It has been more than a year since the Kinde Durkee scandal shook California politics, but one local bank is only beginning to deal with the fallout.
First California Bank, which held accounts for the former campaign treasurer, is under attack from a number of prominent politicians, including Long Beach Mayor Bob Foster and Democratic Sen. Dianne Feinstein, who claim the Westlake Village institution aided Durkee’s embezzlement scheme.
The bank has been hit with three lawsuits in the past month and two others since August. The escalating battle over the missing money potentially complicates the bank’s ongoing effort toward a possible sale.
And the legal actions, which are seeking millions of dollars in potential damages from the bank, might not be the last.
“There are at least a couple hundred entities and candidates who had accounts at First California Bank through Kinde Durkee,” said Justin Berger, a principal at Cotchett Pitre & McCarthy LLP in Burlingame, who is representing Foster and Feinstein. “And others may come out of the woodwork.”
Durkee, a campaign accountant for numerous California Democrats, was arrested in her Burbank office last year by FBI agents and charged with stealing at least $7 million from clients. She later pleaded guilty to five counts of mail fraud and is scheduled to be sentenced next month.
Since last year, Durkee’s victims have filed at least eight lawsuits against First California, alleging the bank knew of the fraud and failed to report it. The latest complaints, filed Sept. 27 in Los Angeles Superior Court, come from Foster, Santa Ana Assemblyman Jose Solorio and the Los Angeles County Democratic Central Committee.
A judge denied earlier attempts by First California to have the suits dismissed. No trial date has been set.
First California, which did not respond to multiple e-mails and telephone calls requesting comment for this article, has denied unlawful action. In its most recent quarterly report filed with the Securities and Exchange Commission, the bank said it “intends to defend the actions vigorously.”
Durkee had been involved in campaign finance since the early 1970s, when as an 18-year-old she helped raise money for George McGovern’s presidential bid. She went to work for Jules Glazer, a prominent campaign treasurer, and took over his business in the 1990s, renaming it Durkee & Associates.
The firm built a client roster some 400 strong, including Feinstein; Rep. Loretta Sanchez, D-Garden Grove; and state Sen. Ted Lieu, D-Torrance.
In 2010, Durkee was fined for accounting irregularities by the California Fair Political Practices Commission, which tipped the FBI. Durkee was arrested in September 2011, initially on charges related to $677,181 that disappeared from Solorio’s account.
According to authorities, Durkee used stolen money to pay for a variety of personal expenses, including a mortgage, credit card bills and trips to Disneyland. To hide the embezzlement, they say, Durkee moved money between bank accounts often and filed false reports.
She was scheduled to be sentenced last week, but the hearing was postponed to Nov. 7. Her attorney did not return calls requesting comment.
To recover money, several of the victims have targeted First California, which is owned by First California Financial Group Inc. The suit filed by Foster’s attorneys claims the bank “intentionally ignored dozens of red flags.”
The suit claims several bank officers, including a manager in the Century City office where Durkee was a client, approved fraudulent transactions because the branch was earning substantial fees from Durkee’s accounts.
“The evidence, both circumstantial and otherwise, shows that the bank knew what was going on and continued providing its services to Kinde Durkee,” attorney Berger said.
Atticus Wegman, a Santa Ana attorney who represents Sanchez and several other politicians, said the exact amount being sought in the suits has not been determined.
“It’s such an unprecedented matter involving many different account holders,” he said.
Berger said those that have been named as plaintiffs thus far likely lost more than $7 million combined. The suits are also seeking unspecified punitive damages.
“It’s a significant amount,” he said.
‘Degree of confidence’
But First California might have reason to be hopeful.
Tim O’Brien, a community bank analyst with Sandler O’Neill & Partners LP in San Francisco, said regulators were examining the bank near the time of the scandal and didn’t issue an enforcement action – a sign that nothing was seriously wrong.
“Nothing formal came out of that that could be construed as a criticism of the bank,” he said. “That should give the bank some degree of confidence.”
However, O’Brien noted that First California is looking into a sale and it “is a real possibility” that the growing number of lawsuits could become a factor in those discussions.
The bank hired advisers in August to explore potential sales or mergers after several large shareholders began pressuring management to consider strategic alternatives. First California had rejected an unsolicited acquisition offer by Century City’s PacWest Bancorp earlier this year.
Whether the legal complaints affect the effort remains to be seen, but O’Brien said they are not insignificant matters.
“The new lawsuits are a concern,” he said. “A lawsuit is always a concern.”
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