State launches inquiry into bank’s actions in Durkee fraud case
State banking regulators have launched an inquiry into how First California Bank handled numerous accounts controlled by Kinde Durkee, a longtime treasurer for prominent politicians who has been accused of fraud.
The California Department of Financial Institutions, which oversees state-chartered banks, “will examine documents and transactions related to the accounts,” said Alana Golden, a spokeswoman for the agency. She said the effort was “preliminary” fact gathering. “We are providing support to the investigation (by the FBI and Justice Department) by examining the accounts, ownership of the accounts and transactions,” she said in an email.
On Wednesday, three department officials were to begin a review of records at the bank’s Westlake Village headquarters, according to an email sent by a senior attorney at the agency.
They will spend at least three days examining records, according to the attorney, Tony Lehtonen. “The bank has been informed of the investigation and has promised its full cooperation,” he wrote in an email.
First California Bank Chairman C.G. Kum declined to comment, saying the bank doesn’t discuss regulatory matters.
Durkee was arrested Sept. 2 at her firm’s Burbank office on a charge of mail fraud for allegedly sending falsified reports to the state Fair Political Practices Commission. She is accused of taking $677,181 from the campaign of Assemblyman Jose Solorio (D-Santa Ana), according to an affidavit, which charges that she used money from clients’ accounts to pay for trips to Disneyland and the Long Beach Aquarium, as well as for mortgage payments and business expenses.
The day before her arrest, FBI investigators interviewed Durkee, who ran Durkee & Associates, and they said she “admitted that she had been misappropriating her clients’ money for years and that the forms she filed with the state were false.”
Durkee had signature authority over more than 400 bank accounts, according to the affidavit. Many of the accounts, if not all of them, appear to be held at First California Bank.
Federal prosecutors have indicated that the mail fraud charge may be just the beginning of their investigation into Durkee’s financial dealings. Daniel V. Nixon, Durkee’s attorney, could not be reached for comment.
Banking attorney L. Richard Fischer, an expert in money laundering and suspicious activities with Morrison & Foerster, said financial institutions are required to establish reasonable procedures to prevent fraud, as well as to report suspicious transactions to their principal regulator.
But, noting that Durkee had control over the accounts, he wrote in an email, “It is difficult to fault the bank for honoring the instructions of Durkee to move the funds under these circumstances.”
Fischer also suggested that the best course for the bank was to pursue legal action to allow the courts to settle claims for the money. “The bank didn’t empower Durkee to control the accounts; instead, it appears the campaign committees did.”
First California Bank has told the account holders it will do exactly that, turning records over to a Los Angeles County Superior Court judge to sort out how much money remains in each account.
It could not be immediately determined whether the bank had followed through; no case had been entered into the court’s online records.
First California Bank’s main emphasis is lending to small and medium-sized businesses with revenue of up to $25 million a year. Founded as Camarillo Community Bank in 1979, the institution moved its headquarters to Westlake Village in 2008.
As the financial crisis and housing bust struck, First California emerged as an acquirer of failed community banks. With assistance from the Federal Deposit Insurance Corp., it took over 1st Centennial Bank in Redlands in 2009, Western Commercial Bank in Woodland Hills in 2010, and San Luis Trust Bank in San Luis Obispo in February.
It now has $1.8 billion in assets and 20 full-service offices from San Diego to San Luis Obispo counties.
Many California politicians have been locked out of their accounts since Durkee’s arrest, unable to even determine their balances. Some are scrambling to start over raising money for campaigns, from the Los Angeles mayoral election to a U.S. Senate race. Durkee also handled money for nonprofit groups.
The bank has declined to turn over control of those accounts to campaigns and organizations unless they “agree to indemnify and hold the bank harmless” for any misappropriated funds, a move that raised questions among some political consultants about the bank’s role.
In a letter sent to clients last Friday, a bank official said the institution was reviewing the accounts controlled by Durkee.
“The more we investigated the situation, the more it appears that Durkee had commingled funds belonging to various different campaigns and organizations and had made repeated transfers between accounts on which Durkee had signing authority,” wrote Edmond R. Sahakian, the executive vice president.
“We concluded that there was a very high likelihood that the balance credited to any given account did not represent accurately the funds, if any, actually belonging to the campaign or the organization named on the account.”
The bank, “faced with grave uncertainties, or potentially conflicting demands,” intended to file a legal action in Los Angeles County Superior Court to sort out the potentially competing claims, he said.
In his email, Lehtonen advised Durkee’s clients, “I suggest that you not discontinue any efforts which might already be underway to gain access for your clients to account information and/or disbursements.”