In the Matter of The Proposed Debarment of KERRY L. MURDOCK
Docket No. 94-67-DA

DECISION OF GOVERNMENTWIDE DEBARMENT
FROM FEDERAL NONPROCUREMENT TRANSACTIONS

This DECISION is issued by the United States Department of
Education (Department) pursuant to 34 C.F.R. Part 85. I have
jurisdiction in this matter by virtue of a Delegation of Authority
from the Director, Office of Hearings and Appeals, to me to act as
the Designated Deciding Debarment and Suspension Official. The
regulations, 34 C.F.R. Part 85, and the Nonprocurement Debarment
and Suspension Procedures mailed with the notice of the proposed
debarment govern this proceeding.

On March 1, 1994, Mr. Kerry L. Murdock was issued a "Notice of
Proposed Governmentwide Debarment from Federal Nonprocurement
Transactions" pursuant to 34 C.F.R. . 85.312. The proposed debarment
alleged there were irregularities in his business practices which
seriously reflected on the propriety of further federal government
dealings with him. The Notice refers to the fact that on November 24,
1992, he pleaded guilty to two counts of misapplication of bank
funds, in violation of 18 U.S.C. .. 657 and 2, which alleged that on
February 3, 1987, and on March 23, 1987, he knowingly and willfully
misapplied, and caused to be misapplied, a total of $133,390 in bank
funds, including program funds authorized under Title IV of the
Higher Education Act of 1965, as amended. Mr. Murdock was informed
that this conviction constitutes cause for debarment under the
provisions of 34 C.F.R. . 85.305 (a), (b), and (d). Subsection (a)
addresses conviction of fraud, embezzlement, false statements and
other offenses indicating a lack of business integrity; subsection
(b) addresses a violation of a public agreement or transaction which
affects
the integrity of an agency program; and subsection (d)
addresses "[a]ny other cause of so serious or compelling a
nature that it affects the present responsibility of a
person."

Mr. Murdock exercised his right to oppose this proposed
debarment in accordance with the provisions of 34 C.F.R. .
85.313 and was represented in this matter by Mr. Saul L.
Moskowitz. The Department's Notice Official was represented by
Mr. Edmund J. Trepacz, II, of the Office of the General
Counsel. In his written presentation Mr. Murdock explained
that the transferred funds which were the subject of his
conviction were funds which belonged to the First America
Savings Bank (FASB) where he, at age 26, was hired in
December, 1985, as Assistant Controller. He was promoted to
the position of Controller in December 1986. While employed at
FASB, Mr. Murdock worked for Mr. John J. Hilliard, who was not
only President and CEO of FASB, but also a director and major
stockholder of the holding company/parent of FASB, National
Savings Bank Corporation of Colorado (NSB). On February 3,
1987, Mr. Murdock, at the direction of Mr. Hilliard,
transferred $98,100 in FASB funds characterized as deferred
taxes from its general operating account to another bank owned
by NSB to satisfy loans in Mr. Hilliard's name. Mr. Murdock,
on March 23, 1987, again transferred $35,290 from FASB's
general operating account to the NSB to satisfy loans owned by
Mr. Hilliard.



Although it appears he was under no duty to do so, prior to
executing these two transactions, Mr. Murdock sought approval
from the Federal Home Loan Bank Board (FHLBB) for these fund
transfers on the grounds that they represented deferred tax
liabilities of FASB for which NSB would ultimately be required
to make payment. The FHLBB representative told Mr. Murdock
this would constitute an impermissible loan by FASB to NSB and
the transfers should not be made. The FASB board of directors
discounted this "advice." Mr. Murdock was apparently still
concerned enough to consult a respected accounting firm about
the propriety of such a transfer before he carried out Mr.
Hilliard's request. After being informed by the accounting
firm that there were no tax or accounting limitations, Mr.
Murdock caused the
funds to be disbursed in accordance with the directions from Mr.    
Hilliard. Apparently still not convinced of the propriety of
these transactions, Mr. Murdock consulted with a national law
firm in the summer of 1987 and that firm, too, informed him
they
disagreed with the FHLBB limitations.

