U.S. Tries to Untangle Web of BCCI-Encino Bank Deals : Finance: Government alleges that banking laws were violated. Regulators are forcing the sale of the institution.

Saudi Arabian tycoon Ghaith R. Pharaon is a man accustomed to buying what he wants, once acquiring a yacht with $55 million in cash. So when he wanted a splashy welcome to the city of Los Angeles, he bought that as well.

Eager to meet movers and shakers, the international financier had his Independence Bank in Encino arrange a coming-out party in his honor in December, 1987, at Westwood’s exclusive Regency Club. Minor celebrities and local politicians attended the event to meet a man supposedly worth nearly $500 million and who promised to change the face of local banking.

Now, far from being lauded as a welcome addition to Southern California, Pharaon stands accused by U. S. banking officials of being a front man for the Bank of Credit and Commerce International, the renegade international institution whose activities have been linked to money laundering, terrorist activity and the hiding of up to $15 billion in losses.

So far, revelations about BCCI’s secret connections to the San Fernando Valley’s largest bank have been overshadowed by other explosive developments in the banking scandal that is spreading daily worldwide.

Yet, a close look at Independence Bank reveals that the once-staid financial institution is deeply troubled, largely because of souring real estate development investments and loans. Meanwhile, evidence is mounting that its operations were secretly manipulated by officials at BCCI.

According to Federal Reserve documents, BCCI’s extensive secret involvement with Independence Bank started as early as 1984 and led to a series of alleged banking law violations in the late 1980s. The problems culminated in a sharp crackdown on its operations in June by the Federal Deposit Insurance Corp., which ordered the bank to shape up and raise $10 million to bolster its financial condition.

BCCI secretly provided the money Pharaon needed to buy the bank in 1985 and later make capital injections into it, according to a report from the Federal Reserve.

BCCI executives handpicked the bank’s top executive, the documents show, from among their own ranks in 1985 and rejected one applicant for an executive vice president’s job after a personal interview. BCCI also sank money into risky real estate ventures in which Independence was a partner, records show.

Banking regulators are moving to purge the bank of its connections to Pharaon and BCCI by forcing a sale of the bank. Independence Bank also is part of the larger criminal and congressional investigations into BCCI.

Neither Pharaon nor his lawyer, Richard F. Lawler, returned calls seeking comment. But in a Times interview earlier this year, Pharaon insisted that he, not BCCI, owns Independence Bank.

Even with a sale pending, Independence Bank remains a financial institution in turmoil. The latest chief executive--Fulvio V. Dobrich--has been a controversial figure as he has tried to restore the institution to financial health.

As the events swirling around BCCI and Independence sort out, two key questions remain largely unanswered for regulators, investigators and bank insiders.

Other than establishing a California beachhead for its operations, what was BCCI’s ultimate plan for Independence Bank? And what did BCCI and Pharaon get out of this venture, which to date has cost them at least $68 million with little to show for it.

For most of its 29-year history, Independence Bank, organized by a group of Canoga Park businessmen, was a small community bank that specialized in auto and real estate loans. Although it made money, the bank grew too fast in the 1970s and outstripped its capital, a financial institution’s cushion against losses.

A group of Far East investors bought the bank in 1980 for more than $15 million. Profits were lackluster, growth was slow and branch offices had to be sold to cut expenses. Financial problems of one of the original partners prompted the group to consider selling.

Federal Reserve charges filed last month in Washington allege how BCCI got involved. As Independence Bank’s owners were considering selling, BCCI’s founder, Agha Hasan Abedi, sent his subordinates in London to look for a medium-sized California bank that could add to his growing worldwide banking network. Abedi is under criminal indictment in New York, accused of orchestrating a multibillion-dollar fraud.

After studying at least three banks, BCCI executives in California recommended that the bank secretly buy Independence. An open purchase would not have been allowed by U. S. banking authorities, who were concerned that the far-flung BCCI was not adequately regulated.

