After being slapped with a post-trial judgment last April totaling $2.2 million for misappropriation of confidential and proprietary information, two Wyoming bank executives were named in an unprecedented “Notice of Intent to Prohibit” filed in December by the Federal Reserve Board.  If these executives thought that more than two million dollars in civil liability was harsh, they were mistaken, as they now face a much harsher consequence:  a ban from the banking business altogether.

In its Notice, the Federal Reserve Board alleges that two executives, Frank Smith and Mark Kiolbasa, conspired to misappropriate the confidential and proprietary business information of their employer, Central Bank & Trust in Wyoming, and to give it to Central’s competitor, Farmers State Bank, in exchange for employment and an ownership interest in Farmers.  The Notice contends that the bankers engaged in unsafe and unsound banking practices in breach of their fiduciary duties to Central Bank and seeks a hearing to determine whether they should be permanently barred from participating in the banking industry “in any manner.”

It is unclear whether this action stands on its own or is part of larger movement by the Federal Reserve to crack down on confidential and trade secret misappropriation.  Regardless, it is an issue we will closely monitor given its sizeable consequences.  The risk of a Federal Reserve action for a permanent ban on participation in the banking business adds greater protection to banks, but creates new risks at the same time.  The same bank who threatens to report one of its executives to Feds could also hire a new executive who brings the same baggage with them.  With the Federal Reserve Board’s recent Notice, we are continuing to notice a trend of the governments’ involvement in the confidential and trade secret misappropriation world.