A federal grand jury Wednesday indicted two officers of a defunct Thousand Oaks bank, charging them with fraud and misuse of funds in a 1989 scheme to keep their failing bank open so they would not lose millions of dollars they had invested in it.
The grand jury charged that Phillip L. Chase, 51, of Westlake and Olen B. Phillips, 53, of Oak View tried to keep regulators from seizing the United Community Bank of Thousand Oaks by loaning $300,000 to themselves through "straw borrowers," then buying more bank stock with the loans.
This maneuver allowed Chase and Phillips to keep control of the bank while making it appear that they were supporting it with new investment, a move that kept the bank open for an extra year, said Assistant U.S. Atty. Brent Whittlesey in Los Angeles.
Since the bank was closed for lack of funds in 1989, taxpayers have paid $9.5 million to cover its federally insured accounts, the prosecutor said.
"Every day they stayed in business they lost more money and cost the taxpayers more money to bail them out," said case agent Ted Bowler of the FBI's Ventura office.
The 11-count indictment also charges that Chase and Phillips committed fraud by understating their liabilities by $1 million each when applying for personal loans at a Pasadena bank, according to the indictment.
They are also accused of lying under oath to state banking authorities, which Whittlesey said could bring additional state charges.
The federal indictment charges Chase, who was the bank's chairman and largest stockholder, and Phillips, a board member and second-largest investor, with conspiring to defraud the government, misuse of bank funds and making false statements in loan applications and bank records.
Chase is named in 10 counts and Phillips in nine. Both face maximum penalties of 30 years in prison and a $1-million fine for each count.
For Phillips, an airline pilot who also owned a Westlake real estate investment firm during the 1980s, the new indictment represents the second set of fraud charges in two years. In an unrelated case once described by investigators as the biggest fraud in county history, Phillips was convicted last year of grand theft.
Phillips, Chase and Chase's lawyer could not be reached for comment. Attorney Steven Powell, who represented Phillips in the state case, would not comment on the new charges.
But Patrick Holmes, an airline pilot from Thousand Oaks who participated in one "straw borrower" scheme, said he thought the deal was legitimate and that his old friend, Phillips, did not intend to break the law.
"I don't know if O.B. Phillips knew that there was something wrong here," said Holmes, who with his wife, Barbara, borrowed $200,000, then reloaned it immediately to Chase and Phillips. "I think he was mostly trying to save the bank."
Whittlesey said, however, that Barbara Holmes told investigators that she asked Phillips if the loans were legal, "and he allegedly told her that she and her husband could not get in trouble but that he and Chase could."
State and federal regulators seized the 8-year-old United Community Bank in December, 1989, a year after its subsidiary, Westlake Thrift & Loan of Westlake Village, closed its doors.
The president of the Westlake thrift, Steven Smith, later admitted his role in a phony-loan scheme that drained the institution of $4 million and ultimately forced it to close, costing taxpayers $2 million, Whittlesey said.
In addition to the $9 million in taxpayer losses at United Community Bank, more than a dozen investors in the closely held company also lost many millions of dollars, the prosecutor said.
The core of the new federal indictment are charges relating to three specific acts--two "straw borrower" loans and erroneous statements Chase and Phillips allegedly made on an application to borrow $750,000 from Community Bank in Pasadena.
Prosecutors say that Chase and Phillips responded to regulators' 1988 demands that they increase United Community Bank's assets with the "straw borrower" scheme.
According to the indictment, Phillips persuaded two sets of friends--the Holmeses and Wanda and Lawrence Thomas, formerly of Agoura--to borrow $200,000 and $100,000 from the bank at preferable rates, then loan the money back to the bankers at a rate 1% higher than the original loan.
Since the original borrowers were charged no loan fees, they expected to reap a full 1% profit on the transaction. Chase and Phillips bought more bank stock with the money, the indictment said.
Loan documents either misstated the use of the loan or failed to disclose that the proceeds were going directly to Chase and Phillips, who were excluded from receiving loans from their own bank.
Whittlesey said he is not sure how many straw borrowers Chase and Phillips enlisted, but that he thinks there were three other loans where borrowers reloaned money to Phillips, who spent it on non-bank activities. Those loans were not cited in the indictment.