SEC Settles With Bank Officer In Market Crisis Case
The Court entered a final judgment by consent against a former bank officer in another Commission market crisis case, SEC v. Wu, Civil Action No. CV-11-2988 (N.D. Cal. Filed Oct. 11, 2011). The settlement was with the former Chief Operating officer of UCBH Holdings, Inc., Ebrahim Shabudin. The agency was aided in the prosecution of this case by a cooperation agreement entered into with another employee of UCBH Holdings, the publicly traded holding company of United Commercial Bank.
Mr. Shabudin was one of four senior officers of UCBH Holdings named by the Commission in Wu. The others were Chief Executive officer, Thomas Wu, senior officer Thomas Yu and Chief Financial Officer Craig On. The case centered on claims that there were improper delays in the recording of loan loses suffered at the end of 2008 and in the first quarter of 2009. Specifically, Messrs. Wu, Yu and Shabudin learned that that as the real estate market deteriorated during the market crisis there were increasing loan delinquencies and decreasing collateral values for the bank’s portfolio of commercial and construction loans. Defaults were increasing. Messrs. Wu, Yu and Shabudin concealed this information from investors and the auditors, according to the complaint.
Mr. On, who previously settled with the Commission, was alleged to have negligently mislead the outside auditors and in the filing of false financial statements. Although the bank received assistance from TARP, eventually it failed. This was one of the largest commercial bank failures.
Mr. Shabudin settled with the Commission, consenting to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 10(b) and 13(b)(5) and Securities Act Sections 17(a)(1) and (3) and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). He did not admit or deny the allegation in the complaint. Mr. Shabudin was also barred from serving as an officer or director of a public company and has been ordered to a penalty of $175,000. That penalty was partially reduced by the amount paid as a penalty in a related action brought by the FDIC. See also Lit. Rel. Nos. 22786 (August 22, 2013) and 22121 (October 11, 2011).
The allegations in this action are similar to those asserted in other market crisis cases by the agency involving financial institutions. See, e.g., SEC v. Morrice, Civil Action No. CV 09-01426 (C.D. Cal. Filed Dec. 7, 2009)(action against the senior officers of subprime lending giant New Century Financial); SEC v. Perry, Civil Action No. CV 11-021309 (C.D. Cal. Filed Feb. 11, 2011)(similar claims against former officers of IndyMac Bancorp).
The Commission’s prosecution of the action involving Mr. Shabudin was aided by a cooperation agreement entered into with John Cinderey, a vice president of the bank. Mr. Shabudin is alleged to have altered memoranda addressing the risks associated with certain large loans and potential losses the bank faced. Those memoranda were furnished to the auditors. For example, one memorandum given to the auditors regarding a large construction loan omitted certain information and added misleading statements regarding the borrowers. Another provided the auditors incomplete or misleading information to support the risk rating for a loan to developers building a large block of condominiums.
Mr. Cindery entered into a cooperation agreement with the Commission. He also consented to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 13(b)(5) and from aiding and abetting violations of Secton 13(b)(2)(A). No penalty was assessed based in part on the $40,000 civil penalty paid in a related FDIC proceeding. SEC v. Cinderey, Civil Case No. CV 12-1519 (N.D. Cal. Filed March 27, 2012).