L.A. commercial real estate mogul David Lee has been kicked off the board of the bank he founded six years ago and banned from working in banking after the Federal Deposit Insurance Corp. concluded he participated in risky banking practices and gained financially from doing so.
The bank, Premier Business Bank, said that the ban stems from a 2007 loan the bank made to a member of Lee’s family.
The FDIC issued the removal order and assessed a $75,000 civil penalty against Lee Dec. 19. Lee denied the allegations but elected not to fight them and stepped down. The order is a rare occurrence for someone of his position in the banking industry, according to industry experts.
“The thing that strikes me is he’s a principal who’s permanently barred from banking,” said Gary Findley, president of banking law firm Gary Steven Findley & Associates in Anaheim.
“You see it for a teller or loan officer caught in embezzlement, but these aren’t the owners who owned the bank. I can’t remember the last time I saw that.”
The FDIC would not comment on its action in this case. However, an FDIC official, speaking generally, said the agency does not lightly remove officers or ban them from banking. Most often it issues informal warnings to banks and bank officers to provide executives a chance to correct their situations. If acceptable action isn’t taken, the FDIC then issues orders. Even so, the orders can be less severe than banning an officer from banking.
Lee, a South Korean native who immigrated here as a teenager in 1971, founded what became real estate investment and management company Jamison Services Inc. in the early 1990s. He has since grown it into the largest private commercial property owner in Los Angeles County with more than 100 properties in the region, as well as 20 more elsewhere, though the company has downsized some lately.
He and some partners in early 2006 founded Premier Business Bank at Seventh and South Flower streets in downtown Los Angeles. It primarily focuses on business and commercial real estate lending. Lee holds a roughly 18 percent share of the bank and was a director since its inception.
The FDIC’s call for his removal allows him to maintain his ownership as long as he has no influence at the bank. Lee has consented to that condition.
“I have chosen to enter into a settlement agreement with the FDIC to avoid a protracted legal process,” Lee said in a statement. “While I disagree with these allegations, I decided it was in the best interest of the bank and for me personally to enter into this agreement and put this matter behind me.”
The bank itself was not subject to an FDIC regulatory order and issued a statement last week saying it continued to support Lee maintaining his ownership interest.
“Dr. Lee remains a shareholder and customer of the bank. We appreciate his support for and service to the bank since the bank’s formation. We hold Dr. Lee as a friend and supporter of the bank and wish him all the success in the future,” the statement says.
Past practices
The FDIC order alleges Lee’s action involved “willful and/or continuing disregard for the safety or soundness of the bank and a reckless breach of Respondent’s (Lee’s) fiduciary duties,” and it mentions “the history of previous practices and breaches.”
It was not specific. However, the bank maintains that the allegations stem from only one loan in 2007 to a Lee family member.
While it is not illegal to give loans to bank insiders and relatives, the FDIC strictly regulates how such loans are made. Regulations include prohibiting insiders from receiving preferential treatment or terms, from allowing insiders to vote on services provided to themselves or family, and from using the bank for direct financial gain. While it’s not clear what Lee’s alleged offenses were, the bank said that they mostly relate to procedural and disclosure problems with the loan.
Business Journal research shows the bank made a loan of $2.1 million in 2007 to 4041 Wilshire LLC, a limited liability corporation whose members include Lee’s wife, Miki Nam, according to CoStar Group Inc. records and sources familiar with the loan.
In 2007, the limited liability corporation took title to a 15,000-square-foot Class C office building at 4041 Wilshire Blvd. that had been owned by Nam and her relatives through a family trust at least since the 1990s, according to CoStar and the county Office of the Assessor. Members of the family trust and the LLC were mostly the same.
It is not entirely clear how the loan proceeds were used, but sources aware of the loan and close to the deal said that they understood it may have been used by Nam to buy out some of her family members. The deed, obtained by the Business Journal, was signed by the family trust to the LLC shortly after the bank issued the loan.
Premier Bank President John Polen declined to discuss details of the loan, but said it was at market rate and Lee’s wife received no preferential treatment. It also has been paid in full.
“I’m disappointed that the loan is paid off,” Polen said. “It was paying a great rate and it was a good loan.”
He also said he believes the FDIC is wrong in alleging Lee did not follow proper procedures in regards to the loan to his wife. He added that the board was aware that the loan was for Lee’s family when it approved the agreement.
Records indicate the 4041 Wilshire property has ties to Lee through his Jamison company.
The agent of record for the LLC with the secretary of state is listed as Jason Cha, who is also the agent of record for several properties owned by Jamison under various LLCs. The mailing address for the LLC also is a building owned by Jamison, which also is the property management company for 4041 Wilshire, according to CoStar.
It is not clear whether Nam and Lee benefited from the transaction. However, banking experts, speaking generally, said any problem loan to a family member in which a bank owner, officer or employee benefits will typically prompt a severe reaction from the agency.
Bank consultant Bert Ely, of Ely & Co. Inc. in Alexandria, Va., said the loan did not appear to endanger the small community bank but the FDIC wants to put a halt to such practices.
“That’s a pretty serious offense. There’s a long history of banks failing because of loans to insiders. It’s potentially a very serious problem for a bank and that’s what they are concerned about,” said Ely, who reviewed the bank’s finances at the Business Journal’s request.
The bank, which has $103 million in assets, has no overdue loans and reported net income of $558,000 in the quarter ended Dec. 31 in its latest filing with federal banking regulators.
Lee’s future
Despite being removed from the board and barred from operating banks in the United States, Lee could ask the FDIC in the future to be allowed to return to the industry.
However, Lee’s career has never been dominated by his work at the bank. He has focused on building his Jamison empire, which has a portfolio of mostly Class B office buildings in the Mid-Wilshire, Koreatown and downtown markets. He began buying properties in the early 1990s. Most of the purchases were made with private investors, many of whom are also Korean immigrants.
Jamison makes money by operating office buildings with few amenities for lower lease rates than other buildings in the market, filling them up with budget-oriented companies.
But the company has not avoided the commercial real estate downturn. Tenants can now afford to move into Class A buildings with more amenities as rental rates drop. Last month, at least two of Jamison’s properties were in default with a balance totaling more than $18 million.
In addition, Jamison sold five properties last year for $143 million to Beverly Hills’ Kennedy Wilson Holdings Inc.
A Jamison executive told the Business Journal at the time that it would continue to seek opportunities to reduce its sprawling portfolio, and focus on its core downtown and Koreatown buildings.
