EXHIBIT 99.3
INTRODUCTION This Code of Conduct governs the personal conduct, actions and
work relationships of all employees of Hawthorne Financial
Corporation and its subsidiaries/affiliates (the "Company")
with its customers, fellow employees, competitors,
governmental officials and vendors. This includes situations,
both official and unofficial, whereby employees may reasonably
be perceived by others as acting as representatives of the
Company. The term "employee" applies to all directors,
officers and employees of the Company.
The reputation and successful business operation of the
Company is built upon its basic philosophy of integrity and
the ethical conduct of its employees. Preservation of that
trust and the Company's reputation for excellence requires
careful observance of the spirit and intent of all applicable
laws/regulations and internal Company policies as well as
scrupulous regard for the high standards of conduct and
personal integrity set forth in the policy statements that
follow.
The Company does not intend to unduly inhibit the personal
activities of employees. However, the Company is concerned
with the personal conduct of all employees of the Company
since their personal conduct may reflect either directly or
indirectly on the organization. In general, the use of good
judgment coupled with high ethical standards will guide
employees along the lines of acceptable conduct.
AUTHORITY; LAW Sarbanes-Oxley Act of 2002
Bank Bribery Amendments Act of 1985
The Financial Institutions Regulatory and Interest Rate
Control Act of 1978
POLICY Hawthorne Financial Corporation intends to conduct its
business in accordance with the highest ethical standards and
to comply with all laws and regulations applicable to its
business. The Company expects its employees to conduct their
personal and business dealings in accordance with the letter,
spirit and intent of all relevant laws and to avoid doing any
form of illegal, dishonest or unethical activities.
SCOPE OF POLICY This policy applies to all directors, officers and employees
of the Company and its subsidiaries.
COMPLIANCE WITH Compliance with the Code of Conduct is the responsibility of
CODE OF CONDUCT every employee. This document is intended to provide guidance
to employees for the proper conduct of their own affairs as
representatives of the Company and procedures for reporting
any possible breach of appropriate conduct of which they may
become aware.
In many situations involving moral or ethical judgment, it may
be difficult for an employee to determine the proper course of
action. In such instances, unless specified otherwise in this
Code of Conduct, the employee must not rely solely on his/her
own judgment but must report
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the facts to the Ethics Committee of the Company. Good
judgment and common sense to avoid even the appearance of
impropriety must guide the practical application of the Code
of Conduct and the Ethics Committee has been established to
provide this guidance.
The examples provided do not purport to be exhaustive and
there may be facts present in actual circumstances that would
necessitate a different conclusion. In such cases, the Ethics
Committee may provide guidance.
It must be noted that employees who violate or fail to comply
with provisions of the Code of Conduct may be subject to
disciplinary action, up to and including termination of
employment. In addition, such employees may be subject to
prosecution under applicable laws. This policy applies to all
directors, officers and employees of the Company and its
subsidiaries.
ACCOUNTING A fundamental precondition to sound corporate governance is
INFORMATION the reliability of accounting information and records
throughout the Company. To provide assurance of the integrity
of such information:
o Employees will act in good faith, responsibly, with due
care, competence and diligence, without intentionally
misrepresenting material facts or allowing one's
independent judgment to be subordinated.
o All employees who prepare accounting entries, records or
reports are responsible to assure that such information
is accurate, complete, objective, relevant, timely and
understandable.
o Intentionally false or artificial entries may not be
made in any books or records of the Company and
employees may not engage in any arrangements that result
in such entries.
o Payment on behalf of the Company may not be approved nor
any transaction made with the intention or understanding
that all or part of such payment will be used for any
purpose other than that described by the documents that
support it.
o Under no circumstance may funds, assets or liabilities
of the Company be concealed or hidden.
o Funds or assets of the Company may not be used for any
unlawful or improper purpose.
o Company records must reflect accurately and describe
properly the true nature, purpose and amount of the
transactions recorded. Documentation must provide an
appropriate audit trail, as may be necessary to
reconstruct the transaction(s) at a later date.
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o Full cooperation with the Company's audit and risk
management procedures is imperative. Intentionally false
or misleading statements to auditors are considered to
constitute a falsification of records and are grounds
for disciplinary action, up to and including termination
of employment.
o The Board of Directors of the Company, through its Audit
Committee, has the ultimate responsibility for the audit
process. No employee of the Company may intentionally
interfere with this process, including attempting to
unduly influence, coerce, manipulate or mislead the
auditors with the purpose of rendering the financial
statements materially misleading.
o Careful observance of expense account regulations and
guidelines is imperative. Falsification of an expense
account is a misappropriation of Company funds and
constitutes grounds for disciplinary action, termination
of employment and/or prosecution.
o Falsification of any Company document (such as payroll
time sheets, loan documentation, General Ledger entries,
etc.) may be grounds for disciplinary action,
termination of employment and/or prosecution.
o Any employee having information or knowledge of any
prohibited act or activity should promptly report such
activity to the Ethics Committee.
