Sonoma’s newest bank has added another former Sonoma Valley Bank official as it gears up for a local branch to open by the end of the year. Rabobank, N.A. has named Sean Cutting as senior relationship manager for the 10 Maple St. location.
Cutting had served as the president and chief executive officer of Sonoma Valley Bank until its federal takeover in August. With Rabobank he will be responsible for business development and community outreach in the Sonoma Valley, according to the bank’s spokesperson.
Rabobank had earlier announced Cathleen Gorham as manager of the new branch. She had served as chief operating officer at Sonoma Valley Bank.
To fill in the rest of the staff the aim is to hire locally, said Andy Frokjer, Rabobank communications manager. “At the outset we plan to have approximately six to eight employees in the branch. As we get established and grow, that number may increase.”
Rabobank N.A. was one of the financial institutions that bid to the FDIC to acquire the assets of the failed Sonoma Valley Bank. While unsuccessful there (now Westamerica), it did on the same day acquire through the FDIC nine branches of the former Pacific State Bank, based in Stockton, and 14 branches of the former Butte Community Bank, based in Chico.
The expansion of its 120-branch network is part of the bank’s expand throughout the rural and agricultural area of California. The Sonoma branch, located between Broadway and First St. W., will be the firm’s first in Sonoma County.
Rabobank has wanted to expand into the wine country for some time, according to CEO Ronald Blok. “Our community banking and agricultural heritage are a perfect fit for Sonoma.”
Rabobank N.A. is a California-based subsidiary of a Netherlands bank.
How embarrassing. Some people have no shame.
No explanations and no looking back.
I will never bank there.
Federal investigations continue in the wake of the failure of Sonoma Valley Bank by the FDIC Inspector General, the Treasury and the Department of Justice. The FDIC just announced a couple weeks ago they filed 50 cases against former Executive Management and Directors who they felt directly contributed to the failure of their banks and since SVB cost the FDIC an estimated $10 million to the Insurance Fund and the Treasury an additional $8.7 million in TARP relief funds (just the 5th bank in the country to fail after accepting TARP funds) I would suspect there could be an intensive investigation.
FDIC letters of notification are expected to be sent and I would think all the SVB Executive Officers (including both Gorham and Cutting) will be served notice. The FDIC has 3-years from the date of failure to file. The “In-Depth Report” (Material Loss Report) which will publically declare the reasons for failure and situation leading up to the failure, is due out in a few more months. There could in fact be “Prohibition Orders” come out of the regulatory investigations if individuals are identified as directly responsible for the failure (violations of legal lending limits, poor underwriting, weak administration, lack of proper governance, inadequate risk management systems, etc.)
Research has shown (County Recorders Office and Secretary of State records) the Hwy 101 deals SVB banked contributed directly to the losses and to the failure were related to one single partner group (SSE, LLC–Petaluma Greenbriar Apartment–“Courtside Village” Santa Rosa).
These partners were said to be well known to SVB Executive Management but I question if they want to say they knew the partners had failed loans tied to IndyMac bank, a criminal record in Marin, revoked real estate licenses and under probation in affiliated businesses, tied to Reno failed projects, and frankly that all these projects are related and benefitting these two partners (which make them suspected lending limit lending violations even if they partcipated loans with the two Napa banks as believed and commented by Napa Valley Register articles). My calculations show about $40 million is all tied to these two partners or over 100% of capital, in essense then Executive Management and the Board really “bet the bank” which is vastly different than they present in the press coverage and the SEC 10-K and 10-Q documents.
Its not the sconomy, its not the big Bad Regulators, but its Executive Management and Board policy that allowed these borrowers to knowingly have 110% of the banks Capital. Its a bank leadership and two partners that failed the bank.
I don’t think this story is over and we may be hearing about developments and more “truth’s” emerging for months to come.
The First Amendment of the US Constitution provides Freedom of Speech and Freedom of the Press expressing unpopular ideas that people may find distasteful or against public policy. My commentary is truthful and backed by facts and public records. In Lovell v. City of Griffin, Chief Justice Hughes defined the press as, “every sort of publication which affords a vehicle of information and opinion.” This includes everything from newspapers to blogs.
I hear Cutting and Gorham pitched themselves as a team to another Bank expected to enter the Valley soon but that didn’t go anywhere. And…another of the former SVB lending staff already placed and running color ads in the cross town paper with their announcement for joining another bank, called Cutting last week after this announcement begging him to bring them onboard at RaboBank.
It’s starting to look like a Class Reunion over at RaboBank?
I still struggle with the differences in culture from SVB to RaboBank. For example SVB had only 1% of their assets in Agriculture related loans it just wasn’t their business model. SVB did smaller-size loan deals. Also, SVB prided themselves on not having to solicit and market business as most banks do. They always had a steady stream of business from disgruntled cross-town large bank customers flocking in the door. They just never had to go hunt down business. Customers of SVB despised large banks.
RaboBank really targets the largest Agri-business deals and I can’t see the former SVB duo (or trio if they bring their other friend onboard) having that many contacts in this sector of the market? Compounded by the fact that RaboBank is a very large foreign-owned institution (Netherlands), it makes for a very puzzling move?
The Industry rumors suggest RaboBank (technically their predecessor Napa Community Bank they acquired this summer) had participation loans in the infamous Sonoma Valley Bank Hwy 101 corridor loans to that single partner group (SSE, LLC-Sonoma Storage Emporium, Petaluma Greenbriar Apartments, and Courtside Village west of Santa Rosa). They have seen SVB’s lending work, underwriting (or lack thereof), and characters they were dealing with. They are suffering the same charge-offs and write downs to the Loan Loss Reserve as SVB faced on any piece they do hold. So this makes the move even more confusing?
This former SVB team (along with the other Executive Officer and Board) “bet their bank” and lost. They failed a bank. I guess RaboBank is willing to “double down?”
Here is an example of a deal this SVB Executive got behind to the tune of approximately $12 million and charged off or provisioned reserves for much of that amount before the failure August 20th.
In my research according to Sonoma County Recorder and Public Assessor Service records, I discovered one of the bad loans SVB underwrote was an apartment complex in Petaluma called Greenbriar over near E Washington and S McDowell. The owner appears to have carved up the property and it has so many clouds it seems significantly devalued to say the least from my point of view.
