SAN DIEGO — The FBI is investigating BSD Bancorp Chairman James S. Brown's involvement in two real estate loans totaling $325,000 by a BSD subsidiary, according to company officials and federal sources.
A development company owned by Brown purchased two adjacent pieces of property in Santee from people who had originally secured loans from Bank of San Diego, BSD's largest subsidiary.
According to sources familiar with the investigation, the FBI is examining whether the original loans were "straw man" transactions, with Brown as the intended but undisclosed beneficiary of the loans.
Federal authorities reportedly opened the investigation after a routine examination last year by the Federal Deposit Insurance Corp. Auditors from the FDIC referred the case to the FBI, sources said.
Brown could not be reached for comment. However, S. Alan Rosen, BSD's attorney, said, "To the best of our knowledge, we believe the FBI is investigating Brown regarding these transactions."
However, FBI spokesman Gary Laturno would neither confirm nor deny that the agency is investigating the bank executive.
Rosen denied any wrongdoing by Brown, BSD or Bank of San Diego. The attorney said that Brown has not been questioned by the FBI but that bureau agents have interviewed two high-ranking Bank of San Diego executives--President E. Lynn Caswell and Executive Vice President Louis Cumming.
BSD Bancorp directors were officially informed of the FBI investigation at a board meeting Tuesday night, according to company sources.
The controversial loans were made in July, 1984, two weeks apart and on two adjacent pieces of property in Santee. Both parcels were eventually purchased by Silberrad Development Inc., a subsidiary of Silberrad Inc., which is owned by Brown.
FDIC examiners reportedly became aware of the transactions during a routine audit last year but took no action. "No . . . regulatory action was taken," Rosen said. "As far as the bank is concerned, it's a done deal."
The bank admitted to a "technical violation" on the loans, but it was not related to the eventual purchase of the land by Brown, Rosen said.
He would not disclose the nature of the violation but said some bank employees, as a result, are no longer working at the bank.