Two former officials of the failed San Francisco-based United Commercial bank that received a $298 million loan from the federal government have been charged with securities fraud.
The bank ultimately failed and cost the Federal Deposit Insurance Corp. an estimated $2.5 billion.
An indictment by a federal grand jury in San Francisco, unsealed Tuesday, charges Ebrahim Shabudin, 63, of Moraga, and Thomas Yu, 48, of San Ramon with securities fraud, conspiracy, falsifying corporate books and records, and lying to auditors, U.S. Attorney Melinda Haag announced.
The bank’s loan portfolio increased from $4.4 billion to more than $8 billion between 2004 and 2007. Later, facing growing losses, the bank received $298 million from the federal Troubled Asset Relief Program in November 2008, the U.S. Attorney’s Office said.
The bank failed in 2009. Shabudin was an executive vice president and Yu a senior vice president. The bank was the first recipient of so-called TARP money to fail.
“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,” said Christy Romero, acting special inspector general for the Troubled Asset Relief Program. “The bank failed and none of the $298 in TARP funds have been repaid.”
Prosecutors accused the two men, as well as others, of hiding the bank’s true financial condition beginning in September 2008.
Both men appeared in federal court on the charges this morning, and were released on $500,000 secured bonds, the U.S. Attorney’s Office said.
In a related action Tuesday, the Securities and Exchange Commission filed civil charges against Shabudin and Yu along with the bank's former chief executive Thomas Wu, accusing them of hiding losses from United Commercial Bank's auditors so that its parent underreported 2008 operating losses by at least $65 million, or 50 percent.
The SEC also named the bank's former chief financial officer, Craig On, in its lawsuit filed in federal court in San Francisco, saying he misled the auditors and aided the filing of false financial reports by the parent company. He settled the charges by agreeing to pay a $150,000 fine and to a five-year suspension from working as an accountant for a public company. On neither admitted nor denied the SEC's allegations.
The Associated Press contributed to this report.