Did SVB Management knowingly lend into this kind of “Labyrinth”? The article published in the cross town newspaper titled “Sonoma Valley Bank officials say they had a plan” published Friday August 27th just a week after the failure, suggests they did know. In fact management was quoted (in fact “insisted” which is suspect wording) as saying:
“…Switzer emphasized that the loans were not of the “sub-prime” mortgage type that took so many large institutions to the brink, but rather were loans on land being developed by KNOWN individuals and businesses with a good track record of success in such development…appraisals and other due diligence practices were followed, Switzer insisted.”
According to quarterly Bank Call Reports filed with the FDIC , the volume of loan losses and remaining Non-current/nonperforming loans in the Multi-Family Real Estate sector were significant and seemingly this project. Millions of dollars were charged off as loss to this project or reserved in accounting FAS114 impairment reserves to the Loan Loss Allowance.
It seems the owner carved the project so that each building and pad underneath was a separate piece of land with improvements of the buildings, and then the common areas also were carved up into 2 pieces and sold off as separate piece of land to a third person. This would be like rolling a cookie dough sheet on the table and punching out cookies in the center (buildings), and selling/financing them to multiple banks in one direction(6 to SVB), yet taking the remaining common areas or the rest of the cookie sheet and selling/financing that to another person. Not a very clean package deal for anybody.
I understand at least 2 banks lent money on the buildings and SVB has 6 of 28 apartment buildings from my research identified in scattered APN #’s (3, 15, 17, 19, 25 & 27) according to County Recorder Deeds and Assessor Map records. Each building was financed for $2 million each so SVB has $12 million into this deal (remember their legal lending limit never got above $8.7 million to this relationship and they already had $15 or so million out to SSE, LLC the storage facility project up on Santa Rosa Ave.) They had already participated up to the legal lending limit for the two Napa banks (one of which the predecessor of RaboBank fka Napa Community Bank and Charter Oak Bank as referenced in the Napa Valley Register article last month). So SVB Executive seems to have tripped the legal lending limit by at least $10 million over extended combining the SVB limit with the Napa Bank’s limits from Call Report Data.
There just HAS to be a violation of law somewhere here and again that doesn’t include the third of the “Trilogy” of deals known as Courtside Village west of Santa Rosa good for another $10-$15 million. All in all exceeding SVB’s entire capital base (they “bet the bank”).
These are the kinds of bets that SVB Executives and the Board were making over the last few years (frankly it was only a couple individuals mainly responsible in the bank, again based on public documents and social networks, – namely a Senior Lender that was relieved of their duty in February 2010, the former Chief Credit Officer that was promoted to President, and two borrowers that resulted in this failure), betting our Valley’s Community Bank deposits, taking them out of the Valley and lending to 3 deals that exceeded the legal lending limit, owned by one common partnership of two people that resulted in failure and seizure by the FDIC.
Losing most of a $12 million deal like this is not the result of a weak economy, nor was SVB Management’s hand unnecessarily forced by the overzealous Evil Regulators as part of some “Conspiracy”…rather it was failed policy, unreasonable incentive compensation programs far exceeding their peer banker group,(“Greed”), and lax underwriting by under qualified staff, with poor Corporate Governance and Risk Management that gets you into a deal like this.
RaboBank was one of the bidders on Sonoma Valley Bank but lost in a last minute move by Westamerica when they bid “lock, stock and barrel” without a put option to the tune of about $5.1 million or 2% premium over the $255.5 million in deposits. In fact I’ve had several bankers argue with me saying they were certain RaboBank bought SVB along with Butte Community Bank in Chico and Pacific State Bank in Stockton but I assure them the sign on the branches say “Westamerica” (smile). I don’t know if some press releases leaked early saying they got all three or if some last minute deal pulled the rug out from under them but for some reason many of my colleagues from SoCal and the Central Valley as recent as just this last Friday still thought otherwise.
It’s interesting to note two of the banks that bid and lost to Westamerica, are now coming to The Valley, namely RaboBank and Bank of Marin (word on the street they are moving into the former Bank of America Mortgage building on West Napa beside the Sonoma Valley Sun and KSVY 91.3FM radio station headquarters.
During the time Sonoma Valley Bank was identified as a problem bank publically, sometime early this year, (March-April covered in the local press) where several investors, and other banks, came in and took a look performing due diligence. However after the Prompt Corrective Action Capital directive was issued by Regulators and the 90-day extension was granted, sometime around the half-way point with 60-days to expiration, (or Mid-June) the FDIC placed the Bank Sale Notice on the “Intralinks” online due diligence system of choice. When this happened a majority if not all the bidding process likely “dried-up” and the entire interested buyer group were said to have re-filed under the FDIC assisted process. The FDIC “cleansing” that the remaining assets receive is a huge benefit to banks and allows opportunities like loss-share agreements whereby the buyer can acquire a “put-option” so that if any assets default after the purchase they can give them back to the FDIC typically for an 80/20 share meaning they get 80 cents cash on the dollar. Industry conversations suggest Westamerica was the only bank to bid without a loss share agreement and thus won the bid on that merit primarily as it typically results in lower losses to the FDIC insurance funds.
I keep reviewing these transactions that failed the Sonoma Valley Bank, Cuttings Alma Mater with the two infamous partners and their primary firms for the “Triangle of Death” deals (SSE, LLC—Sonoma Storage Emporium, Petaluma Greenbriar apartments, and the literally vacant and less-than-appealing appearance of the development known as Courtside Village) and something is very fishy here. I mean the way the parcels were cut up, and common areas sold off, the significant volume of “cash-out” deals (because from my review of these properties there is no way $40 million went into these properties). “Cash-out” deals were traditionally done only by “hard-money” lenders who lend on the collateral value of the project and keep low loan-to-value ratios to be sure a sudden dip in the economy doesn’t catch them offguard. Community banks like SVB in a stable little Valley Community had no business becoming “hard-money” lenders out of area on the 101 corridor with Borrowers who typically dealt with the top 25 banks in the country. There is no way SVB can exert controlling influence on an arrangement of this nature skimming scraps off the floor while the Big Banks sat at the table with these partners dining on a fine feast (although from the projects I’ve seen and photos I archived, its more like picking off the Garbage Dump).