“Our acquiring Independence Bank will give us much required freedom for our future growth and progress in this part of the world,” BCCI executives told Abedi in a letter in November, 1984, adding: “The size of (the bank) fits into the BCCI plan for acquiring a well-managed conservative financial institution on the West Coast of the U.S.A.”

BCCI officials negotiated the sale, telling Independence Bank officials that they had an “unnamed purchaser”--later identified as Pharaon--willing to pay more than $23 million. In the months that followed, BCCI secretly financed the sale and gained an 85% interest in the bank through an affiliate in the Cayman Islands, with Pharaon owning the remaining shares, the Fed alleged. To the outside world, Pharaon was the sole shareholder.

BCCI secretly installed a longtime BCCI executive, Kemal Shoaib, as chairman. As for Pharaon, a Federal Reserve investigation found he was so uninvolved at the time that he never so much as interviewed Shoaib. Shoaib was effectively a BCCI employee as he ran Independence, documents show. He continued to receive corporate perks from BCCI, including pension benefits and a subsidized mortgage.

Shoaib, who declined to comment, called the shots in direct concert with BCCI, the Fed report said. When he needed new managers to run the bank, he discussed it with BCCI.

That was not the way it was publicly portrayed. Pharaon had deep pockets--a source familiar with his application to state banking regulators said he listed his net worth at about $480 million.

When the sale of Independence Bank was announced in the fall of 1985, Pharaon was hailed as the man who was going to get the Encino financial institution moving.

“I’ve got an owner who can say: ‘Turn the damn thing loose,’ ” then-President Morton R. Michaels, former state superintendent of banks, told an interviewer. “Obviously, he didn’t buy this bank to have it stand still the way it does.”

Stand still it did not. Shoaib’s marching orders were to quadruple the bank’s size to $1 billion in assets in less than five years. The bank has $667 million in assets now.

Like many savings and loans institutions that collapsed, Independence Bank fueled its growth using so-called brokered deposits--high-paying deposits raised largely through professional brokers and from wealthy investors. Regulators dislike the use of these types of funds because the depositors often yank the money at the first sign of trouble. At one time in 1988, bank regulators calculated that these volatile funds made up 37% of the Independence Bank’s deposits.

One clear goal was to put those funds to work in Southern California’s then-sizzling real estate market. To do that, the bank needed state approval to enter joint real estate ventures, taking advantage of California laws that allows healthy banks to dabble directly in real estate as owners.

Within six months of the time the sale to Pharaon was completed, the bank got its approval and plunged into the business with abandon, exceeding its legal limit for those activities, according to documents and bank officials.

Independence Bank executives say the bank’s main partners were a group of low-profile Los Angeles investors named Juri Ripinsky, Malcolm Kingston and Ashok Advani.

In 1983, Ripinsky tried to buy the Los Alamitos race track in a partnership with two other people, one of whom was a business associate of Pharaon’s in a Hong Kong real estate project. Philip Dapeer, a lawyer who represents Ripinsky and the other investors, says that “they have had no dealings whatsoever with Mr. Pharaon.”

The report from a previously undisclosed state banking examination in September, 1988, sharply criticized Independence Bank for knowing so little about the investors and relying so much on them for numbers and analysis. The Ripinsky group is not identified by name in the report the Times obtained, but current and former Independence officials confirmed that it is the group named in the report.

According to that examination, 11 of the bank’s 26 partnerships were connected to the Ripinsky group, which appeared to “act as middleman/broker for foreign investors.” Independence’s officers described the investors as “deal makers,” the report said.

Dapeer, the lawyer for the Ripinsky group, called both characterizations false. He said the group operates the properties it buys, and that Independence’s role was to came up with the equity and financing for projects. The group also was involved with seven partnerships with the bank, not 11, he added.

One project involving Independence Bank, the Ripinsky investors and BCCI was the former Ohrbach’s building in a partnership called Wilshire Fairfax, named for the two cross streets in Los Angeles where the building sits. The partnership filed for protection from creditors last year in U. S. Bankruptcy Court.