CONFIDENTIALITY By the very nature of our business, many Company employees are
OF CUSTOMER privy to customers' business plans, forecasts, decisions and
INFORMATION financial problems. Hawthorne Financial Corporation's policy
is that confidential information with respect to the Company's
customers and vendors, acquired by an employee through his/her
employment, is considered to be privileged and must be held in
the strictest confidence. Such information is to be used
solely for Company purposes and not as a basis for personal
gain by an employee. In no case should such information be
transmitted to persons outside of the Company, including
family, relatives and associates, or to other employees of the
Company who do not need to know such information in the normal
discharge of their duties.
Each employee is responsible to learn and understand and
comply with the guidance of the Company's Information Security
Policy, Insider Trading Policy, Privacy Policies and any other
Company policies that provide guidance regarding the
confidentiality and protection of customer information.
Employees are expected to make every effort to avoid a
violation of any customer's confidence in us that we will
maintain the privacy of their financial information. This
includes any unintentional as well as intentional disclosure.
Additionally, Company employees may not make use of the
Company's credit reporting systems to secure their own or any
other person's credit report for purposes not
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specifically authorized by the policies and procedures of the
Company.
On those occasions when Company employees find it necessary to
carry sensitive information outside of the secure premises of
the Company, employees must exercise due care to protect the
security of the information. Employees should avoid displaying
documents in an indiscriminate manner. Electronic data and
media must be secured and protected from unauthorized access.
Employees should be especially cautious when discussing
private or sensitive information in public places (such as in
restaurants, elevators, hallways or rest rooms) to assure that
sensitive information is not casually disclosed.
CONFIDENTIALITY Confidentiality is also required with respect to corporate
OF INFORMATION information regarding Hawthorne Financial Corporation and it
RELATING TO subsidiaries and affiliates. Employees must adhere to the same
THE COMPANY high standard of care that is afforded to private customer
information. Additionally, all media inquiries regarding the
financial status of the Company or its business/strategic plan
(particularly in emergencies or regarding a highly
controversial or sensitive issue) must be directed to the
Office of the President of Hawthorne Financial Corporation. If
the President/CEO is not immediately available, the Office of
the President will call upon an appropriate Executive Officer
for assistance.
NONPUBLIC Unauthorized use or disclosure of "material nonpublic
INFORMATION - information" would subject the Company and its employees, and
NATURE OF persons outside of the Company to whom the information is
"MATERIAL communicated, to severe liabilities under state and federal
NONPUBLIC securities laws. Information is "material" when a significant
INFORMATION" likelihood exists that a reasonable investor would consider
the information important when making an investment decision.
Information is "nonpublic" when it has not been publicly
disseminated. Even though information has been released to the
media, information is still considered "nonpublic" until there
has been sufficient time for the general dissemination of the
information. Anyone in possession of material nonpublic
information must not trade in or recommend the purchase or
sale of the related securities until the information is
properly disclosed and disseminated.
Whenever an employee of the Company receives material
nonpublic information, the recipient must not use the
information for the employee's own or his/her family's
benefit, nor may it be disclosed to anyone.
In addition, employees are responsible to read and comply with
the detailed guidance of the Company's Insider Trading Policy
regarding nonpublic information.
GENERAL A conflict of interest may be defined as an employee's
DEFINITION involvement in outside interests which:
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o conflicts with the employee's duty to the Company, or
o may adversely affect the employee's judgment in the
performance of his/her work responsibilities, or
o may adversely affect the Company's relationship with a
customer, borrower, vendor or competitor.
An example of a conflict of interest is an employee or a
member of his/her immediate family having a direct or indirect
financial interest in a customer, borrower, vendor or
competitor of the Company.
DISCLOSURE OF Employees of the Company should avoid situations whereby their
CONFLICTS OF personal interests conflict with, or appear to conflict with,
INTEREST the interests of the Company. Hawthorne Financial Corporation
does not intend to unduly inhibit the personal conduct of its
employees, but the Company's business is heavily dependent
upon the public's continued trust and confidence. It is
important to recognize that in some instances the appearance
of a conflict may be just as damaging to the Company's
reputation as a real conflict. Some situations present a
potential conflict of interest and others present a situation
where the conflict of interest exists but the Company can
permit the conflict to exist, provided that there has been
full and appropriate disclosure. It is the employee's
obligation promptly to disclose to the Company all actual and
potential conflicts of interest.
All employees are encouraged periodically to review their
actions and objectively attempt to determine whether a
disinterested observer would have reasonable grounds to
believe that a conflict of interest may exist. Should an
employee be uncertain, the employee should promptly make a
full written disclosure to the Ethics Committee of the
Company. The Ethics Committee is responsible to consider the
facts of the disclosure and make a decision as to whether a
particular situation or action presents an unreasonable
conflict of interest and, if so, to determine the action
necessary to resolve the matter.