Where did all this money go? Was it siphoned off to pay for other unrelated failing projects in SoCal with IndyMac or in Reno, NVor the host of other dozen large banks and private investors these partners owed money to? (Court Dockets, news articles, County Records records of liens on APN projects)
Industry professionals and social networks indicate these borrowers initially came to Sonoma Valley Bank and wooed Cutting and the Senior Lender that executed most of the County Recorder documents I saw closing the loans as primary officer and that was relieved of his duty in February 2010. Then to allow this same guy Cutting let go to come back in April and May 2010 and buy a new home and finance the deal almost 100% knowing he didn’t have a job…certainly seems suspicious to me. (Based on Trust Deed dates from County Recorder, real estate listings and closing records, and social networking records or his departure and announcement of his new job in July).
What relationship does Cutting and the former loan officer have to be doing home purchase deals after letting them go and unemployed? Just how close were they to these borrowers. Some outside arrangement or friendship but to make a deal like this? I mean COME ON!
The August 27th cross-town newspaper quoted Cutting and Switzer as saying about these 101 deals “…these were loans on land being developed by known individuals and businesses with a good track record of success in such development” Did Bank Management know these people from a prior life? A previous dealing from a previous employer? A friend of a friend? Or was it random? Or…better yet, did they become good friends after hanging out with them for a few years as customers, socially? Were they hypnotized by the lavish lifestyle these borrowers portrayed? If so there may have developed other “conflicts of interest” that arose and it clouded their judgment and ability to make sound prudent lending decisions and recommendations to the Committee and the Board? Personal Investment Activity is prohibited by SVB Ethics Policy as well. Did the loan officer that was relieved have another outside venture?
Social networks suggest the partners came to SVB (likely these two Officers) and misrepresented themselves to be something they were not. Airplane rides around the 101 corridor, fancy cars, parties, etc. “Acceptance of Gifts” is a prohibited activity in SVB Ethics Policy page 2 nearly the whole page is devoted to this prohibition. There are a host of regulations around this concept as well with stiff penalties. The coffee talk suggests the aircraft was not property of the partners but rather a front to boost their image and credibility, a Charlatan. I know the saying goes “What Happens in Vegas Stays in Vegas.” My mind keeps thinking misrepresentation, and a couple other offenses I am not going to mention here as yet. All of which are suspicious activity and require notifying the authorities and at a minimum filing SAR reports as they involve Bank Insiders and Executive Officers.
Hold the phone!!! Now here’s an interesting twist. Just when you think it’s safe to go back in the water…The “Bermuda Triangle” of failed deals from Sonoma Valley Bank up on the 101 Corridor may have just become “a Square?”
Who in the world is “101 Houseco, LLC?” And who is this owner listed in the Secretary of State records as the “front man” for this LLC? Or is the term really “Straw Man?” Wow I haven’t heard of “Straw Men” being used in the Banking business since I was a rookie in training in the wake of the 1980’s Bank Failures. Makes me feel old. Did somebody dust off a classic trick in the manual I studied about “War Stories” in the banking failures of the 80’s?
101 Houseco, LLC has a lien filed in Sonoma County Recorders database by the FDIC? How often do you see liens filed on properties you finance as a bank by the FDIC? I would say very rare. Now SVB’s infamous partners on the 101 Corridor were known to have had dealings with IndyMac Bank in Pasadena the largest bank failure in our Country’s history. Could it be related?
One can also see transactions with 132 Village Square, LLC and Greenbriar Construction both known affiliate companies of the partners SVB “bet the bank” on. And, the APN’s on these Trust Deeds match to various parts of the infamous Courtside Village west of Santa Rosa on Sebastopol Road. Could these partners have “derived benefit” from these deals and be covered under the “attribution rules” of the legal lending limit?
Hummm let’s pull a little more on this thread and see where it goes. How is 101 Houseco, LLC related to Courtside Village and 132 Village Square?
Stay tuned. I have a feeling this is gonna be good. Oh, and I doubt the Big Bad Mean Regulators have a conspiracy on this deal either. Just how well did Sonoma Valley Bank really “know their customers” they claim they knew so well?
101 Houseco, LLC is turning out to be a very interesting project. There are affiliated transactions on the Sonoma County Recorders database to Village Square Association, 132 Village Square, LLC, Greenbriar Construction, the FDIC (IndyMac failed Bank) and the individual “front-man” on this deal. The individual then has a history of issues on record at The Recorder with California State Controller, the IRS, and Sonoma County Tax Collectors. These issues would also undoubtedly adversely impact the individual’s credit rating.
How in the world with this credit history, and knowing the project was substantially vacant without substantial cash flow, or LTV, could this be a “Bank-Qualified” loan to underwrite?
Could this project have prior unpaid liens from the County? There are also Mechanics Liens showing on many of the related projects to these affiliates. All this means that Sonoma Valley Bank, while they thought they had a good equity position, (then again both Executive Officers were quoted as “knowing their customers very well” so perhaps they knew all this) would really fall second in priority to the Governmental entities as these liens take priority automatically and stand in the way of the bank.
For example if the project was said to be worth…$20 million and say $5 million in unpaid County fees for development, mechanics liens from subcontractors that have disputed invoices they are owed file against the project, and taxes were past due…all would take priority and decrease the Loan-to-Value ratio. Frankly with numbers of that nature and declines in market values for mixed-use commercial and residential/commercial condos, my guess is the LTV may have actually exceeded 100% placing the bank at significant risk along with all other participating banks and since the project is considered “Troubled Debt Restructured” there really is little value from a FAS114 Loan Impairment standard accounting practice and it’s no wonder the Regulators were having these assets charged-off and additional provisions to the Loan Loss Reserve and making the bank go back and re-file their Call Reports.
I wonder if Napa Community Bank (RaboBank’s predecessor) had a piece of this deal? Or was Charter Oak the other Napa Bank involved in this workout from some other problem relationship from these two partners. Is this the aftermath of a previous deal to Courtside Village gone sideways? Would they have agreed to this deal?
This one will take some more digging for sure.
This 101 Houseco LLC really looks odd. Researching previous liens related to the Courtside Village and Village Square projects in County Records shows deeds moving around but ironically shows an “ASSIGNMENT” of a trust deed and not an actual filing. Then it almost appears that the same APN map number parcel shows up just a couple months before the bank failed being filed GRANT DEED on the same APN almost as if they had an “assignment” first then shored it up with an actual lien?
