Defendant Says Loans Intended to Save Bank

A former Thousand Oaks banker testified in federal court Thursday that he did not know it was illegal when he and his partner tried to save their failing bank by loaning $300,000 to customers and borrowing that amount back to buy bank stock.

Phillip L. Chase explained that he and partner Olen B. Phillips were merely trying to save United Community Bank from faltering under a rash of bad loans, a fraud scheme by some customers, and demands from state bank regulators that they raise more capital.

But Chase told jurors in U. S. District Court in Los Angeles that he never intended to violate the banking codes.

Later, under cross-examination by Assistant U. S. Atty. Brent Whittlesey, Chase admitted that he and Phillips arranged to loan the bank’s money to some of its customers, then borrow back the same amount from them and buy enough shares in bank stock to satisfy the banking regulators.

It is illegal for officers to shore up a bank with funds that they borrow from that bank.

The jury is weighing charges of conspiracy, misuse of bank funds and falsifying bank records that a grand jury lodged in May against Chase, 51, of the Westlake area of Thousand Oaks and Phillips, 53, of Oak View.

The indictment alleged that the two illegally funneled United Community Bank money to “straw borrowers” and then back to themselves through loans that enabled them to buy shares in bank stock so they could fend off the California State Banking Department.

The indictment also charged that Chase and Phillips then hid the loans from a Pasadena bank when that bank’s officers conducted a routine review of a $750,000 loan it had made to Phillips and Chase. The pair had obtained that loan in an earlier effort to bolster United Community Bank’s holdings.

Another charge in the indictment is filing false banking documents with the Federal Deposit Insurance Corp.

Chase testified calmly for nearly 2 1/2 hours under direct examination by his attorney, Richard Marmaro. Chase described a bank that began having difficulties from inside and out soon after it expanded into commercial banking in 1986.

Chase and Phillips bought a small Thousand Oaks bank called Westlake Thrift and Loan in 1983. Three years later they merged it with the troubled Brentwood Bank to begin handling business loans under the name of a new parent company, United Community Bank, he testified.

In 1987, an internal audit found that United Community Bank had lost $4 million to a fraud scheme by some of its customers involving video stores leased through the bank, Chase testified.

“This was a fatal blow to the thrift,” Chase testified.

Then a series of poorly performing car loans cost the bank another $1.5 million, Chase said, and the State Banking Department hit it with four successive orders to strengthen its foundation by raising $8.45 million from investors.

Chase told jurors he worked vigorously to attract investors’ money by pushing the bank’s stock at meetings ranging from Rotary Club functions to YMCA fund-raisers.

In search of more money, he and Phillips arranged to loan $100,000 in bank funds to one couple and $200,000 to another couple in January, 1989--loans that provided income to the bank, he said. Chase said he and Phillips then shouldered personal loans to borrow those same amounts from the couples and invest the money in stock.

The move ultimately failed--the FDIC shut down the bank in December, 1989, at a cost to taxpayers of $9.5 million needed to cover federally insured accounts.

Phillips is not expected to testify, but Chase’s cross-examination will continue Tuesday.