CFO Charged With Conspiracy to Mislead Auditors Concerning Borrower Defaults

Allison Tussey —  October 31, 2014 — Leave a comment

Craig S. On, 62, Berkeley, California, CFO of United Commercial Bank, was charged in a criminal Information with one count of  Conspiracy to Make a Materially False and Misleading Statement to an Accountant, for his role in an alleged scheme to defraud auditors by decreasing borrower defaults, which allowed the bank to increase its net assets on the balance sheet and increase net income on the income statement.

On is the former Chief Financial Office of United Commercial Bank (“UCB” and the, “Bank”). UCB was a commercial bank headquartered in San Francisco, Calif., with branch offices throughout the United States as well as in China and Taiwan. Until 2009, its holding company, UCBH Holdings, Inc., was publicly traded on NASDAQ.

On Nov. 6, 2009, UCB was taken over by the Federal Deposit Insurance Corporation (FDIC). According to the Information, the Troubled Asset Relief Program (TARP) provided approximately $297 million in federal funds to UCB on Nov. 14, 2008, during the 2008 financial crisis.

According to the Information, On, beginning in 2009, together with others, allegedly engaged in a conspiracy to deceive UCB’s auditors by manipulating the bank’s books and records in a manner that misrepresented and concealed the bank’s true financial condition and performance and caused the bank to issue materially false and misleading financial statements in violation of 18 U.S.C. § 371.

The Information alleges that the bank deemed a loan to be “impaired” if, based on all current information, it was probable that the bank would be unable to collect all of the amounts due under the loan agreement. On a quarterly basis, the bank represented to its regulators, its auditor, and the investing public, that the bank had estimated the total dollar amount of outstanding loans that the bank would probably not collect from borrowers. This estimate, identified on the bank’s quarterly and annual financial statements as the “Allowance for Loan Losses” (hereafter, the “Loan Loss Allowance”), was derived from, among other things, the bank’s risk ratings as well as the value of the collateral securing the bank’s loans.

By decreasing the Loan Loss Allowance, the bank increased net assets on the balance sheet and increased net income on the income statement. For this reason, the size of the bank’s Loan Loss Allowance was material to stock analysts and the investing public. The bank’s Loan Loss Allowance was also material to bank regulators such as the FDIC, which monitored the bank’s Loan Loss Allowance and total assets to ensure that the Bank was adequately capitalized.

The maximum statutory penalty for a conviction for conspiracy in violation of 18 U.S.C. § 371 is five years in prison and a fine of $250,000, plus restitution. However, any sentence will be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

U.S. Attorney Melinda Haag, Federal Deposit Insurance Corporation, Office of the Inspector General, Special Agent in Charge Wade Walters, Special Inspector General for the Troubled Asset Relief Program Christy Romero, Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau, Office of the Inspector General, Special Agent in Charge Scott Redington, and FBI Special Agent in Charge David J. Johnson, announced the charges..

Adam A. Reeves and Robert David Rees are the Assistant U.S. Attorneys who are prosecuting the case with the assistance of Denise Oki, Phillip Villanueva and Bridget Kilkenny. Theprosecution is the result of an investigation by the FDIC Office of Inspector General, the Special Inspector General of the Troubled Asset Relief Program, the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau Office of Inspector General and the Federal Bureau of Investigation.

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Allison Tussey

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