Anaheim Bank Seized With New Federal Powers

Federal banking regulators, exercising for the first time new powers to seize financially healthy banks, took over a small Anaheim bank on Friday and accused its operators of concealing records, lying and wasting the bank’s finances.

The Office of the Comptroller of the Currency, which regulates national banks, ousted American Commerce National Bank’s eight directors and five of its officers. It also notified them that it will take steps to ban them from the banking industry for their “weak, abusive and self-serving” activities.

The agency turned the bank over to the Federal Deposit Insurance Corp., which will try to sell the institution and have it reopened by Tuesday. If it can’t find a buyer, the FDIC said it will liquidate the bank and immediately refund more than $100 million in deposits to customers.

OCC spokeswoman Lee Cross said the agency’s action marked the first time it has taken over a bank that had a strong level of capital, an institution’s final cushion against losses.

Such actions against well-capitalized banks was authorized by a banking reform law that went into effect 16 months ago, designed to keep down the cost of bank failures by taking over institutions that could eventually collapse through reckless or poor management. Regulators have said they will exercise such authority only in very egregious cases.

While regulators previously have only seized banks with little or no capital, Cross said Friday’s action against American Commerce was warranted by evidence uncovered in an investigation started shortly after the bank’s opening in 1984.

“As result of findings in an examination of the bank, we were concerned that if we allowed it to remain open, assets would be dissipated,” she said.

In one of its most harshly worded statements, the agency said it decided to put the bank in receivership--rather than try to conserve its loans, investments and other assets--because the “pervasive concealment and falsification of bank records” made it impossible to determine the extent of the bank’s unsound condition.

Cross would not say whether the agency has referred the case to criminal authorities, but other government agents said the FBI has been investigating the bank for up to several years.

The OCC detailed some examples of wrongdoing at the bank, which had $139 million in assets.

For instance, Gerald Garner, the bank’s chairman and once a New York lawyer, is accused of using the bank to pay his legal fees to fight disbarment in New York.

Garner lost and is now disbarred from New York and Washington. He was never licensed in California.

Garner also removed from the bank’s files information about the bankruptcy of his brother, Daniel Garner, a bank executive who continued to obtain unsecured loans from the bank.

In addition, the agency said, the bank gave insiders preferential treatment on loans and concealed from regulators both businesses that insiders were involved in and bank loans to those businesses.

Industry experts as well as shareholders, who now stand last in line to receive refunds from any liquidation, were surprised by OCC’s strong action.

“I never heard anything like this,” said longtime banking consultant Gerry Findley of Findley Reports in Anaheim. “In some respects, I’m not surprised because Garner has been a thorn in the side of regulators and he’s not the most cooperative guy in the world.”

Santa Ana lawyer Frank P. Barbaro, one of the original investors, said he was under the impression that the bank was performing well. “The stuff we got as shareholders (from the bank) showed it was doing well,” he said.

Findley said the bank’s financial reports never gave any indication of problems.

Regulators said that the bank’s bad loans had grown to $30 million--more than twice its capital--and that it relied heavily on high-cost deposits from outside its lone banking office in Anaheim.