GIFTS, PAYMENTS Hawthorne Financial Corporation expects Company employees to
AND PREFERENTIAL render "extreme service" to its customers at all times without
TREATMENT expectation of reward other than their employment compensation
received from the Company.
This Company policy is generally guided by intent to comply
with the Bank Bribery Act. This federal law states that it is
a criminal offense for any director, officer or employee of a
federally insured financial institution to "corruptly" give or
accept, either directly or indirectly, anything of value in
connection with any business or transaction of the financial
institution. No employee may solicit, receive or participate
in any arrangement leading to the personal receipt of money or
any gifts from a customer (to include payment/consideration to
any family member, relative, friend, or to any business in
which the employee has an interest).
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Gifts that create a feeling of obligation between an employee
and a customer or vendor should neither be given nor accepted.
In this context, the term "gift" includes, but is not limited
to, substantial favors, money, credit, special discounts on
goods or services, free services, transportation tickets,
reimbursement for travel and subsistence, loans of goods or
money, expensive tickets to entertainment events, trips, hotel
expenses, excessive entertainment, food or beverages. The
foregoing is not an exhaustive list and should be expanded on
a case-by-case basis. Gifts or benefits that serve no
demonstrable business purpose must be refused or returned. The
receipt of cash gifts by employees is absolutely prohibited.
Any gifts to any employee's immediate family should be
included in this policy.
Situations may arise when it would be acceptable for an
employee to accept a benefit, such as:
o Gifts of nominal value (not in excess of $100) given at
Christmas or other holidays, or special occasions which
represent expressions of friendship, if the gifts are
entirely voluntary and are not sought or suggested;
o Reasonable entertainment at events, luncheons, dinners
or business meetings with present or prospective
customers or vendors, when the expenditure is likely to
be reciprocated and can be properly charged as a
business expense;
o Unsolicited advertising or promotional material (such as
pens, calendars, etc.) of a nominal value;
o Tickets of normal value to entertainment events;
o Awards given by charitable, educational, civic or
religious organization for meritorious contributions of
service; and
o Gifts or bequests based upon family or close personal
relationships that existed prior to any customer or
business relationship with the Company.
Exceptions to the foregoing shall be submitted in writing to
the Ethics Committee for approval. If the circumstances
surrounding a gift of significant value are such that
rejection or return of the gift would cause embarrassment or
potentially damage friendly relations between a customer and
the Company, the Ethics Committee may require that the gift be
donated to charity.
Employee shall periodically report gifts and their estimated
dollar value in writing to the Ethics Committee on a Statement
of Personal Interest form. See Exhibit B
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GIFTS AND Gifts or favors of nominal value (not in excess of $100 per
ENTERTAINMENT person) expensed to the Company and given to current or
PROVIDED BY prospective customers, borrowers or vendors are acceptable to
EMPLOYEES the extent that each gift:
o Is appropriate and suitable under the E circumstances,
o Meets the standards of ethical business conduct, and
o Involves no element of concealment.
Entertainment that is reasonable and appropriate for the
circumstances is an acceptable practice, to the extent that it
is both necessary and incidental to the business relationship
with the Company.
POLITICAL State and federal election campaign laws prohibit Company
CONTRIBUTIONS employees from making any direct or indirect contribution of
Company funds or property in connection with the election of a
candidate to a political office. Any use of Company facilities
and equipment for political activities would also be
considered to be a contribution. Company employees are not
allowed to make any political contribution of Company funds,
property, facilities or equipment. Employees may voluntarily
participate in and contribute personally to political action
committees or make personal contributions to candidates or
political parties of their choice. No pressure will be brought
to bear on any employee of the Company to make any personal
political contributions.
OUTSIDE Employees are expected to devote their full attention and
ACTIVITIES/ ability to the interests of the Company during their regular
EMPLOYMENT working hours, and any additional time as may be required by
their position. No employee should engage in outside
employment that interferes, competes or conflicts with the
interests of the Company, or which will encroach on normal
working time or necessitate such long hours as to impair the
employee's ability to meet their regular job responsibilities
with the Company. No employee is allowed to coerce or pressure
any employee under the color of the Company's authority to
solicit or participate in outside activities.
If, for compelling reasons, outside employment or
participation in other activities is sought, prior written
approval must be obtained from the Ethics Committee. If
written approval is granted, the Ethics Committee will advise
the requesting employee and a copy of the advice will also be
sent to the Director of Human Resources.
An employee may be required to withdraw from approved outside
activities at such a time as the Ethics Committee, in
consultation with appropriate executive management, determines
that it is in the best interest of the Company. Examples of
conflicts of interest arising from outside employment include:
o Employment by a company or personally engaging in any
activity
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that is competitive with Hawthorne Financial Corporation
or one of its subsidiaries or affiliates.
o Employment that involves the use of the Company's
equipment, facilities or supplies.
o Employment that involves the preparation, audit, or
certification of statements/documents that the Company
may place reliance upon for lending or other purposes,
to include the preparation of tax returns.
o Employment that involves providing investment, legal or
other advice, or exercising judgment that is predicated
upon information, reports or analysis that are
accessible primarily from or through employment with the
Company.
o Employment that may reflect adversely on the employee as
a representative of the Company.
o Employment under circumstances that might infer
sponsorship or support of the Company on behalf of the
outside employer or organization.
o Outside employment as an insurance/securities broker,
agent or representative or financial advisor.
o Employment as a real estate salesman, broker, agent or
contractor is not permitted without the prior written
approval of the Ethics Committee. (There are a number of
potential conflict of interest situations as well as
possible violations of banking law that must be
carefully evaluated in such a situation.)