OMG “Uh….Earth to mars” please tell me SVB Executive Management and Board you didn’t lend $10 million essentially “unsecured” to a borrower with challenges in their past on a loose “assignment of trust deed” and then tried to scramble later to negotiate for clear title…and did it behind several million dollars of mechanics liens and other County fees/tax liens? Tell me you really had some equity in the deal at some point before it vaporized in this down economy?
Tell me this wasn’t your idea of “if the cookie jar is passed around you grab one” (paraphrasing Cutting from a cross-town news article when they were interviewed about TARP monry controversy) brainchild of a good thing to do with your TARP funds from the US Treasury? The timing of the dates on these originations is uncanny with the timing for receipt of TARP. I’m not laughing…that’s MY money and the Valley I mean heck the Nation’s money you played with not to mention the $10.1 million estimate the FDIC will take on the chin too!
I mean WHO DO YOU THINK WAS YOUR LARGEST SHAREHOLDER? How about the FDIC? Remember? And all those insured deposits they allow you to use to lend on. The paltry 10-15% (or about $38 million) your shareholders invested in the $350 million bank was nothing compared to the other 90% of the balance sheet deposits the Valley Residents, FDIC and Federal Government entrusted to you all! Do you understand the term “Fiduciary Responsibility?” Do you realize you all are individually held accountable unlike other corporations, Federally Insured Bank Directorship means you’re liable, personally. Soon enough you will come to understand that fact. Directors and Executive Officers from Banks across the country are learning this first hand in FDIC suits. And that “rubber stamp” you used to do everything your top two Executive Officers said to approve won’t look like such a sweetheart crony deal anymore.
I still say the FDIC and IndyMac Trust Deed history in the County Recorder records was a HUGE red-flag! That was years before you failed the bank. Didn’t you wonder? Did they file for foreclosure and catch you off guard? It’s easy to see the FDIC was following these infamous two borrowers on the “Bermuda Triangle” up on the 101 corridor? You opened the door and the freight train came rolling round the bend and over to Napa infecting those two banks.
Are you sure you still want to say “these are well known borrowers to Executive Management?” like you did Friday August 27th in that cross-town newspaper article?
Published in the Northbay Business Journal October 25th….
Sean Dowdall, executive director of marketing for Rabobank stated:
“Our overall strategy network wide is as much as possible to get people there locally. Our business is having the local delivery and local knowledge which is why we chose Sean Cutting. We recognize him as a very talented banker.”
Mr. Cutting was the president and CEO of Sonoma Valley Bank, which just a month ago was taken over (is that Rabobank speak for “failed?”) by the FDIC and sold to Westamerica, the largest North Bay-based bank.
“There were a lot of elements to what happened at Sonoma Valley Bank,” said Mr. Dowdall. “We think Sean knows the community very well. With the criteria we are looking for we think he is a great fit.”
Sooo…lemme get this straight? Rabobank thinks there were a lot of elements to what happened when Cutting, his Main Loan Officer that was relieved in February 2010, Switzer and the Board FAILED our beloved Sonoma Valley Bank? Has he read any of the blogs here and on the cross town newspaper?
Greed from overzealous incentive compensation programs enticed Executive Management and the Board to bet the bank literally $40 million the entire capital base (which by the way exceeded the legal lending limit by about 5x). They diverted our Valley’s deposits into 3 deals (SSE, LLC—Petaluma Greenbriar, and Courtside Village) controlled by two partners and that decision along with poor underwriting, weak credit administration, insufficient execution, and either ignorance or intent I am not sure which one yet…tanked the bank.
If Cutting knows Sonoma so well, why did they reach out of the Valley to strangers (who they claim were “well known to management but if they knew the customer had defaulted projects in Reno, FDIC foreclosed properties, a criminal record in Marin County, and Real Estate licenses from their primary business revoked and reinstated on limited probation…and that they were all related despite the “Straw Men” on 101 Houseco, LLC, did they knowingly violate the Legal Lending Limit then?)
Before Cutting came to SVB he was a stock analyst or at best not a traditional banker up through 2002. He came to Sonoma as a Loan Officer and was promoted on the fast track to President in 8 short years. But I’m not sure how much talent he could have picked up at SVB in that short a period of time and given the talent (or lack thereof) on staff. I wouldn’t consider the team at SVB to be a “Superstar” team of bankers. Now thats not to say they were very customer service oriented and when they stayed in our Valley they did a fine job hitting base hits. It was when they started swinging for the fence in the Big Leagues where they suffered and ultimately failed trying to swim with the sharks up on 101 with Marin and Santa Rosa borrowers.
Is it coincidence the location selected for the Rabo Sonoma branch at 10 Maple was a long time large customer of the failed SVB? 10 Maple Associates, LLC has as I count on the Sonoma County Recorder website at least 4 mortgage loan transactions with Sonoma Valley Bank. Principal Jeffrey Frieberg and his spouse’s trust has another 13 transactions several modifications, so in total there are pushing 20 transactions on County Recorder records out with SVB to his affiliates.
10 Maple is no doubt a beautiful building and I understand its certified with an Environmentally Friendly designation, a noble effort. Nonetheless these buildings are off the high traffic area and the location is substandard compared to some others and thus they sat empty for a very long time until Rabobank came along.
Let’s see, 1+1=2 so….did Cutting tip Rabobank off to a sweetheart deal and then occupy a significant piece of a sturggling project (from a lease income/cash flow stand point?). Is this a favor Cutting pulled for his old friend in hopes of wooing him over to Rabobank? Could it be an incentive package to bring over business since he is a business developer? It doesn’t take a rocket scientist (or International Banking major) to figure with that many transactions and word on the street says that many more over in Napa, with that much empty space in a newly constructed building to suspect cash flow difficulties at least on this project. Is this one of those criticized/classified loan relationship where SVB kept extending and extending interest only (we call those “Evergreen loans” in the regulatory world…they always look good and current because they don’t really amortize and the performance is often “masked” by excessive renewals?) Are these some loans the regulators asked to reserve for as “impaired” because the construction loans never stabilized and the high vacancy resulted in insufficient debt-service-coverage-ratio (DSCR)…also known as “mini-perm” loans a term coined in the early 90’s to cocoon a project at a reduced restructured term?
