CORRECTION: Previous details on acquisition of American Sterling Bank were incorrect.
A federal agency has concluded former bank president and co-CEO Lawrence Dodge violated the law, breached his fiduciary duties, engaged in unsound business practices and filed false and misleading reports, including claims of proceeds from a $2 million loan to the California Republican Party that did not exist.
Dodge and his wife Kristina, who is an Orange County Fair board member, are prominent philanthropists--they've poured millions into the Orange County Performing Arts Center, St. Margaret's Episcopal School in San Juan Capistrano and their namesake, Chapman University's Lawrence and Kristina Dodge College of Film and Media Arts.
Now, the U.S. Treasury Department wants Mr. Dodge to pony up $2.5 million.
That is the conclusion of a Notice of Intention to Prohibit and Notice of Assessment of a Civil Money Penalty dated June 25 from the Treasury Department's Office of Thrift Supervision (OTS).
Dodge served in his administrative roles with the bank he founded in 1977, American Sterling Bank, whose operational headquarters were in Sugar Creek, Mo. and which had offices in Foothill Ranch and Arizona.
The Phoenix Companies Inc., a Hartford, Conn., insurance company, received OTS permission to take over American Sterling this past Jan. 15, 2009, but withdrew after the Federal Deposit Insurance Corp. (FDIC) was appointed receiver.
The OTS closed American Sterling in April 2009, and its assets were bought by Metcalf Bank on April 17, 2009.
The latest filing states, "The OTS charges that Respondent [Dodge], beginning in the first quarter of 2007 and continuing until December 2008, caused the Institution file materially false and misleading financial reports with the OTS."
- engaged in violations of law and/or regulation and unsafe or unsound practices, and breached his fiduciary duty to American Sterling;
- caused American Sterling to suffer financial loss or other damage by his misconduct;
- received financial gain and/or other benefit from his misconduct;
- and was personally dishonest with a willful disregard for the safety and soundness of American Sterling.
The false reporting centers on Dodge, as president and co-CEO, signing off on reports to OTS that were required before June 2006, when the bank's core capital and risk-based capital ratios were in sharp decline.
At different times, American Sterling claimed to OTS the bank was "well-funded" or "adequately funded." This was based on Dodge telling his board of directors that the bank received contributions from loan proceeds from $2 million his parent company gave to the California Republican Party and $400,000 to Millennium Gate Receivable, a real-estate investment.
The OTS discovered neither loan should have been reported as capital. Neither was repaid nor did they create any capital for the bank.
Dodge in 2008 directed his chief financial officer to report as a contribution $750,000 from the sale of a property known as 9800 Muirlands, reports OTS, which adds the sale never happened.
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The same year, the CFO was told to report $706,000 in refinanced loans as capital so the bank could claim it was well funded, but the OTS found no loan applications, payment commitments--not even any customers.
The feds asked for and received Dodge's resignation in January 2009, but he remained American Sterling's largest shareholder after it was acquired by Phoenix.
The OTS has called for a hearing before a federal judge in Kansas City, Mo., to determine if Dodge should be further prohibited from participating in the affairs of the bank he founded.
The office also levied a $2.5 million civil penalty against Dodge, which he can either pay or appeal.