According to a Bankruptcy Court filing, BCCI is listed as a major creditor on the property. It is owed $8.8 million, the records show.

Dobrich, Independence Bank’s chief executive, said in an interview that BCCI wired the money through Independence from its London office to help repay part of a loan on the property made by Columbia Savings & Loan in Beverly Hills.

According to Dobrich, “Mr. Kingston negotiated with BCCI for the $8 million. They were also negotiating to bring BCCI or one of BCCI’s investors into all of the projects we were in with them. There was a relationship between (the group) and BCCI.”

Dapeer said that he is skeptical of Dobrich’s version. “I have no knowledge of that whatsoever,” he said.

Columbia repossessed the property. The government, which seized Columbia this year, now owns it.

Nearly $15 million in BCCI money can also be traced to projects unrelated to the investors that Independence was involved in near Palm Springs, Dobrich said. In both cases, BCCI provided construction loans.

As Independence Bank real estate joint ventures grew, regulators became increasingly uncomfortable. At one point, the bank’s equity in the ventures was $42 million, a dangerously high amount. Regulators last fall pressured Pharaon to buy the bank’s interest in eight of the partnerships for $20 million. Still, Independence lost $26 million in the first six months of this year.

The 1988 state examination found that the bank lacked adequate capital and was plagued by bad loans and risky operations. The report listed numerous violations of state and federal banking rules. One was providing $1.5 million in loans to two Pharaon-owned companies, including a cement-making ship berthed in San Pedro.

Furthermore, the FDIC, knowing of the longstanding ties between Pharaon and BCCI, scoured Independence starting in 1988 for evidence of money-laundering after allegations of BCCI’s role in the illegal activity surfaced in Florida. The FDIC has turned up nothing at Independence, Dobrich said.

Shortly after regulators completed their examinations in late 1988, Shoaib left the bank to return to London, citing family reasons. The Federal Reserve Board is seeking to bar Shoaib, Pharaon, Abedi and another BCCI executive, Swaleh Naqvi, from U. S. banking.

Unlike in the hiring of Shoaib, Pharaon became involved in picking Independence’s chief executive. With “fix it” as his only instruction, Pharaon picked the blunt-talking Dobrich, 44, an immigrant from Yugoslavia and former Manufacturers Hanover executive. Pharaon interviewed Dobrich for the job in Amsterdam, where the Saudi financier was wrapping up the details of buying his $55-million yacht.

As part of the hiring agreement, Pharaon agreed to provide about $1 million to start up a Third World debt-trading operation in New York called DLF, which Dobrich and two partners would control.

At about the same time, Dobrich launched Independence into the Third World debt arena in what was an apparently legal, but highly controversial, activity for the bank. Independence served as a middleman in the huge secondary markets of buying and selling debts in developing countries such as Brazil and Yugoslavia.

Its role in these complicated transactions alarmed some insiders because these debt markets are dominated by large, sophisticated financial institutions, not small banks in the San Fernando Valley used to making real estate loans. In addition, DLF received a fee of about $125,000 on at least one deal.

According to one insider’s account, Dobrich and his chief credit officer, William Pechstein, nearly got into a fight at the corporate headquarters because Pechstein was concerned that the bank would anger regulators with these trading schemes. Michaels, the former president, said he also objected to the deal as a possible conflict of interest.

Dobrich said the purchases were both legal and profitable, making $4.4 million for the bank.

Meanwhile, as Dobrich mulls the bank’s sale, he says that he is as puzzled as anyone about why Pharaon, and allegedly BCCI, got involved in the bank.

“Why did he buy the bank?” Dobrich asked. “That’s the question I can’t answer.”

As for Pharaon, he is not talking now. In less troubled days, he was euphoric about U. S. banks. “In America,” Pharaon was quoted as saying several years ago, “a $400 million bank can be acquired for $20 million. Where else can you do that?”

Former Times staff writer John Medearis contributed to this story.

* A HAVEN FOR BCCI: Pakistan offers a home to a key figure in the BCCI case. A17