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O.C. Family's Misuse of Millions From Failed Bank Alleged

November 08, 1996|JAMES S. GRANELLI | TIMES STAFF WRITER

LOS ANGELES — Onetime Anaheim banker Gerald J. Garner and his wife, Joan, funneled millions of dollars in excessive salaries, fees and loans from their failed bank to outside companies and family trusts they controlled, regulators charge in recently released court documents.

The documents, sealed until last week, detail a long series of transactions that involve the Garners, their children, two relatives and American Commerce National Bank, which regulators seized in April 1993.

Regulators charge that Joan Garner, for instance, obtained at least 49 loans from American Commerce and still owes $1 million. Bank funds helped the couple maintain an affluent lifestyle that includes $2 million worth of fine art and jewelry as well as luxury cars and homes in Newport Beach's gated Big Canyon enclave and in Palm Desert, according to court documents.

Regulators assert that the bank lost more than $13 million in cash and loans, much of which were funneled into Garner-controlled interests.

The court papers were used to justify a federal judge's order last week to freeze the assets of Gerald and Joan Garner until a lawsuit filed by the Federal Deposit Insurance Corp. could be decided. Gerald Garner was the bank's chairman and chief executive; Joan Garner was a director.

The bank's failure drew attention because it was the first time regulators had used a 1991 law allowing them to seize a healthy institution. The FBI also is conducting an investigation into possible bank fraud and embezzlement.

The FDIC, as receiver for the bank, accuses the Garners and other directors and officers of gross negligence and breaches of fiduciary duties that led to the bank's failure. Unlike lawsuits involving many other failed banks, this one does not allege fraud.

The failure is estimated to have cost the federal deposit insurance fund about $24 million.

Regulators have asserted that the Garners used American Commerce as their personal piggy bank, paying private expenses with bank funds and violating banking rules.

But Robert M. Silverman, a lawyer for Joan Garner, said the agency's allegations are "really ludicrous" and rely on "old news" developed by another bank regulator, the office of the comptroller of the currency.

"Everything can be explained," Silverman said. "There's no piggy bank money flowing to Gerald or Joan. We can wipe out all the charges."

He also asserted that there was no need to seek an asset freeze 3 1/2 years after the bank was seized by regulators. The FDIC first tried during the summer to take possession of the assets without notice to the Garners, an action that Silverman believes shows the agency's "hostility" toward the couple.

He said he'll respond to the agency's allegations in a filing next week.

Gerald Garner, a disbarred lawyer acting as his own attorney, was unavailable for comment. FDIC lawyers couldn't be reached.

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The FDIC's court papers lay out a dizzying array of transactions, everything from major loans that went bad to the bank's payment of Gerald Garner's $160,000 private legal fees to fight his disbarment in New York.

The court papers also allege that Garner used a series of loans to family members to pay off previous loans and debts for himself and other family members.

In one case, the bank lent Harvey Garner, a brother, $127,500 for the stated purpose of renewing an existing loan. Instead, the agency alleges, the proceeds were used to repay a prior bank loan to another brother, Daniel Garner.

And more than half of a $120,000 loan made to Harvey Garner to "assist in business planning and advance to associated company" was used instead to pay Gerald Garner's American Express credit card bill.

The agency said it found information on 23 Garner-related trusts created for the Garners, their children and the brothers.

"FDIC believes the 'trusts' are all shams," the agency asserted.

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The FDIC also delved into Coast Plaza Doctors Hospital in Norwalk, which Gerald Garner controls as chairman. At Garner's direction, the agency states, American Commerce honored thousands of overdraft checks drawn on two Coast Plaza accounts at the bank.

During the last two months of the bank's existence, Coast Plaza's general business account was overdrawn by $200,000 to $800,000 a day, the FDIC asserts, and owed more than $1.2 million at the time the bank was seized. It still owes that amount plus interest, according to court papers.

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