If an employee is considering an outside employment
relationship or business venture involving a customer,
borrower or vendor of the Company, the employee shall obtain
prior written approval from the Ethics Committee prior to
entering into the situation.
Note: The Company's Credit Policy prohibits making loans to
any entity in which an employee has a financial interest,
whether as principal or investor. See also Prohibited Lending
Practices.
PARTICIPATION IN Hawthorne Financial Corporation is interested in supporting
PUBLIC AFFAIRS employees as they seek to contribute personally to their
communities. Individual effort and corporate help and support
will help to fulfill civic responsibilities and strengthen our
government. The Company encourages voluntary employee action
that will have a significant community impact. Normally,
voluntary efforts take place outside of regular business
hours. Voluntary efforts that require activity during the
hours of regular employment must be approved by the employee's
manager/supervisor within Company policy.
In all cases, employees seeking elective office or
participating in
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political activities do so as individuals and not as
representatives of the Company. Employees may not make use of
the Company name, address or letterhead and no material should
be mailed from the Company address, nor funds collected.
Employees should not refer to their employment with the
Company in any advertisements or literature, with exception of
reference in necessary biographical information.
OUTSIDE Company employees may not serve as directors of profit-making
DIRECTORSHIPS corporations without obtaining prior written approval from the
Ethics Committee. (This policy is not applicable to the
non-employee directors of Hawthorne Financial Corporation.)
Employees shall avoid both potential conflicts of interest and
excessive demands on their time.
SERVING AS A Hawthorne Financial Corporation recognizes that relationships
TREASURER OF with clubs and charitable organizations may enhance the
CLUBS, employee's standing in the community and bring prestige to the
CHURCHES, Company's reputation. However, care must be exercised to
LODGES, ETC. assure that funds belonging to such organizations are not
commingled with the employee's personal funds. Such funds must
be maintained in a separate account clearly identified as the
property of the organization. Additionally, employees may not
serve as a treasurer of a club, church, united funds, lodge,
or similar non-profit organization which has any business
relationship with the Company, without first sending a written
notice to the Ethics Committee.
PERSONAL TRADING Employees of the Company should not enter into investment
OR INVESTING transactions that would create or give the appearance of
creating a conflict of interest between the employee and the
Company, or between the Company and any customer, borrower,
vendor or competitor. Employees must comply with the
requirements of the Company Insider Trading Policy. This
policy should be observed by the employee for his/her personal
investments, as well as the investments of members of his/her
immediate family and adults living in the same household.
Questionable situations should be promptly referred to the
Ethics Committee for review.
LENDING The lending services of the Company are available to serve the
PRACTICES - legitimate and deserving credit needs of customers on an
GRANTING OF equitable basis. Any interest rate concessions will be based
PREFERENTIAL solely upon a borrower's credit worthiness and overall
RATES customer relationship with the Company.
LOANS TO Loans to executive officers and directors, principal
EXECUTIVE shareholders and affiliates of Hawthorne Financial Corporation
OFFICERS AND are subject to the restrictions and limitations of the Federal
DIRECTORS Reserve Board's Regulation O. These restrictions and
limitations are fully identified in the policies and
procedures of the Company.
PROHIBITED Federal law prohibits any director, officer or employee of the
LENDING Company from granting any loan or gratuity to any public bank
PRACTICES examiner who
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examines or has the authority to examine Hawthorne Financial
Corporation or one of its subsidiaries or affiliates.
Lending officers are prohibited from negotiating or approving
any loan or other transaction between the Company and any
outside organization with which the lending officers are
affiliated, whether as a representative of the Company or the
outside organization.
Lending officers must not extend credit to a customer if any
of the proceeds are to be given or loaned to the lending
officer, or to a member of the lending officer's immediate
family, or used to pay a debt owed by the lending officer, or
by his/her immediate family, to the customer.
A lending officer may not extend credit to a customer to
enable the customer to purchase real or personal property from
the lending officer or a member of the lending officer's
immediate family.
Lending officers may not extend credit to a company in which
the officer has an interest as a director, officer,
controlling person or partner, or in which a member of the
lending officer's immediate family has such an interest.
When a lending officer or any other Company employee has any
responsibility for the Company's relationship with a customer,
borrower, or vendor, the employee may not personally loan
funds to the customer, borrower, or vendor.
