Prosecutor Details Loan Scheme in a Failed Bid to Rescue Bank : Courts: Federal trial begins in the case of two ex-bankers accused of fraud in an attempt to prevent seizure of the Thousand Oaks institution.

Faced with losing their bank because it lacked sufficient capital, two officers of a Thousand Oaks bank illegally made loans to themselves through “straw borrowers” and used the money to purchase bank stock, a federal prosecutor told a jury Thursday.

U.S. Atty. Brent Whittlesey said the scheme was designed to make it appear that the United Community Bank of Thousand Oaks had received a much-needed infusion of cash. That, in turn, would keep state regulators from seizing the bank, the prosecutor said.

Whittlesey’s statements came on the opening day of the federal bank fraud trial of Phillip L. Chase, 51, of Thousand Oaks, and Olen B. Phillips, 53, of Oak View.

The two men are charged with defrauding United Community and with lying on a loan application from a Pasadena bank, all in an effort to keep regulators from seizing United Community.

The bank eventually was shut down anyway--at a cost to taxpayers of $9.5 million needed to cover federally insured accounts.

Chase was the bank’s chairman and largest stockholder, while Phillips was a board member and second-largest stockholder.

A defense attorney acknowledged that Chase helped arrange for some bank customers to borrow a total of $300,000 from United Community Bank, and then loan that money to Chase and Phillips.

But the lawyer, Richard Marmaro, said Chase never intended to break the law. According to Marmaro, the key issue in the case against his client is “not what he did, but why he did it.”

Phillips’ lawyer, Steven D. Powell, did not deliver an opening statement on Thursday, instead reserving that right until a later point in the trial. In a state trial last year, Phillips was found guilty of one count of grand theft in a case stemming from his separate real estate investment firm.

In the federal case, a grand jury indicted Chase and Phillips in May, charging them with making false statements, misusing bank funds and making false entries on bank records. Under state and federal law, it is illegal to borrow money from a bank and then use it to buy stock in that same bank.

Whittlesey told jurors that state regulators informed Chase and Phillips in 1988 that they should either raise more money for their bank or risk having it closed down. Among other ways, the pair raised money that year through the $750,000 from the Community Bank in Pasadena, the prosecutor said.

The following year, however, they put false information about their liabilities on an application to renew that loan.

Chase understated his debts by $1 million, Whittlesey said, and Phillips “was even worse.” Phillips, he said, understated his debt by $1.8 million.

Had they told the truth about their debt, the Pasadena bank would not have renewed the defendants’ loan and “their whole house of cards would have come falling down,” Whittlesey said.

Even after getting the $750,000 loan, the defendants were still far short of the money needed to operate their financial institution, he said.

That’s when they concocted the scheme to loan money to acquaintances and then borrow the money back as personal loans, Whittlesey said. He said the defendants struck such a deal with two couples.

In one instance, the bankers persuaded Patrick and Barbara Holmes of Thousand Oaks to borrow $200,000 in December, 1988.

According to Whittlesey, the scheme went this way: The Holmeses borrowed the money from the bank at an 11% interest rate, then loaned it to the defendants at a rate of 12%.

“The evidence will show Mr. Holmes agreed to the plan in order to make a 1% profit,” Whittlesey told the jury.

Chase’s attorney said his client never intended to defraud anyone.

In the case of the Pasadena bank, Marmaro said his client has been instrumental in paying off $707,000 of that loan so far. Marmaro acknowledged that Chase did not mention $1 million in debts on the loan renewal application, but said Chase “did not act with criminal intent.”

As far as the loans to the straw borrowers, Marmaro said Chase did not know it was illegal to loan money to a third party, borrow it back and invest it in the bank from which it originally came.

But he said that when a lawyer for United Community Bank informed Chase that such loans were illegal, Chase immediately made sure two similar loans were canceled and voluntarily disclosed the previous loans to state banking regulators.

He said the entire incident involving the so-called straw borrowers comes down to his client not understanding “technical banking rules.”

The trial continues today in U.S. District Court in Los Angeles before Judge William D. Keller.