Federal regulators had deep concerns about senior staff at Oxnard-based Banco BuenaVentura and took the uncommon step of explicitly barring founder and chief executive James Montgomery’s son Jeffrey from taking part in the bank’s management.
Banco BuenaVentura was liquidated last year amid the worst crisis to hit the global banking industry since the Great Depression. The liquidation, after less than a year of operations, was an abrupt reversal of founder Montgomery’s ambitious plan to serve “unbanked” Hispanic customers.
As the bank unraveled, an acrimonious court dispute broke out between the bank, controlled by James Montgomery, and his son Jeffrey, who owned the building that Banco BuenaVentura had leased. That lawsuit has been settled.
But new documents obtained by the Business Times show that regulators wanted Jeffrey Montgomery, who had a hand in the bank’s formative days and served as its landlord, kept completely out of bank affairs for at least five years.
Jeffrey Montgomery’s attorney said the non-participation agreement was signed voluntarily to speed up the regulatory approval process for the new bank. An e-mail exchange between Jeffrey Montgomery and another bank executive suggests the agreement may have stemmed from a foreclosure on a home Jeffrey Montgomery owned.
Banking industry veterans say it’s uncommon for the Federal Deposit Insurance Corp. to require a bank to explicitly exclude a person from participation in a bank. The documents show that Jeffrey Montgomery’s involvement with his father’s bank was a sticking point with regulators, long before accusations of insider dealing — which were never proved — came out in court papers.
In a September 2008 letter to the FDIC, James Montgomery agreed that Jeffrey Montgomery “shall not participate in any manner in the conduct of Bank affairs, including but not limited to becoming an officer, director, employee or consultant of the Bank.” The agreement also barred Jeffrey Montgomery from voting any stock.
Jeffrey Montgomery’s name was redacted in the documents obtained by the Business Times, but Lee Dresie, his attorney, confirmed that the agreement concerned Jeffrey Montgomery.
“My understanding is that the five-year stay on involvement in the bank was something that Jim Montgomery and Jeff Montgomery agreed to voluntarily because they were in a time crunch in terms of trying to get approval as soon as possible,” Dresie said. Regulators were conducting a background search on Jeffrey Montgomery that “regardless of the results would have delayed the bank even further than it was already delayed,” Dresie said.
In an e-mail filed in court documents, Jeffrey Montgomery suggested regulators may have had concerns about a foreclosure on a home he owned in Pacific Palisades.
In a message about an appraisal he needed carried out to satisfy the California Department of Financial Institutions, Jeffrey Montgomery wrote: “They are not approving me because of my foreclosure in 1993! Crazy. Anyway, I need to learn who the lender was and the details. Of course I have none of those records.”
Regardless of the rationale for the requirements, banking veterans say such agreements don’t happen often.
“I’ve been in banking for 37 years, and it’s the first time I’ve seen this,” said Eloy Ortega, who is chief executive officer at Bank of Santa Barbara and reviewed the documents at the Business Times’ request. “The regulators didn’t want him to be in a controlling position at that bank.”
Ortega also said that the regulators generally required banks to raise $15 million before beginning operations in late 2008. Banco BuenaVentura only had to raise $10 million, according to documents obtained by the Business Times. But the bank was also required to maintain a tier one leverage ratio — the ratio of free cash to loans and other assets — of 10 percent, well above the requirements for other banks.
Banco BuenaVentura has settled its dispute with Jeffrey Montgomery. He had sued for $1.75 million in back rent after the bank stopped paying him and decided to review the lease to determine if it was valid. The details of the settlement are sealed, Dresie said, but “everything’s been resolved amicably, and we’re moving forward. We had a mediation, and it was successful.”
Meantime, Ken Sterling, a former executive vice president at Banco BuenaVentura, has sued what is left of the firm alleging fraud and discrimination.
In the fraud suit, Sterling is suing over a second round of investment he made in the bank. The suit alleges that he gave the bank $100,000 after its leaders said they needed the money to meet capital requirements. But the money instead went to pay back an earlier investor, the suit alleges.
“That was not the intention with which he infused the additional funds,” said Michael Ring, Sterling’s attorney. Ring said Sterling is not seeking the return of his first investment, which risked along with other investors. “Our focus is narrow,” Ring said.
Tom Byington, who directed the liquidation of the bank, has moved on to a bank in the Inland Empire and declined to comment about the Sterling lawsuit.
Sterling also filed a discrimination lawsuit against several of the Hispanic leaders of the bank. “He’s not Jewish, but he was being discriminated against by the bank because of the perception that he was,” Ring said.
Alfredo Plascencia, who is head of Oxnard-based Lazer Broadcasting and a former board member of Banco BuenaVentura, did not respond to a request for comment. Roberto Juarez, the other defendant named personally in Sterling’s suit, told the Ventura County Star last month that he had never officially become a director at the bank.