U.S. Likely to Hit LippoBank With 3rd Severe Sanction

For the third time in less than seven years, federal regulators are moving to impose a severe sanction on Los Angeles-based LippoBank--owned by James Riady, the Indonesian financier who figures prominently in the Democratic fund-raising controversy.

People familiar with the matter said that the Federal Deposit Insurance Corp. would act against Riady’s LippoBank this month because of its weakened financial condition.

The sanction, in the form of an order to “cease and desist” from particular practices, represents yet another setback for Riady, a friend and supporter of President Clinton’s since the early 1980s, when both lived in Little Rock, Ark.

“Most banks don’t get one” cease-and-desist order, said Bert Ely, a banking consultant based in Alexandria, Va. “To get hit with three is relatively rare.”

Publicly filed data reviewed by The Times show that the level of LippoBank’s “nonperforming” loans was about seven times higher than other similarly capitalized California banks as of late 1996.

“The institution has continued to slide into difficulty,” Ely said. “The question is, why haven’t the regulators been more aggressive?”

Congressional committees are continuing to examine why John Huang, the former LippoBank president whose fund-raising for Clinton’s reelection campaign is the subject of wide-ranging investigations, contacted one or more FDIC officials while he worked at the Commerce Department and later the Democratic National Committee.

Riady, who is staying outside the United States while his lawyers deal with subpoenas seeking documents related to campaign contributions and the Lippo conglomerate’s hiring of former Justice Department official Webster L. Hubbell, must now decide whether to open his own checkbook once more to keep LippoBank afloat.

From 1987 to 1995, Riady pumped more than $20 million into the bank, according to records and interviews. People familiar with the situation said that Riady is now faced with having to inject an additional $5 million or more. LippoBank lost $1.1 million for the third quarter of 1996, compared with a loss during the previous quarter of $77,000, records show.

Citing policy, an FDIC spokesman said Tuesday he was not at liberty to discuss LippoBank’s regulatory status.

Gordon M. Bava, a lawyer for LippoBank, did not return calls seeking his comment. Bava, the managing partner of Manatt, Phelps & Phillips of Los Angeles, has represented LippoBank since before December 1990, when the FDIC issued the first cease-and-desist order. It was lifted in February 1994. The second order was issued in December 1994 and withdrawn a year ago.

Last September, the FDIC initiated an examination that is culminating with the third sanction.

Cease-and-desist orders typically impose burdensome compliance requirements and can sow unease among depositors and prospective customers.

The Riady family presides over billions of dollars of investments that reach to Indonesia, China and the United States. The Riadys, their close associates and executives and affiliates of the Lippo conglomerate have given $854,300 to the Democratic National Committee since 1991, records show.

LippoBank, which also maintains branches in Westminster, San Jose and San Francisco, has recently begun trimming its work force. But the swarm of subpoenas arriving from congressional committees and independent counsel Kenneth W. Starr, who is probing the hiring of Hubbell, is apt to significantly increase the bank’s legal bills.

Hubbell, who pleaded guilty to fraud and tax-evasion charges in 1994, said last month upon completing his federal sentence that he would no longer offer to cooperate with the various continuing investigations. Hubbell testified before a Senate committee last summer and said that an affiliate of the Riady family’s Lippo conglomerate hired him as of mid-1994, soon after he resigned as associate attorney general, the No. 3 position in the Justice Department.

Hubbell refused under oath to describe how much he was paid or what services he might have rendered. Speaking on condition of anonymity, a friend of Hubbell’s said Hubbell told him that James Riady paid for a vacation the Hubbell family took in the summer of 1994 to Bali, the tropical island that lies to the east of Indonesia’s capital.

The Times reported on Friday that Hubbell received income--eclipsing his $123,100 Justice Department salary--from at least 10 clients during the period between when he resigned and when he entered a federal prison in August 1995. Hubbell has been a close friend of both the president and First Lady Hillary Rodham Clinton, with whom he was a law partner before coming to Washington in 1993.

The payments to Hubbell from the Lippo affiliate and the other clients are of interest to congressional investigators and to Starr, the independent counsel who is examining the Whitewater affair. They are trying to determine whether backers of Clinton facilitated the hirings in an attempt to dissuade Hubbell from providing testimony regarding the first lady’s dealings with a failed Arkansas savings and loan.

Huang, meanwhile, also has declined to provide documents to congressional investigators. About $1.7 million of the contributions that Huang raised for Clinton’s campaign last year have been returned in recent months amid questions regarding the sources of the money.

Before Clinton appointed Huang to a mid-level position in the Commerce Department in 1994, he had served as president, chief operating officer, vice chairman and a director of LippoBank.

Records provided last fall by the Commerce Department documented that Huang placed 70 calls to LippoBank offices in Los Angeles--some of them around the time of briefings at which Huang received intelligence data concerning countries where the Riadys held investments. The Commerce records also indicated that Huang had phone contact and arranged in May of 1995 to meet personally with a senior FDIC regulator in Washington.

The regulator, Ken A. Quincy, has helped oversee the supervision of LippoBank. Quincy has told agency officials that he does not recall speaking or meeting with Huang.

Huang, who returned to his home in Glendale after being laid off by the Democratic National Committee following the election, has declined to comment. He holds no ongoing position with LippoBank, although he remains a customer.