Lending officers are not permitted to extend credit or to
participate in any decision to extend credit regarding an
applicant/borrower from the lending officer's immediate
family, or any relative, or any entities in which the lending
officer has an interest as a director, officer, controlling
person or partner, or any financial interest, whether as
principal or investor, or in which a member of the lending
officer's immediate family or relatives has such an interest.
All employees must always maintain the integrity of the credit
approval process. All documentation regarding a
customer/applicant must accurately and fairly reflect the
financial position of the customer/applicant without any
material omissions. Any subsequent knowledge of a material
fact/omission regarding a customer/applicant must be promptly
reported to the employee's manager/supervisor and to the Chief
Credit Officer. Any violation of a lending officer's loan
authority or deviation from an approved credit arrangement may
be grounds for disciplinary action, termination of employment
and/or prosecution.
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PERSONAL Imprudent personal financial management and its consequent
FINANCIAL hardships may affect job performance and occasionally lead to
RESPONSIBILITY more serious consequences for employees in positions of trust.
The Company desires to assist its employees with the
resolution of personal financial difficulties to the extent
that it can reasonably do so. However, employees are not
permitted to enter into lending relationships between
themselves. Employees who have financial problems are strongly
encouraged to consult with their manager/supervisor or with
the Director of Human Resources.
BORROWING Employees should not borrower from customers, borrowers or
FROM OTHERS vendors of the Company, nor from any entity owned or
controlled by a customer, borrower or vendor, except those
that engage in lending in the usual course of their business
and then, only on terms offered to others in similar
circumstances. Such borrowing must occur without special
treatment as to interest rates, repayment terms, security or
other significant provisions. (This provision does not
preclude an employee borrowing from an individual who is
related to the employee by blood or marriage.)
The Financial Institutions Regulatory and Interest Rate
Control Act of 1978 (FIRA) requires that executive officers
and directors of commercial banks who have loans outstanding
from a correspondent financial institution report annually to
the Board of Directors of the Company the amount and terms of
the indebtedness. The Legal Department will individually
advise executive officers and directors covered by the
provisions of FIRA.
SIGNING ON Employees must not sign on the accounts of customers or act as
CUSTOMER deputy or co-tenant on safe deposit contracts, nor otherwise
ACCOUNTS represent customers. (This provision does not include
customers related to the employee by blood or marriage.)
COMPANY Employees may not act as principal for either themselves or
PROPERTY OR their immediate families in any purchase by or sale to the
SERVICES Company of goods or services without full disclosure to the
Ethics Committee resulting in a written preapproval of the
disclosed activity in accordance with the procedures of the
Ethics Committee.
No employee may derive personal gain from transactions
involving the Company or make use of the services of other
employees for personal purposes. This would include
transactions such as the purchase of foreclosed real estate
from the Company unless through a commercially reasonable
bidding process.
EXPRESSION OF Employees should not use Company letterhead or materials to
PERSONAL give personal letters, testimonials, letters of recommendation
OPINIONS or to express personal opinions. Employees should not use
Company stationery for
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either personal correspondence or other non-work related
purposes.
GIVING ADVICE Legal Advice - Employees may occasionally be asked by
TO CUSTOMERS customers to make statements relating to the legality of
particular transactions. Company employees should exercise a
great deal of care and caution in discussions with customers
and nothing should be said that might be interpreted as the
giving of legal advice. Should any doubt arise about what
might be considered to be the giving of legal advice,
immediately contact the Legal Department.
Tax or Investment Advice - Employees should avoid giving
customers advice on tax inquiries, the preparation of tax
returns, or advice on investment decisions except as may be
appropriate in the performance of a fiduciary responsibility
or as otherwise required in the ordinary course of the
employee's authorized duties.
Recommending Others to Customers - During the course of their
contact with customers and the general public, employees may
occasionally be requested to recommend others who provide
professional services. Typically such requests involve
referrals to attorneys, accountants, insurance agents,
architects, contractors and real estate agents or brokers.
Persons who request such assistance should be provided with a
list of several qualified resources (at least two or more)
without any indication of favoritism.
Recommending Non-Deposit Investment Products - Non-registered
employees may not give advice to customers/clients regarding
the features and benefits of any annuity or security products.
However, non-registered employees may provide a referral to
one of the Company's registered employees for the purpose of
facilitating such a discussion.
SPEECHES/ Employees should uphold a responsibility to the Company with
PUBLICATIONS regard to speeches and publications that might be considered
REPRESENTING to represent the Company, either directly or indirectly. All
THE COMPANY comments regarding the Company's financial condition, results
of operations or corporate transactions are strictly limited
by the Company's corporate disclosure policy. Employees should
consult with the President/CEO or the General Counsel prior to
making a definite commitment regarding a speech or article.
