SEC charges former UCB executives with misleading investors

SEC charges former UCB executives with failing to disclose losses that led to the bank crashing in 2009

The US Securities and Exchange Commission (SEC) has charged former executives at San Francisco-based United Commercial Bank (UCB) with misleading investors at the peak of the financial crisis in 2008 and 2009, according to a complaint filed October 11.

Chief executive officer Thomas Wu, chief operating officer Ebrahim Shabudin and senior officer Thomas Yu are said to have concealed losses on loans and assets from the bank's auditors, leading to UCB underestimating its 2008 losses by $65 million.

While preparing the bank's 2008 financial statements, the trio became aware of significant losses on several large loans and of the worthlessness of the collateral securing them. They repeatedly hid this information from UCB's auditors and investors.

The bank's chief financial officer, Craig On, was also included, but he has agreed to settle the charges by paying $150,000 and accepting a five-year suspension from working in accountancy.

A decline in value of UCB's loans led federal regulators to close the bank in November 2009. The Federal Deposit Insurance Corporation (FDIC) was appointed as receiver and the bank received $298 million from the Troubled Asset Relief Program (Tarp).

Before the collapse, UCB had shown great promise. The bank doubled in size soon after its initial public offering, and was the first from the US to wholly own a bank in the People's Republic of China.

"Today's charges reflect an all too familiar pattern – corporate executives once seen as rising stars embrace deception to avoid losses and conceal negative news, with investors and the FDIC insurance fund left to pick up the pieces," says Robert Khuzami, director of the SEC's division of enforcement.

The total loss caused to the FDIC's insurance fund by UCB is $2.5 billion. UCB was the first Tarp recipient bank to fail, and none of the funds have yet been repaid. 

The US attorney for the northern district of California has announced corresponding criminal charges against the trio, and the FDIC is proceeding with enforcement action against other previous UCB employees for violation of federal banking regulations.