Convictions Reversed in Pacific Coast Bank Case on Insider Loans

The 9th U.S. Circuit Court of Appeals has reversed the 1984 convictions of four people who were found guilty of misapplying more than $4 million from the now-defunct Pacific Coast Bank.

A federal jury in San Diego convicted the four on 47 counts after a nine-week trial, but the appellate justices reversed the majority of the convictions on grounds that U.S. District Judge William Enright failed to properly instruct the jury. The 9th Circuit decision was rendered Sept. 3.

The principal defendant in the complicated case was bank chairman Stephen C. Forde, who was accused by the government of misapplying bank funds and being the recipient of several insider loans that were made to others.

Marcus Topel, Forde’s trial attorney, said the appellate justices ruled that Enright erred by refusing to instruct the jury to consider whether Forde’s actions were legal, since the bank’s board of directors had approved the questionable transactions.

“Everybody was aware that the instructions could seriously undermine the prosecution’s theory of the case; that’s why the prosecution resisted the giving of the instructions. That trial was a bloody battle. . . . The government brought a lot of resources to the case,” Topel said.

In addition to the reversals, the appellate court also threw out one count involving Carol G. Unruh, an attorney in San Marino. Unruh was convicted on two counts of misuse of bank funds. The remaining count was reversed. The count that was thrown out involved allegations by the government that she borrowed money from the bank to purchase a lot for a branch office but gave most of the funds to Forde.

The court ruled that there was insufficient evidence presented by U.S. prosecutors to prove that the funds borrowed by Unruh were misapplied. A defense attorney familiar with the case and who requested anonymity said the court threw out the count because Unruh had made a good faith effort to purchase the lot.

Series of Phony Loans

According to allegations brought by the government, Forde was the main benefactor of a series of phony loans made by the four defendants. He was convicted on 38 counts of misapplication of bank funds and making false entries in bank records, but the appellate court reversed 35 counts. Convictions on the remaining three counts were upheld.

Topel called the court’s decision “heartening” and said that he doubts the case will be retried.

“It was a terribly complex case. I think it’s fairly unlikely they will be retried, but of course that’s a decision for the government to make,” Topel said. “I feel that the three counts that remain (against Forde) were affected by the judge’s error in failing to properly instruct the jury and we’ll be taking further appellate action to have those counts removed as well.”

William L. Fowler, a Los Angeles loan broker, was convicted on six counts, and Robert Hopper, a Corona del Mar business consultant, was found guilty on one count. Fowler’s and Hopper’s convictions were reversed on all counts.

All of the defendants except Forde, who was sentenced to 15 years in federal prison, were free on bond pending appeal.

Topel said that prosecutors “perceived the case to be more harmful than it really was” and that Forde’s sentence “was unusual for a white-collar case.”

U.S. prosecutors will now have to decide whether to retry the case or drop the counts that were reversed by the 9th Circuit Court.

A One-Branch Institution

Pacific Coast Bank was a one-branch institution founded by black businessmen in 1973 to serve the predominantly black and Latino communities in Logan Heights. The bank faced financial problems from the beginning.

In 1980, an investigation by state banking officials revealed that some bank funds were being embezzled and the institution was badly managed. The bank had made more than $1 million in student loans that were not collected. In January, 1981, state banking officials threatened to shut down the bank unless stockholders could find a buyer willing to deposit about $1 million in the bank.

Forde and a group of wealthy investors from Los Angeles and Orange counties took over the troubled bank in December, 1981. However, state banking officials said that the misapplication of funds continued under the new owners and closed the bank four months later.

The four defendants whose convictions were reversed were among six people indicted by a federal grand jury on 72 counts of misapplication of bank funds, conspiracy to misapply bank funds and conspiracy to commit mail fraud. Edward Hart, the bank’s former president, and Jon W. Schroeder, the bank’s attorney and a member of its board of directors, pleaded guilty to the charges in November, 1984, and agreed to cooperate with federal investigators in exchange for lighter sentences.