(Updates with FDIC fines in last paragraph.)
Oct. 11 (Bloomberg) -- Three former United Commercial Bank executives misled investors by concealing at least $65 million in loan losses before the San Francisco-based lender collapsed in 2009, the U.S. Securities and Exchange Commission said.
Thomas Wu, who was the bank’s chief executive officer, worked with chief operating officer Ebrahim Shabudin and senior officer Thomas Yu to hide impaired assets from auditors, causing UCBH Holdings Inc. to understate 2008 operating losses, the SEC said in a complaint filed today in California. Shabudin and Yu will face related criminal fraud charges under a federal grand jury indictment unsealed today in San Francisco.
“Hundreds of banks have failed in the financial crisis and the regulators need to blame someone,” Steven Bauer, Wu’s attorney at Latham & Watkins LLP, said in a statement. “Thomas Wu is counting on our justice system to clear his good name.”
Wu, 53, stepped down in September 2009 after the company said it would restate earnings and boost second-quarter loan loss provisions following an internal review. United Commercial, which was seized by regulators two months later, was one of the 10 biggest bank failures to result from the 2008 credit crisis and caused a $2.5 billion loss to the Federal Deposit Insurance Corp.’s insurance fund, the SEC said.
“Today’s charges reflect an all too familiar pattern -- corporate executives once seen as rising stars embrace deception to avoid losses and conceal negative news, with investors and the FDIC insurance fund left to pick up the pieces,” SEC Director of Enforcement Robert Khuzami said in a statement. “Accountability for these executives begins today.”
Entrepreneur of the Year
Wu, who was named Entrepreneur of the Year in financial and real estate services by Ernst & Young LLP in 2006, led United Commercial for more than 10 years. During his tenure, the bank more than doubled deposits and loans, reporting more than $13 billion in assets by the end of 2008, the SEC said.
In late 2008 and the first three months of 2009, Wu directed subordinates to delay including newer and lower appraisals in the valuations of collateral and bank assets, even though he was aware of information that would show some of them to be nearly worthless, the SEC said.
Shabudin, 63, reviewed and approved bank records that he knew understated loss reserves and approved memos to auditors that he knew contained false information, the agency said. Yu, 48, prepared reserve calculations that downplayed the bank’s losses, according to the indictment and the SEC’s complaint.
Craig On, the bank’s former chief financial officer, separately agreed to pay $150,000 and accept a five-year suspension from practicing before the SEC to resolve claims that he helped the fraud, the agency said. On, 59, didn’t admit or deny wrongdoing in settling the SEC’s claims.
Phone calls to James Lassart, a lawyer for Shabudin; Stephen Kaus, a lawyer for Yu; and Nanci Clarence, an attorney for On, weren’t returned.
The FDIC said today in a separate release it fined 13 former United Commercial employees more than $1.7 million combined.
--With assistance from Karen Gullo in San Francisco. Editors: Gregory Mott, Maura Reynolds
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