The FHLBB, and its successor, the Resolution Trust
Corporation, pursued criminal prosecution of Mr. Murdock and
his superior, Mr. Hilliard. On November 6, 1992, Mr. Murdock
pleaded guilty to the two offenses and was sentenced on
January 11, 1993. From July 1992 to the present, Mr. Murdock
has acted as an agent for an entity controlled by Sumitomo
Bank of California (SBC) to oversee the administration by
Unipac Service Corporation of a portfolio of approximately $17
million in Federal Family Education Loan Program loans held by
SBC.

Page 3 - Decision

The Department does not dispute any of these facts. It relies
solely upon the record of conviction before the United States
District Court, District of Colorado, for proof that Mr.
Murdock, by his conviction of the aforementioned offenses, has
demonstrated that he is not a responsible person. On this
basis it argues he is one who should be precluded from
conducting any business with the Federal Government.

Mr. Murdock defends himself in this proceeding with the
argument that debarment is a serious action that should be
used sparingly. He also points out that, according to the
regulation, the existence of a cause for debarment does not
necessarily require that a person be debarred. 34 C.F.R. .
85.300. The regulations provide that debarment should be used
only in the public interest and for the Federal Government's
protection, and it should not be used as punishment of the
individual. 34 C.F.R. . 85.115(b). His primary argument is
that there are a number of mitigating factors which should be
considered which militate against his debarment on this
occasion. Specifically, he points out to his youthful age at
the time of the offense, age 26; the fact he misapplied the
money at the direction of his employer, and that Mr. Murdock
did not profit from either of the transactions. He points out
his receipt of advice of an accounting firm prior to the
transfer which appears to have authorized such a transfer. In
several places in his written opposition there is evidence of
the assistance and contributions he provided toward the
indictment of Mr. Hilliard; and there is his statement that he
has been employed as an agent for an entity controlled by
Sumitomo Bank of California since July 1982, four months



before he pleaded guilty to the misapplication offenses.
Furthermore, it should not go unnoticed that it has been seven
years since the offenses were committed, and a year and a half
since his conviction.

No matter how much mitigation there may exist, one cannot
overlook the fact that Mr. Murdock engaged in criminal
misconduct which resulted in a federal conviction. Immediately
after that misconduct, the Department had a strong case for
debarment which has been slowly eroded with the passage of
time and an apparent lack of subsequent misconduct on his
part. Despite these factors, I believe the Department has met
its burden of proof and persuasion that the debarment of Mr.
Murdock is appropriate. In reaching this determination, I find
that his civil conviction for misapplication of bank funds
constitutes a cause for debarment under 34 C.F.R. . 85.305 and
this misconduct is serious enough to warrant that he be
debarred. Under the provisions of 34 C.F.R. . 85.320, the
period of debarment generally should not exceed three years;
however, I believe the mitigating facts set out above and the
absence of any subsequent misconduct warrant a shorter period
of debarment in this instance. Recognizing that the purpose of
a debarment is to protect the public interest, rather than
punish

Page 4 - Decision

Mr. Murdock, I have determined the period of debarment shall
be one year.

I order that Mr. Kelly L. Murdock be DEBARRED from initiating,
conducting, or otherwise participating in any covered
transaction under the nonprocurement programs and activities of
any Federal agency, and is ineligible to receive Federal
financial and nonfinancial assistance or benefits from any
Federal agency under nonprocurement programs and activities. He
may not act as a principle, as defined in 34 C.F.R. .
85.105(p), on behalf of any person in connection with a covered
transaction. This debarment is effective for all covered
transactions unless as agency head or authorized designee
grants an exception for a particular transaction in accordance
with 34 C.F.R. . 85.215.

RICHARD F. O'HAIR,
Deciding Debarment and Suspension Official
Dated: May 12, 1994