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The SEC Settles a Case With an Executive at United Commercial Bank, But Gives Him Credit For His Substantial Assistance

Posted in Executive Officer Matters, Market Crisis Cases, SEC Enforcement Cases, SEC Settlements: Policy, Issues and Disputes

On March 27, 2012, the SEC announced that it has sued John Cinderey, a former executive vice president at United Commercial Bank for aiding and abetting securities law violations relating to falsifying books and records and misleading the bank’s auditors. The Commission settled with Mr. Cinderey, who agreed to be permanently enjoined from violating provisions of the federal securities laws. The settlement reflected the credit given to Mr. Cinderey "for his substantial assistance in the investigation," along with his agreement to cooperate to assist in an ongoing related enforcement action.

In October 11, 2011, the SEC brought the related enforcement action 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, as discussed here. The Commission alleged that Mr. Wu 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. Specifically, the Commission alleged 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. In addition, the U.S. Attorney’s Office for the Northern District of California, charged two other bank executives, COO Ebrahim Shabudin and Thomas Yu, a senior vice-president, with conspiring to commit securities fraud, securities fraud, falsifying corporate books and records, and lying to auditors.

In Mr. Cinderey’s case, the SEC alleges that he altered memoranda prepared for the independent auditors, circumvented accounting controls and policies that required the bank to accurately assess the risks associated with loans, and delayed accurately evaluating the risks in some cases could affect the bank’s loan loss reserves and interest income.

Mr. Cinderey agreed to settle the charges under the SEC’s usual neither-admit-nor-deny policy. He agreed to a permanent injunction against future violations of the provisions concerning record-keeping, misleading outside auditors, and internal controls. He will not be required to pay a civil penalty in this case because, in part, he paid a $40,000 civil penalty in an administrative action brought by the FDIC.

According to the Commission, "[t]he terms of the settlement also reflect credit given to [Mr.] Cinderey by the Commission for his substantial assistance in the investigation and the fact that he has entered into an cooperation agreement to assist in an ongoing related enforcement action."