Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, October 13, 2011

SEC Charges Former United Commercial Bank Execs with Covering Up Losses

The SEC charged former bank executives with misleading investors about mounting loan losses at San Francisco-based United Commercial Bank during the height of the financial crisis in 2008 and 2009.  According to the SEC, the bank’s former chief executive officer Thomas Wu, chief operating officer Ebrahim Shabudin, and senior officer Thomas Yu concealed losses on loans and other assets from the bank’s auditors, causing the bank’s public holding company UCBH Holdings Inc. (UCBH) to understate 2008 operating losses by at least $65 million (approximately 50 percent). A few months later, continued declines in the value of the bank’s loans led the bank to fail, and the California Department of Financial Institutions closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. United Commercial Bank was one of the 10 largest bank failures of the recent financial crisis, causing a loss of $2.5 billion to the FDIC’s insurance fund.

The SEC’s complaint also alleges that the bank’s former chief financial officer Craig On acted negligently by misleading the company’s outside auditors and aiding the filing of false financial statements. On agreed to settle the SEC charges without admitting or denying the allegations. He will be permanently enjoined from violating certain antifraud, reporting, record-keeping, and internal controls provisions of the federal securities laws and will pay a $150,000 penalty. On also consented to an administrative order suspending him from appearing or practicing before the SEC as an accountant, with a right to apply for reinstatement after five years.

The litigation against the other defendants is ongoing.

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