I bet this was a nice shot in the arm for his old friend? Oh and I believe he is from Marin not Sonoma?
Well Rabobank may come to realize that the Scarlet Letter associated with Executives that are significantly responsible for failing a Federally Insured Financial Institution are subject to investigation and if determined to have contributed to the failure, been negligent or a host of other contributions, may have a “Prohibition Order” issued (which means they are “blackballed from banking for life), and may be held personally and financially accountable. The FDIC released a press release a couple weeks ago on AP wire declaring they got permission to sue 50 former Ecxecutive Officers and Directors for breech of fiduciary duty, just like I see here at SVB when you peel back the onion? (see link below)
http://www.huffingtonpost.com/2010/10/08/post_545_n_756059.html
Depending on the types and situation around violations of law (we already can see violations of legal lending limit now was it with intent with “Straw Men Borrowers” to circumvent the law or ignorance either way negligence is suspect), The Department of Justice could have interest in the case or even the IRS with the borrower?
Time keeps on pushing, pushing, pushing…into the future…
Let’s flash back to 101 Houseco, LLC (the “straw-man” deal Cutting, Switzer and the Board approved). I have a court document from Sonoma County Superior Court Case No. C 09-929 SI with dates around June 2009 whereby the judge seems to block an action that 101 Houseco LLC and the FDIC appear to be trying to settle debts.
My guess is this invloves the loans The Partners from SSE, LLC—Petaluma Greenbriar—and Courtside Village. These are the same two individuals that benefitted to the tune of about $40 million when SVB bet the bank, when they tried to settle on debts acquired by the FDIC when IndyMac Bank failed (the largest bank failure in the country).
I tie 101 Houseco LLC to these partners through transfers, assignments, and subordinations with their other related business entities. Its pretty easy to see they are “affiliates” and through the “attribution rules” of the lending limits derived benefit. This is the basis for my assumption there has to be a legal lending limit violation and Executive Management and the Board just HAD to be aware they were circumventing it. The “straw-man” concept is a method of circumventing the legal lending limit. Intent is a real concern of mine I cannot decide whether its calculated or an intential diversion of attention with the “straw-man.” 101 House LLC transferred land from these partnership interests but not at real arms length (hence “straw-man” borrowers). You can track the title transfers on County Recorder records.
Anyway, this judge seems to block actions. Perhaps another trip up to the Sonoma County Court Records Clerk can answer some of these questions?
This 101 Houseco LLC is really a unique deal and appears orchestrated. The proceeds seem to go from SVB, through 101 Houseco LLC, to IndyMac (actually the FDIC) but where did the proceeds of these sale of the assets from the two partners go? Was it all sent down to refinance the FDIC loan?
But why the transfer of Deed from 101 Houseco LLC to Sonoma Valley Bank in July of 2010? This transaction occured a year earlier? It almost looked like a deed-in-lieu of foreclosure…but I think it is tied to an earlier assignment…but then the dates don’t match almost like the assignment was taken months later and after the loan closed, and then the Deed was executed in favor to give clear lien. It just looks like they were correcting something they missed at time the loan proceeds were advanced and the loan closed and they tried to patch it up later? If that’s the case I still say it looks like it was essentially an “unsecured” loan and the assignment perfection and the trust deed came sometime later.
Enquiring minds are dying to know…onward and upward.
Records in the Sonoma Superior Court were overwhelming today when I stopped in to review and research a few leads. I stumbled across the following cases filed less than 30 days before Sonoma Valley Bank failed and they include: SCV-247820, SCV-247959, SCV-247961, and SCV-247962. The first related to 132 Village Square, LLC (the Courtside Village on Sebastopol Road west of Santa Rosa), and the latter 3 cases related to Petaluma Greenbriar Apartments (various shell holding companies called “Investments 1, 2 & 5” for the cookie cutter apartment building pads, 6 to be exact and the pad under them).
This does not include the cases in Nevada brought against the same 2 partners for failed projects in Reno from earlier in the decade. Word on the street is the main Sonoma County partner has also recently filed for Bankruptcy. My guess is these cash flow projects like SSE, LLC (the storage facility), and the Apartments are in foreclosure so the proceeds are likely under “Receivership” or funds restricted and managed by an independent third party custodian so the Principal is not deriving benefit. The “House of Cards” appears to be crumbling seemingly supported by the efforts (or lack thereof) of SVB Executive Management and the Board’s decisions to delay filing foreclosure and offer meager restructuring along the way. My observation is SVB clearly lacked the talent and skills capable to underwrite, administer and monitor ongoing Credit Risk and when things went south they did not possess the foresight and ability to work these deals out and mitigate collection risks and reduce exposure appropriately and certainly not in a timely manner. This failure to react aggressively likely contributed to the lack of Faith the FDIC placed in Executive Management at the end and influenced the decision to ultimately close the institution.
These Court Cases are now the result of tough workout and liquidation strategy. My guess is the losses that result from these deals in the Bermuda Triangle up on Hwy 101 in Sonoma County will far exceed the additional $10.1 million the FDIC charged off to the FDIC Insurance Fund and not to mention the $8.7 million in TARP Treasury funds that vaporized the day the bank was seized. I still think Westamerica missed on the bid and will suffer from the weak Credit Risk management of former SVB as they bought the assets without benefit of a Loss Share Agreement which means essentially they are left with eating any losses that do come about in this liquidation foreclosure.
There is one twist I suspect is present in the Purchase and Assumption Agreement with the FDIC…if Westamerica discovers what they determine as “misrepresentation with intent” my guess is they would have the right contractually to put back those toxic Hwy 101 assets to the FDIC. Personally, I feel they belong with the FDIC as these relationships are part of a string of banks a systemic risk to the Banking Industry and far too complex for the average community bank to unravel. They are related to the IndyMac failure and FDIC collection attempts I see in the County Recorder, County Courts and the US District Court records. They also impaired the Napa Bank that avoided failure the same fate as SVB just a week ago agreeing to merge with Bay Commercial from the Eastbay. I think Charter Oak also deserves to put back those assets to Westamerica who in turn should be permitted to put them back through to the FDIC because frankly neither Westamerica nor Charter Oak deserve to deal with these assets and these borrowers . It was Sonoma Valley Banks mistake and they alone should bear the brunt of their greedy actions and Policy they instituted without proper Risk Management systems. SVB failed…and thus the FDIC should “cleanse” those toxic assets from the Banking System or at least make Westamerica and Charter Oak a partial recovery.
