Institutions Bureau may possess a stock interest in a state-chartered bank. The propriety of stock ownership in banks by employees of the Financial Institutions Bureau is governed by section 15(1) of the Banking Code of 1969, 1969 PA 319, s 15(1), MCLA 487.315(1); MSA 23.710(15)(1), which provides as follows:

'During his term of office or employment, neither the commissioner nor any deputy commissioner or examiner of the bureau shall be a shareholder, either directly or indirectly, of any institution subject to the provisions of this act or of any national bank, or of any affiliate or subsidiary thereof.'

The stock in question is no longer directly owned by the employee. A significant number of shares are held in the name of the employee's spouse. In addition, the employee has transferred a significant block of shares to a trust established in 1972. Under the terms of the trust, the employee receives the benefits of stock ownership without direct ownership of the stock; also, the employee is fully aware of what constitutes the res of the trust. The trust provides that an annual accounting must be provided to the employee. Further, the employee is entitled to all income of the trust, to be distributed to him quarter-annually. Another incident of beneficial ownership is that the trustee is authorized to pay the employee such sums from the trust res as are necessary for the support, maintenance, and education of the employee and his dependents. Although denoted as 'irrevocable', the trust terminates upon the employee's death, or 'sale or other divestiture by the Trustee of all shares of stock' in the bank, or termination of the employee's 'employment in a capacity in which he is prohibited by law from being a shareholder of a bank or other financial institution.' Thus, as the trust exists only so long as the conflict exists, it is manifest that its purpose is to permit the employee to enjoy the benefits of ownership without holding legal title to bank shares.

Each of these incidents of equitable interest, however, is the type of benefit that employees of the bureau were intended to be prohibited from enjoying by section 15(1). The law's purpose is simple and clear: there is to be an absolute assurance of objectivity in government regulation of banking. Thus, only by totally divorcing the regulators from any financial interest in banking is it possible to assure that no appearance of conflicting interests exists: therefore, no degree of ownership is permitted.

Courts have recognized that trustees owe a duty of loyalty to beneficiaries of the trust to administer the trust solely in the beneficiary's interest, and a trustee is liable to a beneficiary for any improper act which injures the beneficiary's interest. In Re Krause's Estate, 19 Mich App 155; 172 NW2d 468 (1969), and In Re Hartmen's Estate, 51 Mich App 192; 215 NW2d 202 (1974). Thus, a person prohibited by law from having legal title may not avoid the law by placing title in trust while retaining equitable ownership of the property.

It is therefore my opinion that a deputy commissioner of the Financial Institutions Bureau who has placed shares of bank stock in trust or has placed it in the name of his spouse or dependent children is in violation of 1969 PA 319, supra, s 15(1).

It may also be noted that the Rules of the Civil Service Commission, ss 1.5b and 1.5f, provide that no state classified employee shall:

'Engage in any business transaction or private arrangement for financial gain for himself or a member of his immediate family, which accrues from or is based on the employee's official position or on confidential information which the employee gained by reason of his position.' 1.5b

'Have any substantial interest nor shall a member of his immediate family have such interest, in any business or industry concerning which the employee directly, in a significant decision-making capacity, participates on behalf of the state in the regulation, enforcement, auditing, licensing or purchasing of any goods or services.' 1.5f

Thus, in addition to violation of 1969 PA 319, supra, s 15(1), these Civil Service Rules are also violated by the device of placing bank stock, the ownership of which is prohibited, in trust.

Accordingly, the employee must divest himself of any direct or indirect interest in the bank in question. If he refuses to do so, it will be necessary to assign him to duties other than those performed by a commissioner, a deputy commissioner or an examiner of the bureau.

Frank J. Kelley

Attorney General