The SEC brought a case against Thomas Wu, the former CEO of United Commercial Bank, for misleading investors regarding the financial state of the bank during the 2008 financial crisis. Mr. Wu, who the SEC described as a "rising star in the banking industry," allegedly directed subordinates to conceal information regarding the true value of the bank's collateral and assets, understating the value by at least $65 million and causing as the United Commercial to be one of the ten largest bank failures during the recent financial crisis.
The SEC's Complaint (available here) names Mr. Wu, COO Ebrahim Shabudin and Thomas Yu, a senior vice-president as participants in the events at the bank. The Commission alleges that, in late 2008 and early 2009 while the 2008 financial statements were being prepared by the bank:
- Mr. Wu directed his subordinates to delay including newer and lower appraisals in the valuations of collateral and bank assets (including specific information that would show certain loans or collateral were nearly worthless) and falsely certified that the 2008 financial statements were accurate and prepared in accordance with accounting standards;
- Mr. Shabudin reviewed and approved bank records regarding the loss reserves that he knew were understated, and approved false and misleading memoranda sent to the independent auditors about the loans; and
- Mr. Yu hid negative information from the auditors to prevent them from discovering that certain troubled loans and assets faced large losses.
In addition, the SEC charged former CFO Craig On with negligently misleading the company's outside auditors. Mr. On settled with the Commission by agreeing to be permanently enjoined from future violations of certain antifraud provisions and paying a $150,000 penalty. Mr. On may be the first person charged with negligence in misleading investors since Ken Lench, who heads the Commission's structured and new products enforcement unit, was quoted in the Wall Street Journal that executives could be charged with negligence for a "[f]ailure to check properly that investors are being provided with fair and accurate information [which] could, under some circumstances, be a breach of [the duty of care], even if there is no intent to defraud …" (as previously discussed here).
The SEC's Press Release (available here) also stated that "[t]he U.S. Attorney for the Northern District of California today announced parallel criminal charges against former employees of the bank, and the FDIC announced enforcement actions against 13 individuals for violations of federal banking regulations."
UPDATED on October 13, 2011: According to the Press Release from U.S. Attorney's Office for the Northern District of California, Mr. Yu and Mr. Shabudin were charged to commit securities fraud, securities fraud, falsifying corporate books and records, and lying to auditors. The Indictment, (available here) which was filed on September 15, 2011 was unsealed on Wednesday. Mr. Wu was not named in the Indictment, nor was Mr. On.