Maybe I read some of your prior stuff wrong so let me get a clarification.
Isn’t it true that Sonoma Valley Bank appears to have given the these shady folks an unsecured loan in 2009 for $10 Million?
We know that TARP agreements took place in Feb 09.
So, it would appear that the TARP funds came through the front door and went out the back door to deez guys,
no?
Then, not long before the closure SVB scrambled to obtain title by way of an assignment on certain property for certain consideration (lots and lots of cash ?) paid to deez guys?
Do I misunderstand?
You are correct Mr. Hipps. Generally speaking 101 Houseco, LLC was funded as part of a workout strategy settling FDIC failed IndyMac Bank in Pasadena. Parcels appear to have been transferred from the general “Courtside Village” series of LLC’s and “sold” to Houseco a seemingly independent third party. My research appears to have the funde going from SVB through Houseco to the two Partners who derived the benefit of the approx $35-$40 million in 101 Burmuda Triangle loans to affiliates…then off to the FDIC in Pasadena to cool that fire. The timing of the TARP funds is in that period yes.
It looks according to County Records records that an “assignment of Trust Deed” was done some time later (almost as if they “discovered that the loans were made unsecured and ooooops didnt intend to be that way”) so the assignment was recorded and then I stumbled across a Grant Deed recently in July 2010 actually getting a clean Trust Deed to the same APN in question earlier.
The net effect is the multi-million advance was essentially unsecured (somebody forgot to file the assignment of deed much less a clean first Trust Deed) for several months 6-9 approximately before finally getting the trust deed in July 2010.
Forgot to note 101 Houseco LLC had several transactions between other related affiliates of the two partners in the timeframe leading up to its formation several years ago and the Principal “third party” appears to have connections to one of the Principals from dealings in NV so I question whether they really are arms-length and as such make me think of a “straw-man” circumstance again based on my old school tranining in Lending 101 (no pun intended) in the Federal Government Regulator training schools.
Regarding SSE, LLC the wormhole into this whole discovery up on the 101 corridor that failed Sonoma Valley Bank, I drove by today and noticed right next door was another Storage Facility called Redwood Empire Wine Storage at 4325 (SSE is 4201) Santa Rosa Ave. Funny how one might choose to build a competitor next door like Safeway grocery parking next to Lucky would seem a little saturated to me? How can that be a success unless they are parasiting off the neighboring project?
Yet another interesting “feasibility” question in the saga of why would a successful little community bank in The Valley bet the entire bank on 3-4 deals with two primary partners benefitting/backing the entire deals well in excess of their legal lending limit? Enquiring minds still wondering?
While researching the neighboring Redwood Storage facility next to SSE, LLC the Sonoma Storage Emporium I ran across a blog that makes me wonder the character of these projects and their owner/operators. This response to a negative blog on their “CitySearch” is dated 11-8-10 just a week or so ago and the tone and choice of words is of questionable professional caliber to say the least. I was shocked to even read it so I thought I would share what the Managers operating this project that our Sonoma Valley Bank actually posted up on a public blog website defending their actions responding to a black mark feedback against their business. And I quote from a cut-n-paste and provide the actual link you can read for yourself…: (mind you this is the OWNER writing not a disgruntled customer)
“We strive for Safety, Security & Great Customer Service!
by Sonoma Storage Emporium at Citysearch
In response to this persons negative review of our facility…These 2 tenants were given a great deal for storage, however they were trying to live in their unit & sleep at the property to avoid a No Bail Warrant with the Police. They were totally abusive to the managers & made our other tenants feel uncomfortable while they were on the property. After trying to work with these 2 people, we found that they were harmful to our business & drugged out criminals. We had to evict them from the property b/c they continuously broke their lease & became threatening & abusive b/c we would not let them live out of their storage units & wreck our bathrooms. We had to look out for the safety of all of our other tenants, & their behavior was not going to be tolerated. One of these tenants was actually arrested on our property & sent to jail for 1 year. Now, would you want these people at your property?! We don’t!”
Here is the actual link:
http://national.citysearch.com/profile/map/42806340/santa_rosa_ca/sonoma_storage_emporium.html#profileTab-reviews
Lemme get this straight, remembering that 1+1 still = 2. Now do I feel better that the owner/manager only a week ago, said their defense for a complaint is that they have crack-heads, living on the unit overnight, have to call the Police and arrest them, and are worried that they can’t even trust the quality of the bathroom to them not to completely trash? Even street people in San Francisco have public toilets they can care for you mean the caliber of tenants in this unit and Management for this project allow this kind of element in?
Is this the kind of facility I feel comfortable storing my finest vintage wines in? Or better yet, does this sound like the kind of quality relationship YOU would lend $12-$15million to a project?
It’s no wonder the project (as I hear) is yet to be completed. Word on the street is the upper floors are not finished out and capable of being rented just a cold shell unfinished warehouse?
The next chapter in “The Audacity of Dopes.”
Good thing there wasn’t any competition for storage businesses.
What? There were many other storage facilities?
They wouldn’t have been stupid enough to loan money on that, would they?
Take a look.
http://www.storagefront.com/self-storage/california/rohnert-park
http://www.redwoodsecurity.com/pdfs/volume4_new.pdf
” SELF-STORAGE EMPORIUM
Owners Connie Oosterbaan and Glenn H. Larsen don’t call
their one-year-old self-storage facility an emporium for
nothing. Conveniently located in Larkspur, The Self-Storage
Emporium is housed in the building formerly occupied by
United Moving and Van Lines next to the Swiss Garage. The
shiny new secure, steel storage units range from closet sized to
those large enough to hold the contents of a 3-4 bedroom
house. Some are equipped with extra large doors.
But what really makes the Self-Storage Emporium special is service, something few storage facilities
offer. The Emporium offers shipping and receiving service, including Fed-ex and UPS. For those on
the second floor, forklift services are available. There’s ABC Board approved, temperature controlled
wine and beer storage, perfect for both private collectors and businesses storing inventory. Both auto
transport and pet kenneling services include pickup and delivery.
