Fraud Friday — Bank COO Gets 8 Years for Hiding Loan Losses

September 4, 2015

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — Bank COO Gets 8 Years for Hiding Loan Losses

On Wednesday, the former Chief Operating Officer of San Francisco-based United Commercial Bank, Ebrahim Shabudin was sentenced to 97 months in prison. He was found guilty on seven counts of bank fraud after a six-week trial in March.

“This is the most significant prosecution for crimes arising out of the bailout,” says Special Inspector General Christy Romero. “Like many bankers during the financial crisis, this senior officer of a TARP bank faced defaulting loans and declining collateral, but unlike others, Ebrahim Shabudin deliberately turned to crime to deceive and now he will spend the next eight years in federal prison.

“Fixated on protecting the bank’s reputation, Shabudin embarked on an elaborate criminal scheme to hide the bank’s declining financial condition that resulted from the bank’s risky aggressive growth strategy pre-crisis. Hoping that things would get better, Shabudin gambled with $300 million of taxpayer bailout money, all of which was lost when the bank failed.”

On Nov. 6, 2009, UCB was taken over by the FDIC. With over $10.9 billion in assets, UCB’s failure was the ninth largest failure since 2007 of a bank insured by the FDIC’s Deposit Insurance Fund, according to the FDIC. FDIC estimates the loss to the Deposit Insurance Fund to be approximately $677 million.

On Nov. 14, 2008, the Troubled Asset Relief Program (TARP) provided approximately $298 million in federal funds to UCB during the financial crisis.

Shabudin was charged with conspiring with others within the bank to falsify key bank records as part of a scheme to conceal millions of dollars in losses and falsely inflate the bank’s financial statements.

Among the records Shabudin was charged with falsifying were those filed with the United States SEC and FDIC related to the third and fourth quarters of 2008 describing UCB’s so-called Allowance for Loan Losses.

Also falsified were documents relating to UCB’s quarterly and year-end earnings per share as announced by the bank to the investing public.

Former CFO, Craig On pled guilty to one conspiracy fraud count last December. Previously, former Chief Credit Officer, Thomas Yu pled guilty.