A federal court jury in Los Angeles has ruled that a failed Encino bank and one of its former officers violated federal civil fraud and racketeering laws in a gold bullion investment program administered by the bank.
The case arose from the April, 1984, failure of West Coast Bank, a fast-growing San Fernando Valley institution that served as middleman in an unusual investment plan under which it loaned money for the purchase of gold and other precious metals and retained the metals as collateral for the loans. The bank today is reorganizing under Chapter 11 of the U.S. Bankruptcy Code.
FDIC Closed Bank
Damages in the case are to be determined in a separate hearing, for which no date has yet been set. But it is uncertain whether the about 500 participants in the collateral loan program will get back much of the $4 million that they allegedly lost or see the triple damages allowed under federal civil racketeering laws.
The Federal Deposit Insurance Corp. closed West Coast Bank two years ago amid mounting loan losses and allegations of fraud. The bank, which had assets of $187 million when it failed, had been one of California’s fastest-growing independent banks.
Attorneys for the FDIC and Ned Fenton, the former bank officer who ran the loan program, said they intend to appeal Monday’s jury verdict. As receiver for the failed bank, the FDIC may be liable for any damages awarded to the gold investors, but the extent of the federal agency’s exposure is in dispute.
Merak Eskigian, who represents the investors, said Tuesday that the losses to his clients exceeded $4 million and could result in an award of more than $12 million when tripled under the federal statute.
No Obligation to Pay
Eskigian contended that the FDIC should pay the judgment because it took on West Coast Bank’s liabilities when it stepped in and closed it. He noted that the FDIC was not accused of wrongdoing in the suit.
The lawyer for the FDIC said the agency is under no obligation to pay the possible award from its own funds. If the court should award damages to participants in the loan program, attorney Kenneth Howell said, they will be treated like any other creditors of the failed bank.
Terry McKnight, who represented Fenton, said: “I don’t think the verdict is supportable on the evidence that was presented, and I think it will be reversed on appeal.” He said his client would have no public comment on the case.