The Emporium also sells and rents moving equipment and supplies and provides moving company
referrals for both local and long distance.
Page 2 of 3file://localhost/Users/danabialashedwski/Desktop/Work/Redwood%20Security/web/TMP57rfwfxd5e.htm
The Self-Storage Emporium is located at 1023 Magnolia in Larkspur, approximately one-half mile
south of the College of Marin. Hours of customer access are from 7 a.m. to 7 p.m. seven days a week.
Telephone (415) 464-0444.
5/3/05 5:41 PMRedwood Security/fall ”
Are these the borrowers in this public document?
Sounds like a job for Jimmy Olsen
Yes Mr. Hipps, You’re quoting a related project of the partners in question a “sister” facility in Marin. Though I do not see that the Marin project is liened on by SVB in any of my records.
Larsen is the partner involved in all the other projects as recorded on the Trust Deeds, Secretary of State records, and other public records liened by former Sonoma Valley Bank. He is based in Marin and in the Mortgage Business as his “day job.”
Larsen has interest in all three of the big losses that tanked SVB including: SSE, LLC (Sonoma Storage Emporium), Petaluma Greenbriar apartments, and “Courtside Village” complex west of Santa Rosa. He is one of the two partners that derived benefit from the approx $40 million in aggregate loans when SVB Executive Management and the board bet the bank. That’s why I submit even with a couple participations from the Napa Banks, they still lent waaay over the Legal Lending Limit of 25% of Total Risk Based Capital or $8.7 million. Its because Larsen and his primary partner derived benefit and are “attributed” when assessing compliance with the legal lending limit.
Of course wouldn’t you think Cutting and Switzer the CCO and President with combined at least 40 years of banking (granted Cutting has only 6-8 years of applicable commercial bank experience before failing SVB) would understand? It’s beyond me how Executive Management could have been quoted in the cross-town newspaper as claiming they were victims of the economy and knew these borrowers as “well known to management” yet allowed an apparant legal lending violation?
So lemme get this straight cause I have to double check and make sure there is “no funny math” like they had going on inside out local bank…1+1 still =2. Therefore, you either know your customers and the fact they were benefitting and the legal lending limit was breeched, or you haven’t a clue who you lent $40 million to that tanked the bank.
Mind you these two partners combined had failed projects in Reno, Pasadena financed by IndyMac the largest bank failure in the county to date, and the FDIC was filing collection liens, Notice of Defaults and 101 Houseco, LLC deal was from my perspective a workout deal to payoff bad debts at IndyMac post failure essentially paying off the FDIC?
Still the bells and sirens were silent and dark? No radar? Batteries not working?
So once again? Speak clearly into the microphone while under the bright Light of Truth, Justice, and the American Way…DID YOU or DID YOU NOT….KNOW YOUR CUSTOMERS?
FDIC Conducting 50 Criminal Probes Into Failed Banks…was the headline in Reuters. This scenario pertains to SVB and he Executive Officers, and Directors:
The Federal Deposit Insurance Corp. is pursuing about 50 criminal investigations against executives, directors and employees of banks that failed since the financial crisis began, the Wall Street Journal reported, citing an interview with Fred Gibson, the FDIC’s deputy inspector general.
The criminal investigations typically relate to loan officers at the vice president or senior vice president level, Gibson told the newspaper. Some involve higher-ranking officials, including former directors of failed institutions, he added, without identifying banks or people under investigation.
The agency, which has shuttered 294 lenders since the start of 2008, has authorized lawsuits to recoup more than $2 billion from more than 80 officers and directors, the report said. Richard Osterman, the FDIC’s acting general counsel, said in an interview last month that the agency had approved 50 lawsuits seeking $1 billion in losses stemming from the credit crisis.
The FDIC, which reviews losses for every bank failure, in July filed a suit seeking $300 million in damages from four executives of IndyMac Bancorp Inc. In that case, executives are accused of granting loans that were unlikely to be repaid while seeking to benefit from the bank’s compensation structure. The former employees have denied any wrongdoing.
As federal receiver for failed banks, the FDIC uses its deposit insurance fund to backstop the cost of the collapses, selling the bank assets to recoup any lost money. The agency has three years from the date of the failure to file lawsuits seeking compensation for a civil wrong.
According to Osterman, lawsuits were authorized during closed sessions of the FDIC board and haven’t been made public. The agency has held off court action while conducting settlement talks with executives whose actions may have led to bank collapses, he said last month.
The FDIC is likely to work with the Federal Bureau of Investigation on the criminal probes, the Wall Street Journal said.
link —> http://www.bloomberg.com/news/2010-11-17/u-s-fdic-conducting-criminal-probes-into-failed-bank-wsj-says.html
IndyMac was the largest failure in the Nation to date and Sonoma Valley Bank dealt with two partners that were also doing business with the FDIC and when the FDIC seized the loans of IndyMac they put the clamps on the partners. The partners in turn went “dialing for dollars” and BaddaBING! Then they found poor little Sonoma Valley Bank. All the while the FDIC was targeting these borrowers and chased them up into Sonoma and unraveled $40 million of pure tragedy from the Greed of Executive management.
Our bank is related to this largest failure in indyMac and was tied into two Napa banks, one of which was saved on the brink of failure walking “The Long Green Mile” otherwise it too may have been a victim.
Sonoma Superior Court has Case Number ‘SCV-242902’ scheduled for hearing December 23, 2010 (Happy Holidays) where both the partners that benefitted from approx $40 million in loans from Sonoma Valley Bank under the leadership of Mr Cutting (CCO and CEO during that tenure) and Mr Switzer, bet the bank and failed. This one is brought by a Plaintiff SLAKEY BROTHERS INC, A CALIFORNIA CORPORATION with a curtain call at 9:00am and heard by The Honorable Elaine Rushing in Courtroom 19.
The entire cast of characters is named in this one from the two partners, their spouses, their business ventures, all the LLC’s Sonoma Valley Bank Executive and the Board lent to and even Sonoma Valley Bank, IndyMac Bank, and the FDIC are named in the suit.
And this is not the only civil suit currently running against the partners attributed to the proceeds of the SVB’s entire $38 million Capital block. Another one is running in Reno, NV for failed dealings on Belvadere Towers (fks Sundowner Casino). The docket grows by the day on that one as well.
