SEC Sues 5 Former Heritage Officials on Fraud Charges
Following a two-year investigation, the Securities and Exchange Commission filed a civil fraud suit Monday against four former directors and a former president of the failed Heritage Bank, alleging that they manipulated the Anaheim bank’s common stock price for 18 months while concealing the bank’s shaky financial status.
Three of the defendants, including Heritage co-founder and longtime Chairman Douglas A. Patty, immediately signed consent decrees--in effect saying that, while they do not admit to the allegations in the suit, filed in U.S. District Court in Los Angeles, they promise not to engage in such activity in the future.
Manipulation Charged
The SEC also charged one defendant, attorney Roger A. Saevig of Irvine, with fraud in the sale of 25,800 shares of Heritage Bancorp stock in February, 1984--just one month before Heritage Bank was declared insolvent by the state Banking Department and turned over to the Federal Deposit Insurance Corp. for liquidation.
The SEC alleges that Saevig--a Heritage director and corporate counsel--sold the shares while knowing that regulators were about to seize the bank. The suit seeks to force Saevig to surrender the $23,575 that he made on the sale.
The suit alleges that, from April, 1981, through September, 1982, the five manipulated the stock in an attempt to fraudulently increase its value.
The manipulations, according to the suit, included:
- Making more than 100 loans, totaling more than $3.5 million, to people who used the loan money to buy shares of Heritage Bank common stock until a holding company, Heritage Bancorp, was formed in December, 1981, and to buy shares of the holding company’s stock after that.
- Sponsoring stock sales contests designed to boost the price of the stock. Stock sales were spurred by awarding prizes--including mink coats and paid vacations--to employees who sold the most shares.
- Using the bank’s employee stock purchase plan to withhold stock from the open market and to soak up excess shares on the market.
Saevig said Monday that he refused to sign the consent agreement because “I don’t think I did anything wrong and don’t want to consent to a judgment saying I did.”
Slezinger Refuses to Sign
None of the other defendants could be reached for comment.
In addition to Saevig and Patty, a Costa Mesa resident, they are Kenneth R. Thompson, a former bank and holding company director and owner of a building materials company in Orange; Helen S. Wilson of Anaheim, who was assistant corporate secretary of both the bank and the holding company, and Herbert E. Slezinger Jr., who served as vice president and president of Heritage Bank until August, 1983.
Slezinger, who until recently was an officer of Bank of Los Angeles, joined Saevig in refusing to sign the consent agreement, but Thompson and Wilson, along with Patty, signed it. Under its terms, they agree to live by the terms of a final judgment, which is expected to be filed later this week.
Wilson is the only defendant in the SEC suit not named in a $150-million negligence lawsuit filed one year ago by the FDIC. That suit--for which a trial date still has not been set--alleges that Patty, Slezinger, Thompson, Saevig and nearly 20 other former Heritage officers and directors misused their posts with the bank to enrich themselves.
Heritage, which had assets of about $158 million, including at least $50 million in bad loans, when it was seized in 1984, had been a fast-growing, real estate-oriented bank under Patty. Before its losses began piling up in 1983, Heritage was Orange County’s largest independent bank with $260 million in assets in mid-1982.
Regulators Hit
Patty, a flamboyant builder and apartment owner, has repeatedly maintained that banking authorities forced Heritage’s collapse by misusing their powers to question bank loans and requiring the bank to set aside cash reserves to cover potential losses.
Patty has claimed that the FDIC wanted to make an example of him because of his criticism of the agency during the early 1980s, when independent banks were being required to write down domestic real estate loan losses while large multinational banks were permitted to carry as current on their books billions of dollars in past-due loans to foreign governments.
