Fed Seeks to Fine BCCI Figure $37 Million : * Banking: Saudi businessman Ghaith R. Pharaon is accused of illegally purchasing Independence Bank of Encino. Meanwhile, a court freezes his U.S. assets.
The Federal Reserve Board on Tuesday sought to fine Saudi businessman Ghaith R. Pharaon $37 million for allegedly illegally buying Independence Bank of Encino on behalf of the scandal-plagued Bank of Credit & Commerce International.
At the same time, a federal court in New York temporarily froze Pharaon’s holdings and assets in the United States until it can hear a Justice Department request for a permanent injunction prohibiting Pharaon from taking them out of the country.
The double-barreled action marked another major move by U.S. authorities to prosecute those connected with BCCI, an Abu Dhabi-controlled institution that regulators say has been riddled with corruption in dealings around the world.
Earlier this year, regulators from the United States, Britain and more than two dozen other countries shut down BCCI branches within their borders and began investigations into its activities. On July 29, the Fed fined BCCI $200 million for its activities here.
The latest Fed action comes two months after the agency moved to ban Pharaon and three former BCCI officials from engaging in banking in the United States for their activities on behalf of the bank.
The moves also came a day after Independence Bank, the largest bank in the San Fernando Valley, filed a $42-million federal racketeering suit against Pharaon and a former executive, Kemal Shoaib, contending that they illegally served as fronts for BCCI. The suit contends that Pharaon has a secret “nominee agreement” with BCCI under which he owns only 15% of the bank, with the rest owned by a BCCI-related firm. It also alleges that Shoaib, who served as chairman of Independence, mismanaged the bank.
In assessing the $37-million civil penalty Tuesday, the Fed invoked federal statutes that provide for fines ranging from $1,000 a day to $25,000 a day for false reports regarding bank ownership that are allowed to go on uncorrected.
In July, the Fed charged Pharaon with civil and criminal violations of banking laws that it said “involve personal dishonesty” by Pharaon, including the falsification of official filings . . . and the willful concealment of the control of Independence by BCCI.”
Although the Fed ordered Pharaon to pay the fines within 30 days, Pharaon is almost certain to seek a hearing on the case before an administrative law judge. Pharaon’s attorneys did not return telephone calls from The Times on Tuesday.
A separate administrative hearing has been scheduled for Nov. 5 to consider the Fed’s July 12 move to ban Pharaon and three top BCCI operatives from U.S. banking.
In Friday’s judgment assessing the $37-million fine, the Fed repeated its July accusation that Pharaon purchased Independence in April, 1985, for $23 million on behalf of BCCI but concealed BCCI’s actual role when he sought Fed approval of his purchase of the bank.
In the complex transaction, Pharaon, who registered as 100% owner of the Encino bank, actually held 15% for himself and 85% for BCCI, according to records.
He also had told California officials that he intended to put up $8.4 million of his own money and borrow the remainder from the First National Bank of Boston. Instead, Pharaon paid his cash down payment with a loan of $8.5 million from BCCI, the Fed has charged.
Accordingly, the Fed observed in the order made public Tuesday, “Pharaon obtained the full benefits and privileges attendant to ownership of 100% of Independence while only having to pay for 15% or less of the shares"--a portion for which BCCI in any case loaned the money.
In addition, it charged, Pharaon continued to receive cash infusions from BCCI and ICIC, its Cayman Islands affiliate, and thereby “was relieved of his obligation to enhance periodically the capital of Independence or to pay interest on loans used to mask capital injections into Independence.”
In a related action, the U.S. District Court in New York froze Pharaon’s U.S. assets on behalf of the Justice Department and at the Fed’s request. Fed officials claimed that Pharaon had been trying to sell portions of his U.S. holdings since June, shortly after it became apparent that the agency was formally investigating his association with BCCI.
For instance, Baxter said in an affidavit, on June 6, “only days after (a Fed official) sought to serve Pharaon with a subpoena, Pharaon sold his 80% interest in a U.S. company called DLF Finance Inc.” for upwards of $1 million. It is not known whether Pharaon has removed that money from the United States.
Fed officials also said Pharaon is seeking to sell his ownership interest in American Southern Insurance Co., a Georgia-based company, for $33 million.
Federal officials did not list in court papers Pharaon’s assets, which will be temporarily held pending the outcome of the Fed’s actions against him.
Pharaon, 50, whose father was a financial adviser to the Saudi ruling family, expanded his own financial empire into the United States in the late 1970s. The Harvard-educated Pharaon has investments stretching from the oil fields of Texas to a big plantation near Savannah, Ga., headquarters of his InterRedec Inc.
Trading on a relationship with Bert Lance, the former Carter Administration budget director and onetime intimate of the former President, Pharaon in 1978 bought the National Bank of Georgia from Lance--perhaps even then acting on BCCI’s behalf.
InterRedec is a branch of Pharaon’s Saudi Research & Development Corp. Ltd., based in Jeddah, with 16,000 employees and branches in six countries. In the United States, InterRedec’s investments include insurance companies, hotels and cable television.
His insurance holdings range from the small Los Angeles-based Tri-Star Insurance Co. to Ellis Brokerage Inc. in New York. Cable TV investments include Sterling Cablevision of Savannah, Ga., and Montgomery Cablevision of Montgomery, Ala. Published reports have also said Pharaon held a 25% stake in the Florida boat maker Chris-Craft Industries Inc. and a 718-room hotel outside of Kissimmee, Fla.