VIOLATION OF Hawthorne Financial Corporation and its subsidiaries and
LAWS/REGULATIONS affiliates are required by law to report violations of
criminal laws to state and/or federal law enforcement
agencies. Dishonest and fraudulent acts by Company employees
are crimes that may be punishable by fines and/or
imprisonment. Examples of activities prohibited by law
include:
o Accepting anything of value (except an employee's salary
or other compensation paid by the Company) in connection
with the business of the Company;
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o Intentionally failing to make Currency Transaction
Reports (CTR's);
o Stealing, embezzling or misapplying Company funds or
assets;
o Using threats, physical force or other unauthorized
means to collect debts;
o Issuing unauthorized obligations (such as certificates
of deposit, promissory notes or deeds of trust) or
making false accounting entries;
o Certifying a check drawn on an account with insufficient
funds;
o Using a computer to gain unauthorized access to the
records of a customer;
o Concealing or misapplying any of the Company's assets;
and,
o Loaning funds to, or depositing funds with, third
parties with the understanding (express or implied) that
the party receiving such funds will make a loan or pay
any consideration to the employee or to the employee's
family.
MONEY Federal and state laws prohibit the laundering of money. Money
LAUNDERING is laundered to hide the criminal activity associated with it
ACTIVITY AND - including the crimes by which it is generated, such as drug
THE BANK trafficking, tax avoidance, counterfeiting, criminal money
SECRECY ACT transfers, or "white-collar" crimes.
Employees need to "know the customer" and be alert to the
dangers to the Company should an employee become involved,
even unwittingly, in receiving funds that may be associated
with crime. Money laundering involves both deposits and loans
and can also involve securities transactions or purchase of
non-deposit investment products.
Financial institutions, securities brokers and insurance
agents are required to report any known or suspected criminal
activity, such as the structuring of transactions to evade the
reporting requirements of the Bank Secrecy Act, or the
laundering of money through other monetary instruments or
accounts. Company employees receive appropriate ongoing
training regarding the identification of suspicious
transactions and the methods by which to report them within
the Company. All employees are required to comply with these
policies and procedures to the very best of their capability.
APPEARANCE OF Employees may not enter into or engage in any activity,
IMPROPRIETY transaction or relationship that might give rise to an
appearance of impropriety and risk injury to the Company's
hard-earned and vital reputation for honesty and integrity in
the financial community. Any violation under this section may
subject the employee to disciplinary action, up to and
including termination of employment.
RELATIONSHIPS In providing its full range of financial services, the Company
WITH COMPETITORS engages in vigorous, yet fair and open competition. All
employees are expected to observe the highest standards of
ethical conduct in relationships with
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our competitors. The dissemination of rumors or disparaging
statements regarding our competitors is considered to be
inappropriate and unethical. Hawthorne Financial Corporation
employees are to emphasize the quality and competence of our
services and our employees, rather than to criticize those of
our competitors.
For ethical as well as legal reasons, employees are prohibited
from entering into arrangements with competitors for the
purpose of setting or controlling prices, rates, trade
practices or marketing policies, or disclosing to competitors
the future plans of the Company that have not been disclosed
to the public.
TIE-INS AND In general, agreements with customers that condition the sale
EXCLUSIVE of goods or services on purchase by the customer of other
DEALING goods and services from the same supplier, or prohibit the
(ANTITRUST LAW) customer from dealing with other suppliers, may constitute a
violation of antitrust law. The Legal Department provides
instructions to Company employees as may be necessary to avoid
violation of antitrust law in areas of applicability to the
Company.
AUDITS AND All employees are expected to cooperate fully with internal
INVESTIGATIONS and external auditors and investigators, even to the point of
disclosing otherwise private or personal information where
such information is necessary or relevant to the audit or
matter under investigation. The withholding or omission of
material facts or information that may render the audit or
investigation incomplete or lead to an incorrect conclusion is
as serious as an intentional misstatement. Declining to
cooperate with audits or investigations may result in
disciplinary action, termination of employment and/or
prosecution.
BRIBES, ETC. Bribes, kickbacks, extraordinary commissions, or other devices
for the purchase of favored treatment by governments, other
businesses, or individuals are strictly prohibited. Fees or
commissions will be paid only for clearly stated business
purposes. The choice of brokers, dealers, lawyers, consultants
and other professional service providers must always be
predicated on competitive conditions of quality, price and
benefit to the Company.
USE OF COMPANY Company employees are not permitted to use or permit others to
PERSONNEL, use Company employees, materials, equipment or other corporate
MATERIALS OR property for personal purposes.
EQUIPMENT
Personal Telephone Calls - All telephone equipment is to be
used solely for the purpose of conducting required business
communications related to the employee's assigned area of
responsibility. Personal incoming telephone calls should be
kept to a minimum and as brief as possible. Long distance
telephone calls should not be permitted unless payment for
such calls is arranged in advance. Excessive use of telephone
equipment for personal business should be handled by
managers/supervisors as a disciplinary problem.
