U.S. Seizes Anaheim’s American Commerce Bank : Receivership: It marks first closure of a healthy institution. Regulators want to bar officers they accuse of lying, squandering assets.
Federal banking regulators, exercising for the first time new powers to seize financially healthy banks, took over American Commerce National Bank on Friday and accused its operators of concealing records, lying and wasting the bank’s finances.
In taking its extraordinary action, the Office of the Comptroller of the Currency said that regulators can’t assess the Anaheim bank’s condition because executives consistently refused to turn over records about insider deals, borrowers’ credit histories and other information.
The comptroller’s office, which regulates national banks, said it believes the bank’s condition is “much worse” than it appears.
The agency ousted the Anaheim bank’s eight directors and five of its top 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.
It 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. This is the second Orange County bank seized this year. In March, regulators closed First American Capital Bank in Laguna Beach.
Among those the comptroller’s office wants to ban are Gerald Garner, American Commerce’s chairman, and directors Duffern Helsing, a well-known Santa Ana lawyer, and Judy Mandel, wife of Orange County Superior Court Judge Jack K. Mandel.
Garner and his bank were linked earlier this year to then-Orange County Supervisor Don R. Roth, who has since resigned and been convicted in an influence-peddling investigation, and to Anaheim Hills developer Donald Hill Williams, accused in lawsuits of defrauding investors of about $90 million.
Garner declined to comment late Friday but said he planned to hold a news conference next week to defend himself and attack the comptroller’s actions.
Agency 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 that 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 unsafe and unsound condition.
Cross would not say whether the agency has referred the case to criminal authorities, but other government agents said that the FBI has been investigating the bank for up to several years.
Regulators detailed some examples of wrongdoing at the bank, which had $139 million in assets.
For instance, Garner, once a lawyer in New York, is accused of using the bank to pay his legal fees to fight disbarment proceedings 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 businesses that insiders were involved in and bank loans made to those businesses.
Industry experts as well as shareholders, who now stand last in line to receive refunds from any liquidation, were surprised by the comptroller’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 single banking office in Anaheim.
The government’s takeover of the bank comes on the heels of news reports earlier this year connecting Garner and his bank to then-Supervisor Roth and developer Williams.
Garner, a friend and occasional golfing partner of Roth’s, donated $7,300 to Roth’s 1986 campaign and the bank loaned more than $100,000 to Roth’s election effort. In addition, according to Roth’s former wife, Garner “facilitated” a 1990 home loan to the supervisor from an American Commerce affiliate. Investigators contended that Roth’s loan application was falsified.
In previous reports, Garner said he “could have” helped Roth obtain the home loan, but that he didn’t recall. He also said he couldn’t remember meeting Williams, though he knew that his bank had loaned money to the developer’s operations.
Garner, an Anaheim Hills resident, also has been sued numerous times since helping to found American Commerce. A number of lawsuits involve deals in which Garner allegedly would find partners to organize and run operations, usually restaurants, and then wrest control away, sometimes claiming theft and mismanagement.
In one case, he set up a young, inexperienced man in a restaurant in Fullerton, where he once lived, and brought in his wife and the wives of two other directors as part owners. The bank then loaned the restaurant operating capital, and Garner soon ousted his partner, took over the restaurant and put it in bankruptcy. Evidence in the case showed that the women and their husbands received substantial tax benefits on the operation. The bank paid several hundred thousand dollars to settle the case.
In another restaurant deal involving the former Dal Rae Restaurant in Fullerton, Garner walked in one night with college football players he hired and disrupted operations and seize control physically, according to court documents. Weapons were brandished, and Fullerton police were called. Police reports said no shots were fired.
Former director Donald Daniel, a physician who since has moved to Northern California, sued Garner and his law firm in the mid-1980s for allegedly squandering the doctor’s retirement fund, which Garner had managed. The bank ended up paying a settlement to Daniel.
Besides Garner, Helsing and Mandel, the other directors of American Commerce are Drs. Norman Charney, Galal S. Gough and Stanley Kaller, jeweler Eugene A. Alterman and Garner’s wife, Joan.
