Independence Bank’s Former Chairman Fined
The Federal Reserve Board on Wednesday assessed a $20-million fine against the former chairman of Encino-based Independence Bank for assisting the scandal-plagued Bank of Credit & Commerce International in secretly acquiring the bank.
The action against Kemal Shoaib came after the former executive tried to withdraw about $120,000 in personal funds from the bank earlier this month, said sources close to Independence, the largest bank in the San Fernando Valley.
The Fed and Justice Department also obtained a court order Wednesday in U.S. District Court in Los Angeles freezing Shoaib’s assets.
The move is the second Independence-related action within the past week. Last week, the Fed moved to fine Saudi financier Ghaith R. Pharaon $37 million for his role as an alleged front man in helping BCCI secretly buy an 85% stake in the bank in 1985 for $23 million.
A Pakistani banker who headed the bank from 1985 to late 1988, Shoaib has consistently declined to talk about his role at Independence. A woman answering the telephone Wednesday night at his London residence said he was not at home.
Shoaib was a high-ranking BCCI executive in London when he allegedly helped identify Independence as a BCCI acquisition target, assisting in arranging the secret sale. He was then tapped to run Independence.
The Fed has alleged in documents that Shoaib was handpicked by BCCI and that Pharaon did not even interview him for the job. Former executives with the bank have described him as a quiet, intelligent banker whose most unusual habit was napping frequently in his office during lunch.
Shoaib’s orders from BCCI were to quadruple the bank’s size to $1 billion in assets within five years, former executives have said. Under Shoaib, Independence aggressively expanded into California’s real estate market through lending and by investing in projects through partnerships. The bank soon exceeded the limit that state-chartered banks can make in real estate, documents show.
Fed officials allege that Shoaib regularly consulted with former BCCI Chief Executive Swaleh Naqvi before making decisions, continued to receive perks from BCCI while heading Independence and even sent to London a job candidate he was considering hiring to be interviewed by top BCCI officials. The candidate was ultimately rejected after an interview in August, 1987, with Naqvi and BCCI founder Agha Hasan Abedi, documents show.
A confidential state banking examination in 1988 sharply criticized Independence executives, saying they had invested too heavily in risky real estate ventures and that they knew little about their fellow investors. In addition, the examination criticized the bank for fueling much of its growth using risky, high-paying deposits raised through professional brokers and wealthy investors.
The Fed in May ordered Luxembourg-based BCCI to divest its interest in Independence Bank. In addition, the Fed is seeking to ban Shoaib and Pharaon from the banking industry in the United States.
Separately, Independence filed a $42-million civil racketeering suit, naming Pharaon and Shoaib as two of the defendants.
Independence executives have been asked by state banking officials to raise $27 million to shore up the bank. Chief Executive Fulvio Dobrich went to oil-rich Abu Dhabi this month seeking funds from the royal family, which controls BCCI. Independence executives and lawyers are moving through regulatory and legal channels to sever the bank’s ties with Pharaon and BCCI.
BCCI was shut down by regulators around the world July 5 amid allegations of massive fraud. The Fed has fined BCCI $200 million for violating U.S. banking laws. It is uncertain whether federal authorities will be able to collect the large fines sought against BCCI and its officials and operatives.
