Oakland man sentenced to prison for role in bank’s collapse during financial crisis

A federal court judge on Tuesday sentenced a former banking executive to eight years and one month in prison for his role in the bank’s collapse during the economic recession of 2008.

Christy Goldsmith Romero, the Special Inspector General for the federal Troubled Asset Relief Program, called the sentencing the “most significant prosecution for crimes arising out of the bailout.”

Ebrahim Shabudin, a 66-year-old resident of Moraga, was the chief operating officer and chief credit officer at United Commercial Bank, a San Francisco-based institution that had its initial public offering in 1998, according to court documents.

He was second in command to Thomas “Tommy” Shiu-Kit Wu, who led the bank through years of growth, including a doubling of assets and outstanding loans between 2004 and 2008.

In 2006, Wu was named financial services Entrepreneur of the Year by a prominent accounting firm and in 2008, Forbes Asia listed him as on one of 25 notable Chinese-American business leaders.

According to court documents, Shabudin and Wu, along with the bank’s credit risk and portfolio manager Thomas Yu, and Craig On, the chief financial officer of UCB’s holding company, UCBH Holdings, Inc., conspired to conceal major losses from investors.

U.S. Attorney Melinda Haag called the conspiracy “one of the largest securities fraud schemes in the history of (the Northern California) district.”

The criminal complaint against the defendants enumerates bad investment after bad investment that cost the company millions of dollars.

In one case, UCB poured $44 million into an electronics distributor based in Los Angeles and Hong Kong, but by the end of 2008, the distributor had defaulted on its loan.

When UCB took possession of the company’s assets, it discovered the remaining $6.1 million inventory was riddled with faulty merchandise, including mislabeled flash memory cards, boxes of unfinished electronics parts, and storage devices that had pieces of wood where memory chips should have been, according to court documents.

The company also invested in several real estate projects that ground to a halt when the economic recession reached its peak. Investments in Las Vegas, Sacramento, Roseville, El Cajon, and National City all resulted in large losses.

Rather than disclose these losses to auditors, Shabudin and his fellow executives took pains to hide them from independent auditors and the federal government.

Like many bankers during the financial crisis, Shabudin was facing defaulting loans and declining collateral, but Goldsmith Romero said unlike other bankers, Shabudin deliberately hid those losses.

“Fixated on protecting the bank’s reputation, Shabudin embarked on an elaborate criminal scheme to hide the bank’s declining financial condition that resulted from the bank’s risky aggressive growth strategy,” Goldsmith Romero said in a statement.

On Nov. 14, 2008, TARP provided approximately $298 million in federal funds to bail out UCB during the height of the financial crisis.

Roughly a year later, on Nov. 6, 2009, the Federal Deposit Insurance Corporation, or FDIC, took possession of UCB’s $10.9 billion in assets, making the bank’s failure the ninth largest since 2007, according to the FDIC.

In 2013, the FDIC estimated that total losses for UCB would exceed $1.1 billion, but with the recovery of the nation’s economy, some of those assets have rebounded, bringing the total loss closer to $677 million.

Shabudin was convicted on March 25 after a six-week trial for seven crimes related to the scheme, including conspiracy to commit securities fraud, securities fraud, falsifying corporate books and records, making false statements to accountants, circumventing internal accounting controls, conspiring to commit false bank entries and making false bank entries.

Haag said his prison term should serve as a warning to people who believe that complex commercial crimes will not be detected or prosecuted.

In addition to the eight years and one month prison sentence, United States District Judge Jeffrey White sentenced Shabudin to three years of supervised release and the forfeiture of $348,000.

He is expected to begin his sentence in November.

Shabudin’s co-conspirators, On and Yu, are also in various stages of adjudication. On pleaded guilty to one count of conspiracy to make a false statement to an accountant on Dec. 9, 2014.

Yu pleaded guilty to conspiracy and making false bank entries charges on October 7, 2014. Both are awaiting sentencing.

Wu is a co-defendant in a civil case filed by the SEC on Oct. 11, 2011, which is still making its way through the federal court.

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