U.S. Agency’s Case Against Banker Detailed : Courts: Gerald Garner, others are accused of insider abuse, concealment of records in running Anaheim bank since taken over by regulators.
A federal agency’s complaints against former Anaheim banker Gerald J. Garner and others accuse them of an excessive amount of insider abuse, concealment of records and other wrongdoing that led federal regulators to close American Commerce National Bank last spring.
The detailed accusations by regulators, made public at a court hearing Tuesday, indicate that Garner and his wife, Joan, used the institution to obtain loans, high salaries and bonuses, other unwarranted benefits and favored banking treatment for companies in which they had interests.
The charges by the Office of the Comptroller of Currency are part of the agency’s effort to ban Garner, who was the bank’s chairman, his wife, who was a director, and other executives from the banking industry for life.
Lawyers for the Garners denied the agency’s civil allegations.
The comptroller’s office, which had been investigating the bank since shortly after it opened in 1984, had been trying to keep a lid on four complaints it had filed against the Garners and others since taking over American Commerce on April 30. But Administrative Law Judge Walter J. Alprin ruled that documents filed in the case were public.
The agency’s takeover of the Anaheim bank marked the first time it had seized and closed what appeared to be a healthy bank.
But regulators said they could no longer trust the directors or managers, saying they had concealed records, lied and wasted bank assets. They also questioned whether the bank was as healthy as it said it was, pointing out that 22% of its assets were troubled loans and that payments were very late or weren’t being collected on 11% of the loans.
The FBI, meantime, said it has opened a bank fraud and embezzlement investigation into American Commerce.
Among the charges that the comptroller’s office has leveled against the Garners are allegations that:
* Joan Garner had $1.3 million in loans that regulators classified as “substandard” and that the bank waived $21,000 in late fees on her loans.
* Gerald Garner used the bank to file a “frivolous” lawsuit against a former director who had sued him personally but hadn’t sued the bank. American Commerce ended up paying $404,000 of a $475,000 settlement in that case.
* Garner, once a lawyer, used the bank to pay $15,000 of his personal legal fees for his losing defense to disbarment proceedings in New York.
* Garner hid his interest in Coast Plaza Doctors Hospital, where he was chairman, while allowing the hospital’s deposit account to run overdrafts of as much as $252,000. The bank waived overdraft fees; it also never obtained an analysis of Coast Plaza’s financial capacity.
* The bank paid Garner’s brother Harvey for construction inspections without ever analyzing the service or the cost to ensure no conflict of interest. Another brother, Daniel, a bank officer, approved the payments.
* Garner’s salary last year rose to $300,000, double the average for executives at California banks the size of American Commerce. His salary had been $201,000 the previous year, including a $100,000 bonus.
The complaint also details a series of banking transactions that allegedly violate banking rules and laws.
What the complaint also seems to indicate is that three former directors--Fountain Valley jeweler Eugene Alterman, Dr. Norman Charney and Judy Mandel--are much less culpable for the demise of American Commerce. They are not accused of some of the more egregious transactions at the bank. Mandel, who is married to Orange County Superior Court Judge Jack K. Mandel, already has agreed to a lifetime ban from the banking industry.
The comptroller’s office, though, appears through its complaints to take a tougher stand against Drs. Galal Gough and Stanley Kaller, former directors who also work with Garner at Coast Plaza hospital; and Santa Ana lawyer Duffern Helsing, a former director who represented the bank.
In addition, the comptroller’s office wants to ban Daniel Garner and four other former officers from the banking industry. Lawyers for the ousted officers complained at the hearing that the case was moving too slowly. Unemployment benefits for their clients are running out this week, they said, and no bank will hire them while they are under a cloud.
Even so, some of the lawyers said, a number of former directors and officers will probably settle with the agency and agree to be banned once the agency adds demands for civil monetary penalties, which can run from $2,000 a day to $1 million a day for every day of wrongdoing.
Richard Blake, a lawyer for the agency, said he expects to file a demand for penalties within two months.
Judge Alprin, noting the extensive number of documents and parties, set three weeks aside starting Oct. 17, 1994, to start a trial on the agency’s allegations.