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GENERAL
PRINCIPLES Registered persons will:
o Comply with all applicable laws, rules and regulations,
to include those of the National Association of
Securities Dealers (NASD), the Securities and Exchange
Commission (SEC), and, as applicable, the California
Department of Insurance.
o Act honestly, fairly, with due skill and care, and in
the best interests of the Company's clients and the
integrity of the market.
o Seek from each client the relevant information about
his/her financial situation, investment experience and
investment objectives in order to determine/recommend
the suitability of a service or solicitation for each
client's individual circumstances.
o Make adequate disclosure of relevant material
information in all dealings with clients and assure that
any representation made and/or information provided to
the client is accurate and not misleading.
o Ensure that client assets are promptly and properly
accounted for and adequately safeguarded.
o Take all reasonable steps to execute promptly client
orders in accordance with the instructions of the client
and assure that such transactions are executed promptly
and fairly allocated to the accounts of the client on
whose behalf the transactions are executed.
o Act diligently and carefully in providing advice to a
client and make recommendations based on thorough
analysis, taking into account the available alternatives
and providing clients with information about alternative
investments.
o Respond to a client complaint in a timely and
appropriate manner assuring that the client is advised
of actions that will be taken to investigate and resolve
the complaint and any further steps that may be
available to the client.
o Assure that transactions with outside firms are
conducted within an internal control framework designed
to reasonably assure that such transactions will not
result in unusual gains for those involved. (For
example, an unusual gain may refer to the existence of a
bribe, kickback, product bonus, special fringe benefit,
unusual price break or other windfall designed
ultimately to benefit the registered employee, or the
Company, or both.)
IMPLEMENTATION Each employee of the Company is responsible to be familiar
AND REVIEW with this Code of Conduct and to abide by the letter and
spirit of its provisions at all times. All directors, officers
and employees of the Company are required to submit a
Statement of Personal Interest form (see Exhibit B)
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to evidence their agreement to comply with the provisions of
the Code of Conduct. The Statement of Personal Interest shall
be submitted upon employment and, at a minimum, on an annual
basis thereafter. Gifts from customers, vendors and others
shall be reported no less frequently than quarterly. The
annual update provides evidence of continuing compliance with
the Code of Conduct across the Company.
RESPONSIBILITY The Ethics Committee is responsible for the overall
FOR administration of the Code of Conduct. The continued
ADMINISTRATION implementation of the Code will be accomplished through the
establishment of reporting procedures supplemented by sound
monitoring practices, audit policy, and personnel policy and
procedure.
Depending on the circumstances, there may be more than one
Ethics Committee. The members of the Ethics Committee are
recommended by the President/CEO and appointed by the Audit
Committee of the Company. The Ethics Committee(s) will meet on
an ad hoc basis (but not less than once each calendar quarter)
with the power to recommend administrative and/or personnel
actions to the President/CEO, or to the Board of Directors, as
may be appropriate.
REPORTING AND Company employees are expected to read this Code of Conduct
REQUEST FOR carefully, but we do not expect that this will answer every
WAIVER possible question that an employee may have in the course of
PROCEDURES conducting business. Employees are encouraged to seek
assistance from a member of the Ethics Committee regarding a
potential issue, or to report a problem, or to request the
consideration by the Ethics Committee of a waiver for an
activity/action. If the matter involves a department or
customer issue, the employee's first avenue for assistance is
to inquire with an immediate department head, manager or
supervisor. However, if the employee is uncomfortable with the
routine escalation process, perhaps because the matter is
sensitive, there is an additional option. The employee can
directly contact a member of the Ethics Committee as discussed
below.
The Company will also provide a means for the anonymous,
confidential reporting of ethical violations. Information
about such means will be contained on the Company's intranet.
SPECIFIC All situations involving a potential conflict of interest or
SITUATIONS other possible violation of the Code of Conduct should be
promptly reported to the Ethics Committee. The act of
reporting a questioned situation does not imply that a
violation exists. Rather, it affords the opportunity for
review and a conclusive assessment.
Before entering into any transaction or situation that may
violate the provisions of the Code of Conduct, a
director/officer/employee should submit a Statement of
Personal Interest form (see Exhibit B) for review.
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Directors should submit the Statement of Personal Interest
either to the President/CEO or to the Chairman of the Audit
Committee. The Audit Committee will assemble an appropriate
Committee of the Board to review requests by Directors.
Officers/employees should submit the Statement of Personal
Interest request to Human Resources Department, which shall
distribute them to the Ethics Committee.
Situations should be disclosed in the Statement with
sufficient detail to support evaluation in a fair and
impartial manner.
Upon conclusion by the Ethics Committee, an advisory document
will be sent to the requesting employee and a copy will be
sent to the Director of Human Resources. Employees should not
participate in the transaction/activity nor exercise any
discretionary authority on behalf of the Company in relation
to the questioned situation until the Ethics Committee
communicates its conclusions.
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EXHIBIT A
MANAGEMENT The Ethics Committee is comprised of a team of Company
ETHICS officers who have been appointed by the Audit Committee of the
COMMITTEE Board of Directors. These officers are responsible to promptly
handle all reports and inquiries with utmost confidentiality
as may be possible under the circumstances.
