San Francisco bank executives cooked their books and lied to auditors just before they accepted a $298 million taxpayer bailout, federal prosecutors said Tuesday.
They now have the distinction of being the first senior executives of a bank that received federal bailout funds to be criminally charged in connection with a scheme to defraud the government and American taxpayers.
The Securities and Exchange Commission charged former United Commercial Bank CEO Thomas Wu and vice presidents Ebrahim Shabudin and Thomas Yu with illegally obscuring their bank’s mounting losses. A separate indictment charged Shabudin and Yu with securities fraud, conspiracy, falsifying corporate books and records, and lying to auditors.
Prosecutors accused them and others of hiding the bank’s true condition starting in September 2008. Two months later, facing growing losses, the bank received $298 million from the Bush administration’s Troubled Asset Relief Program, which arose from the 2008 banking crisis.
In November 2009, United Commercial Bank filed for bankruptcy and became the first recipient of TARP funds to fail.
That failure will cost taxpayers dearly. None of the TARP funds have been repaid, and the indictment predicts that final losses to the Federal Deposit Insurance Corp. could run $2.5 billion, not including the lost TARP funds.
“Shabudin and Yu are the first senior executives of a TARP bank charged in connection with a scheme to defraud investors, which included the Treasury, and by extension the American taxpayer,” acting TARP Special Inspector General Christy Romero said in a statement.
United Commercial Bank was one of the largest banks serving the Chinese-American community, with branches throughout the U.S., as well as China and Taiwan.
“It was the first U.S. bank to acquire a bank in the People’s Republic of China, and Wu was considered a rising star in the banking industry,” the SEC said in a news release. “By 2009, however, Wu found himself at the helm of a bank on the brink of failure.”
The agency’s complaint alleges that Wu directed his subordinates to delay a tide of bad news about the declining value of the bank’s assets and loan collateral. When the bank filed its March 2009 annual report with the SEC, a reported loss of $134 million was understated by at least $64 million, the complaint alleges.
“These charges demonstrate the Department of Justice’s continuing commitment to pursue corporate wrongdoers to the fullest extent of the law,” U.S. Attorney Melinda Haag said in a statement.
An attorney for Wu, a 53-year-old Hillsborough resident, proclaimed his client’s innocence in a statement.
“Hundreds of banks have failed in the financial crisis and the regulators need to blame someone,” attorney Steven Bauer told Bloomberg News. “Thomas Wu is counting on our justice system to clear his good name.”
Attorneys for Shabudin, 63, of Moraga, and Yu, 48, of San Ramon did not immediately respond to calls for comment. They appeared in federal court on the charges Tuesday morning, and were released on $500,000 secured bonds, the U.S. Attorney’s Office said.
The FDIC also announced Tuesday that it had fined 13 former bank employees more than $1.7 million.
After the bank was closed, the FDIC sold it to Pasadena-based East West Bank.
Wire services contributed to this report.
- TARP money loaned to United Commercial Bank: $298 million
- TARP money repaid by UCB: None
- FDIC funds paid out after UCB’s failure: $397 million
- Estimated total FDIC losses from UCB’s failure: $2.5 billion
- 1974: Bank is founded as United Federal Savings and Loan Association
- 1998: Bank is renamed United Commercial Bank
- 2009: Bank closed by state regulators; 63 U.S. branches are absorbed by East West Bank