This Main Event could be dubbed “THE AROMA IN SONOMA” but the docket reads like the fightcard of the century mainly centered around the “Courtside Village” fiasco and includes 132 Village Square LLC, 101 Houseco LLC, and all related to the Sebastopol Rd West of Santa Rosa failed development that from my drive by has no less than 60 commercial units and but 3 are rented and deteriorating conditions prevailing in the mixed use village of multi-family, retail, office, and residential. You should see the pictures of the Ghost Town all boarded and papered up, graffilthy sprayed around.
I might just have to grab a ticket to this show it may beat The Nutcracker performance at the San Francisco War Memorial Opera House for entertainment with all the stars expected to show for the Order to Show Cause.
My guess is the Plaintiff is trying to prove Fraud and misrepresentation. It is conveivable that Cutting or Switzer or even Melland (the loan officer relieved of his duty February 2010 and his name appears on a significant volume of these 101 toxic assets and Trust Deeds signing and closing the loans on behalf of the bank), may be deposed or called to testify.
This could get very interesting when they ask things like “…did you actually know you violated the lending limit of $8.7 mill yet you lent $9 milion of TARP funds to 101 Houseco LLC alone?” Did you realize you had approx $12 million outstanding to SSE LLC, and $12 million outstanding in those other deals and who could forget the 31 piece apartment complex Petaluma Greenbriar. They have 6 pads under 6 of 28 apartment buildings each with $2 million outstanding but get a load of this…they don’t have the common areas (parcels 29that was carved up and sold off to someone else rendering this project seemingly worthless as far as collection and operations.
Or “…did you really make the 101 Houseco LLC loan secured by an assignment of a lien and then forget to file the assignment…only to settle in July 2010 by paying/forgiving more funds paid directly to the partners in exchange for a Grant Deed to secure a loan that was presented and approved by your Board as a standard 1st Trust Deed Lien?”
I beg mercy if the Plaintiff attorney asks about how funds were disbursed and what controls were in place on these loans since projects are said to be unfinished as yet (SSE LLC upper levels remain an unfinished cold shell). There must be requests by the borrowers without proper inspection reports, copies of invoices, photos charting progress, expert opinions as to progress. Otherwise how could projects remain unfinished?
Then if the attorney asks “…what are all these little $860k, $250k here, $250k there loans and Trust Deed modification?” Did you really cover overdrafts and pay yourself current on “Evergreen” (aka “Pretend and Extend”) loans, and mask the nonperforming status?
Tickets….TICKETS….GET YOUR TICKETS!!!! Guaranteed sellout of this free show sure to be a Festival of Lights just follow the Bright North Star to The Courthouse this Holiday Season.
Rabobank branch at 10 Maple in Sonoma is still concrete slab floor and no TI’s complete. I stopped by to have a peek only to notice a sign on the door that said “Rabobank Administrative Office upstairs Suite 301.”
Gorham (former SVB COO) and her associates were out in the parking lot as I came downstairs and said the branch was 4-6 weeks away form opening awaiting signage approval by the City and clearly all the interior finishing.
So they must be operating it currently as a “Loan Production Office” a designation not required to have regulatory approval.
Plucking off former SVB customers no doubt taking them over to the new bank one by one. What happens when that effort runs dry? Then the real “prospecting” will occur and targeting the bread and butter Big Agricultural loans.
Melland is also likely prospecting his old borrowers trying to convince them to go to Sonoma Bank (Santa Rosa and Sterling Savings Bank affiliate out of Spokane, WA). Any odds makers on who is the better salesperson? Cutting or Melland? Then again its odd to think of Melland prospecting business as he works in the Special Assets division at Sonoma Bank working out problem deals. Then again, as a Loan Officer he was successful at working out the problem deals that tanked his former emloyer Sonoma Valley Bank…yeah RIGHT!
Both of them might have to take the Holidays and first quarter off work to testify for (or against I dunno) their two partner friends from the 101 Corridor. Then again the FDIC, Treasury, DOJ, and IRS may also want a piece of the boys (Cutting and Melland and lets not leave Switzer out of the ring) as the formal cases will be ready to be prepared following investigations of negligence, and a host of other charges as they contributed materially to the failure of a Federally Insured Banking Institution and resulted in at least $10.1 million in FDIC insurance fund losses and vaporized the $8.7 million in TARP funds after handing it over to 101 Houseco LLC and paying off other failed loans to IndyMac/FDIC.
Sonoma County Supreme Court has a busy docket as three major cases name every single borrowing entity (SSE LLC, Petaluma Greenbriar Apartments, Courtside Village, and 101 Houseco LLC) affiliate, partnership and primary family member and personal trust of the two partners who made off with more than $40 million in loans from Sonoma Valley Bank and proved too much for Cutting, Switzer and the Board leading to Bank Failure and seizure of the charter by the California DFI and handoff to the FDIC.
Petaluma Greenbriar Apartments is case SCV 247962 Dec 14th and 16th (3 cases).
Courtside Village case SVC 242902 with all the related projects are all on Dec 23rd and subject to an Order to Show Cause for Sonoma Valley Bank, IndyMac Bank (both failed into receivership with the FDIC), and the FDIC.
SSE LLC storage facility is case SVC 247048 Jan 13th, 2011.
This Order to Show Cause will likely result in deposition and even testimony on behalf of former bank officials perhaps even Melland, Cutting and Switzer or other Officers or support staff. Failure to appear will certainly prove Contempt of Court. Many deep topics and Truths could come from this process as the Plaintiffs are going after misrepresentation at best and potentially Fraud and Breach of contract. Some of the other foreclosure cases could have bankruptcy included and if the Plaintiff is searching for misappropriation by the banks misdirected loan disbursements or why they as subcontractors were not paid there could be some very touchy subjects and discussions aired in these cases and in fact lead to support or corroborate ongoing Federal Investigations on Sonoma Valley Bank.
Cutting and Melland both may be called to be deposed or testify and will prove to be a continuing “Scarlet Letter” on their reputation and impact their current employers to allow them time away from their duties. Not to mention additional legal protections and legal expenses for representation should they be roped into a corner and forced to divulge some uncomfortable topics from their past with recent past.
I wonder if the Feds will be in attendance to work on their investigation or if they have what they need already? Will the press?