FDIC Figures Out That Criminals Were Running Failed United Commercial Bank

United Commercial Bank, San Francisco, CA,  which was closed by regulators on November 6, 2009, was the fourth largest banking failure of 2009 and resulted in losses to the FDIC Deposit Insurance Fund of $2.5 billion.

Almost two years later, the FDIC announced that it was seeking to prohibit ten former officers of the bank from any further involvement in the banking industry and assessing $1.7 million in civil penalties.  The FDIC listed a wide range of serious charges against the Bank’s former executives.

The FDIC’s charges allege that the bank’s former management engaged in violations of law, unsafe or unsound practices, and breaches of fiduciary duty by falsifying the bank’s financial records and hiding the bank’s deteriorating condition. The misconduct alleged involved a widespread scheme by certain former officers of United Commercial Bank to falsify books and records of the bank, make false statements and omissions to its external audit firm, KPMG, and to impede the examination of the bank by FDIC and State bank examiners.

“When bank officials impede the bank examination process, or conceal the true nature of a bank’s financial condition from examiners, auditors, or the public, this amounts to very serious misconduct, and the FDIC will respond accordingly,” stated Sandra L. Thompson, Director of the FDIC’s Division of Risk Management Supervision.

The FDIC’s allegations include Respondents:

• Intentionally filing false call reports and SEC filings
• Intentionally misrepresenting the bank’s financial condition to FDIC and State regulators in face-to-face meetings
• “Sanitizing” the bank’s books and records to remove negative information before providing to auditors or bank examiners
• Concealing appraisals from auditors
• Intentionally understating the bank’s Allowance for Loan and Lease Losses (ALLL) calculations by omitting negative information about certain credits, in violation of accounting standards; and
• Fraudulently bringing past due loans current by artificial means

The FDIC also announced that the Department of Justice will pursue criminal charges against two former United Commercial Bank officers and the SEC is filing civil fraud charges against various former Bank officials.

After 325 banking failures from 2007 to 2010 and over $81 billion dollars in losses, we should be hearing about legal and/or criminal actions being brought against former bank executives on a daily basis.

Regulators routinely issue cease and desist orders, consent orders or prompt corrective action notices to problem banks prior to their closing and these regulatory actions routinely cite management for engaging in “unsafe or unsound” practices as well as numerous other charges.  The FDIC’s lack of aggressive civil and/or criminal action against executives of failed banks does little to enhance public confidence in the banking system.

Four Largest 2009 Banking Failures Ranked By Loss To FDIC Deposit Insurance Fund

Institution Name	Cert	FIN	Location	Effective Date	Ins. Fund	Transaction Type	Charter Class	Failure / Assistance	Total Deposits	Total Assets	Estimated Loss

UNITED COMMERCIAL BANK	32469	10147	SAN FRANCISCO, CA	11/6/2009	DIF	PA	NM	FAILURE	6,937,677	10,895,336	2,482,762
AMTRUST BANK	29776	10155	CLEVELAND, OH	12/4/2009	DIF	PA	SA	FAILURE	8,558,609	11,438,990	2,525,285
COLONIAL BANK	9609	10103	MONTGOMERY, AL	8/14/2009	DIF	PA	NM	FAILURE	20,020,047	25,455,112	4,185,973
BANKUNITED, FSB	32247	10061	CORAL GABLES, FL	5/21/2009	DIF	PA	SA	FAILURE	8,775,985	13,111,463	5,801,106