Reports to the Ethics Committee may be made in an anonymous
form. This may make it more difficult for the Committee to
follow-up and to assure resolution to the inquiry; however,
anonymous reports will be handled with all reasonable due
diligence by the Committee.
The following individuals have been appointed by the Audit
Committee of the Board to serve as the Management Ethics
Committee:
Chairperson Eileen Lyon, General Counsel
Members: Marilyn Momeny, Director of Human Resources
Carol Ward, Director of Risk Management
Simone Lagomarsino, Chief Executive Officer
David Rosenthal, Chief Financial Officer
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EXHIBIT B
STATEMENT OF PERSONAL INTEREST
The Undersigned hereby certifies that I have read and fully understand the
provisions of the Code of Conduct of Hawthorne Financial Corporation and its
subsidiaries and affiliates (the "Company") and that I have abided and will
abide by the Code's provisions during my employment with the Company. I further
state that I realize that failure to observe and comply with the provisions of
the Code of Conduct may be a basis for disciplinary action, termination of
employment and/or prosecution.
I wish to report the following information, relationships, interests,
transactions or arrangements that may be of the kind or similar to the kind of
situations listed in the Code of Conduct.
<Table>
1. Are you a stockholder or interested financially in any way with:
a. A competing institution (e.g., bank, savings and loan, finance company, etc.)? YES [ ] NO [ ]
b. A supplier of goods or services or other business contact with Hawthorne Savings? YES [ ] NO [ ]
2. Have you accepted any gift of a value in excess of $100 from customers YES [ ] NO [ ]
or suppliers?
3. If the answer to 2 above is "YES", have you reported the gift(s) to YES [ ] NO [ ]
your supervisor?
4. Have you solicited for yourself or a third party, other than Hawthorne YES [ ] NO [ ]
or its agents, anything of value from anyone in return for any
business, service or confidential information Hawthorne?
5. Have you accepted anything of value directly or indirectly from anyone YES [ ] NO [ ]
in connection with the business of Hawthorne?
6. Do you have outside employment that has not been previously approved as YES [ ] NO [ ]
required by of this code?
7. Have you received any compensation for acting as a director, officer, YES [ ] NO [ ]
trustee or consultant of an outside organization?
8. Have you accepted an appointment as an executor, trustee, guardian or YES [ ] NO [ ]
conservator for other than those in your immediate family?
9. Have you extended credit or otherwise influenced the extension of YES [ ] NO [ ]
credit to:
a. A customer where the proceeds were used to pay a debt owing to your or YES [ ] NO [ ]
a member of your immediate family?
b. a customer who is your relative? YES [ ] NO [ ]
c. an individual to finance the purchase of real estate or personal YES [ ] NO [ ]
property from you?
d. a firm in which you or a member of your immediate family has a YES [ ] NO [ ]
financial interest, or with which you are employed on a part time or
consulting basis?
10. Have you borrowed money from customers, other than recognized lending YES [ ] NO [ ]
institutions?
11. Have you lent personal funds to employees of Hawthorne? YES [ ] NO [ ]
12. Have you cosigned, endorsed or otherwise assumed liability in YES [ ] NO [ ]
connection with the borrowing of any customer or supplier?
13. Do you sign on any customer accounts, act as deputy or co-tenant of a YES [ ] NO [ ]
customer's safe deposit box, or otherwise represent customers, except
for family members?
14. Have you taken for your own benefit any opportunity or information that YES [ ] NO [ ]
rightfully belongs to Hawthorne?
</Table>
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<Table>
15. Do you have any business relationship with any present or former loan YES [ ] NO [ ]
customer of Hawthorne's for which you are aware?
16. Have you solicited any business relationship with any present or former YES [ ] NO [ ]
loan customer of Hawthorne's of which you are aware?
17. Have you ever disclosed to anyone confidential non -public information YES [ ] NO [ ]
regarding Hawthorne or its customers?
18. Have you participated in any dealings with competitors for the purpose YES [ ] NO [ ]
of setting prices, interest rates, trade practices or marketing
policies?
19. Have you withheld information or knowingly did not notify the proper YES [ ] NO [ ]
Senior Officers of any wrongdoing, including violations of laws,
regulations or Bank policies?
20. Have you offered, extended or in any way participated in the extension YES [ ] NO [ ]
of a bribe to a political party, party official or candidate for
political office for the purpose of obtaining, retaining, or directing
business to Hawthorne?
21. Are there circumstances or any other matters of a personal or family YES [ ] NO [ ]
nature that could reasonably be subject to question as to their effect
on the interests of Hawthorne?
</Table>
In compliance with the provisions of Hawthorne's Conflict of Interest Policy, I
wish to disclose the following information:
(Indicate item number from above, dollar value, number of shares, etc. as
appropriate. Attach additional sheets if necessary.)
Under penalty of perjury, I certify that the information provided on this form
is true, correct and complete.
Date: Signature:
---------------------- ----------------------------
Print Name:
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Department:
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