Failed Bank Alleges Fraud Scheme : West Valley Claims $6-Million Loss, Court Filings Show

West Valley Bank of Woodland Hills--which state regulators closed Friday after they decided that its loan losses had left it unsafe--alleges that it was bilked last year out of more than $6 million in a scheme involving forged insurance policies and Whittier businessman Clyde R. Hamblin, according to court files.

Recently unsealed court files also show that a federal grand jury investigation into Hamblin’s activities includes a similar scheme involving more than $6 million borrowed from another defunct bank, West Coast Bank of Encino. The grand jury has subpoenaed West Valley’s records of loans made to Hamblin, the files show.

The state Department of Insurance issued a cease-and-desist order last October ordering Hamblin to stop doing business as Interstate Transport Insurance Agency and as Pax Insurance Agency, both of City of Industry, the court records show.

According to the state order, one of the department’s investigators and a member of the liquidation staff of the Federal Deposit Insurance Corp. “have determined that (Hamblin doing business as the two firms) entered into at least 46 agreements with four different banks to finance premiums on policies that do not exist . . . (and) the proceeds of such finance agreements were paid to (Hamblin doing business as the two companies).”

Rick Schwartz, attorney for West Valley Bank, alleged Jan. 30 in bankruptcy court that, between May and mid-October last year, Interstate Transport Insurance, through Hamblin, “engaged in fraudulent premium financing transactions” with the bank and “in essence . . . obtained loan funds . . . to finance allegedly fully prepaid insurance policies issued, allegedly to third parties.”

However, the policies did not exist and one businessman attested that his signature on 21 premium-financing agreements were forged, Schartz’s filing said.

Bankruptcy papers allege that “substantial portions” of the loan proceeds obtained from West Valley were put into investments in Hamblin’s name.

Another bank shown in court documents as having made loans to Hamblin and his companies is Queen City Bank of Long Beach. In addition, Union Bank of Los Angeles says Hamblin’s Interstate Transport Insurance owes it $296,000 in overdrafts on two accounts. An attorney for Queen City bank declined to comment on any losses by the bank.

Involuntary bankruptcy petitions against Hamblin and his two firms were filed under court seal last Dec. 4 and were recently unsealed.

The FDIC, as liquidator of West Coast Bank, which was closed last April, joined West Valley Bank, Queen City Bank and Union Bank in seeking to have Hamblin declared bankrupt. West Valley, Queen City and Union filed similar petitions against Interstate and Pax. All the cases are set for a hearing Feb. 25.

Seized Assets Last Month

Neither Hamblin nor his attorney could be reached for comment Monday. In a deposition taken in connection with the bankruptcy cases, he claimed his constitutional right not to answer questions.

The state insurance department said it seized the assets of the two Hamblin-controlled firms last month and has set a hearing for March 7.

A source close to the case said about $11 million in losses were sustained by the various banks in the Hamblin case. More than $6.2 million of that was lost by West Valley Bank, which had capital of about $4 million, the source said.

With state court approval, regulators sold the bank’s business to First Interstate Bank Ltd., a newly created subsidiary of Los Angeles-based First Interstate Bancorp. The bank’s main office and Tarzana branch reopened Monday under the First Interstate name.

First Interstate is guaranteeing the deposits of West Valley Bank depositors, including accounts exceeding the $100,000 federal insurance limit, according to Howard Gould, senior deputy banking commissioner.

West Valley Bank’s filings in the Interstate Transport Insurance bankruptcy case allege that the insurance company, through Hamblin, “borrowed” more than $10 million from West Valley and Queen City through the “fraudulent scheme.”

Among the assets acquired with the money borrowed from West Valley, the bank papers allege, was a $116,000 cashier’s check used for a deposit in escrow on a Yorba Linda house “which is occupied rent-free by a highly salaried employee” of Interstate Transport Insurance, Mel Waples.

The court papers said that last Dec. 11, after the involuntary bankruptcy petition was filed, Hamblin assigned all rights to the $116,000 and the real estate escrow to Waples “without any consideration.”

Hamblin has contended through his attorney that the $116,000 is the property of Interstate Transport Insurance and that the bankruptcy trustee should have no control over it.