Fed subpoenas Washington state bank implicated in Ponzi scheme allegations

Federal Reserve issued an enforcement action against UniBank of Lynnwood, Wash., this week amid allegations that the bank was involved in a Ponzi scheme.

UniBank and its parent company, U&I Financial Corp., reached an agreement with the central bank and the Washington State Department of Financial Institutions to make changes to strengthen its management and bank operations over what the Fed called deficiencies in risk management consumer compliance.

The state banking watchdog, along with the Federal Reserve Bank of San Francisco, conducted two bank examinations and reported on February 12 and July 18 that they had identified unspecified deficiencies at the bank. A Fed review, reported June 4, found deficiencies in the bank’s consumer compliance risk management program.

The ratings follow Ponzi scheme allegations against UniBank. A modified one lawsuit filed in Snohomish County Superior Court added more than 100 plaintiffs and alleged that UniBank and First Fed Bank were involved in facilitating more than 90 loans to invest in WaterStation Technology.

The lawsuit alleged that WST’s founder, Ryan Wear, exploited the small business lending system and sold investments in bottled water filling stations that WST said would be installed and maintained in stores and other retail locations for a share of the profit once the investment is made. made. Investors claim they were told they would get a share of the profits. The lawsuit alleged that it was a Ponzi scheme because the new investors’ money was allegedly used to pay profits to previous investors.

In June last year, the victims of a alleged Ponzi scheme sued UniBank in federal court for losses they incurred through loans the bank made to finance its investments in an oil and gas technology company, Clean Energy Technology Association, Inc.

CETA claimed to invent and hold a patent for a technology that would build carbon capture and utilization units that could be installed on oil and natural gas wells and pipelines to extract carbon dioxide from the gas. The CCUs did not perform or deliver the expected returns, and the company used the money to repay earlier investors.

But the judge said the plaintiffs had not convincingly demonstrated how UniBank would have benefited from its alleged employees. Violations of the Corrupt and Racketeer Influenced Organizations Act. UniBank’s participation in any fraudulent scheme with CETA would expose the bank to substantial financial risk, the judge noted.

“Plaintiffs fail to plausibly claim a benefit. Therefore, UniBank and U&I cannot be held vicariously liable for the conduct of its employees, and plaintiffs fail to state a RICO claim,” the judge said.

Leadership changes began at UniBank in February when Stephanie Yoon, then executive vice president and chief risk officer, stepped in as interim CEO. In July, that of the bank The board confirmed Yoon as permanent CEO. The bank made three key appointments with Yoon: Ken Johnson and Scott Strand joined as new directors and promoted incumbent Ellis Chang to chairman of the board.

In September, UniBank made two additional appointments to its executive team, with Robert Disotell as Executive Vice President and Chief Credit Officer and JJ Kim as Executive Vice President and Chief Banking Officer.

Following the Fed’s enforcement actions, UniBank agreed to take steps to fully utilize U&I’s financial and managerial resources and submit a written plan to supervisors detailing plans to strengthen board oversight of management and bank operations, including credit administration, credit risk management. , capital, earnings, loan rating and evaluation, and consumer compliance risk management.

UniBank must submit a written loan portfolio grading program that details the standards and criteria for assessing the credit quality of loans, including specifying the factors used to assign appropriate risk grades to loans and the procedures for reassessing loan grading in the event that: there are significant changes in the performance of the borrower or the value of the collateral.