Hanmi Bank’s tale of woe

Los Angeles based Hanmi Financial Corporation, the holding company for Korean-American owned and oriented Hanmi Bank, has gone through some tough times in the past few years and it looks like their woes are now accelerating rapidly right after the company’s latest leadership change. Here’s an interesting timeline:

• Sometime before April 2009, Hanmi came under scrutiny first from the California Department of Financial Institutions (it is a California State chartered bank)

• In November, the bank’s difficulties came to the attention of the Federal Reserve Bank of San Francisco, which forced it into an agreement to reform it’s practices

• August 25, 2011, the FBI sends out a trainer for Hanmi Bank’s officers to get the bank to come up to acceptable security standards for the banking industry

• October 14, 2011, Hanmi’s Executive Vice President and Chief Financial Officer (EVP/CFO) Brian E. Cho enters into a “Severance & Release Agreement” that provides in part:

  “The purpose of this Agreement is to settle and compromise any and all disputes and controversies of any nature existing between the parties arising out of Employee’s employment with and/or separation from Hanmi. Employee and Hanmi are individually referred to as a ‘Party‘ and collectively referred to as the ‘Parties.’” [Emphasis added]

In spite of the fact that the Severance & Release Agreement sure sounds like the kind of termination where somebody is being forced out, Hanmi told Forbes that Cho was going to “retire,” especially since he was getting a one-time payment of $135,000 taxable along with stock options:

http://www.forbes.com/profile/brian-e-cho/

Profile

Brian E. Cho, Executive Vice President and Chief Financial Officer, Hanmi Financial and Hanmi Bank (December 2007 to present). Executive Vice President and Chief Financial Officer, Wilshire Bancorp, Inc. (1992 to 2007). On October 11, 2011, Mr. Brian Cho, Executive Vice President and Chief Financial Officer of Hanmi Financial Corporation announced that he will retire from his positions as Executive Vice President and Chief Financial Officer of Hanmi and its wholly owned subsidiary, Hanmi Bank effective October 14, 2011.

Now, back to the timeline:

• June 12, 2013, President/CEO Jay S. Yoo, who’d been in this capacity since 2008 retires and is replaced by Chong Guk Kum (who’ll be paid $450,000 and is required by his employment contract to waive his right to sue even in the event that offenses that happen to be criminal acts under the California Labor Code are committed against him by the company). Kum had been serving as President and CEO of First California Financial Group previously since 2007

• June 26, 2013, a lawsuit is filed in Los Angeles Superior Court, Case No. BC 513584, alleging all sorts of transgressions against Hanmi by one of its business customers, including violations of the “RICO Act” (Racketeer Influenced and Corrupt Organizations Act), 18 USC 1961 et seq.

I kind of feel for Mr. Kum. What a way to get welcomed into your new position as President and CEO. You’re on the job for exactly two-weeks, fourteen whole days, and your company gets hit with a RICO suit. So what does the lawsuit allege? Here are some of the choice allegations:

Plaintiffs are informed and believe and thereon allege that Defendant, Hanmi Financial Corporation, as rated by business credit bureaus, is and has for some time been under financial stress with predictive statistics that it is in danger of becoming insolvent. Plaintiffs are further informed and believe and thereon allege that Defendant, Hanmi Financial Corporation’s financial stress indicators nave suffered an extreme downturn from an extremely high position of stability as of July 2012 to an extreme low trend that has continued unabated since February 2013 until the present.

[Well, OMG, if that's true, what are Hanmi's stockholders' going to think? Hanmi trades as HAFC on NasdaqGS, as of today at $17.97/share]

Prior to and after October 2012, while Defendants, Hanmi Financial Corporation and the Bank possessed superior knowledge. they failed to advise Plaintiffs of the warnings the Defendants had received from various sources, including, inter alia:

 

(a) FDIC Regulations Safety Manual regarding Non-Bank Financial Institutions (NBFIs), including money service businesses (MSBs);

 

(b) The FBI’s above mentioned training of Defendants’ officers in security precautions in or about August 2011; and

 

(c) The United States Treasury Department, specifically The Financial Crimes Enforcement Network’s (FinCEN) nationwide alerts to banks about the risks inherent in accepting MSBs’ tax refund checks for deposit. (Update on Tax Refund Fraud and Related Identity Theft, FIN-2013-A001, Feb. 26, 2013).

 

[That said, if true, again you've got to wonder what the company's shareholders are thinking is going on with the management and whether the changes made in top leadership will stay the course and not get them back under regulatory scrutiny]

At all times relevant herein, threatening criminal or administrative sanctions to gain collateral advantage in a civil matter under dispute is actionable as extortion under California law, pursuant to the decisions in People v. Beggs (1918) 178 Cal. 79 and Merchants Col. Agency v. Roantree (1918) 37 Cal.App. 88. In doing the acts and omissions alleged herein, Defendants, Hanmi Financial Corporation, the Bank, Min and Jung, and each of them, attempted to and did extort payments from Plaintiffs by raising the specter of criminal prosecution if she did not comply with their demands, a “RICO Predicate Act” as referred to in 18 USC 1961 (1). In doing these acts and omissions, Defendants used the pretense of acting under color of law and/or official right in implying or threatening Plaintiffs’ criminal prosecution in violation of 18 USC 1951, a RICO Predicate Act. Further, Defendants, and each of them, used unlawful threats of criminal means to harm the Plaintiffs as defined in 18 USC 891(6) and 891(7) in violation of 18 USC 892, 893 and 894.

[If this allegation is true, who was asleep at the wheel?]

Inquiring minds want to know about how banks are behaving, especially in the wake of all the financial meltdowns starting in 2008, so here’s a letter of inquiry I sent to Hanmi on June 21, 2013…..and I’m still waiting for a response (but not holding my breath at this point):

June 21, 2013

Grace Hoil Min, Sr. Vice President, Hanmi Bank

11754 E Artesia Blvd Artesia CA 90701

Dear Ms. Min:

This letter on behalf of CALLAC and NLLAC is to inquire about the above captioned matters involving Hanmi Bank’s dealings with XXXXX Check Cashing and its owner, XXXXXXXXX. We are concerned that the current attitude of your institution in taking effectively punitive and draconian credit actions to limit this business’s ability to service it’s clientele will have a disparate impact on the Latino and largely immigrant community that it serves. As an FDIC and SBA Preferred Lender, this has the appearance of running counter to the important federal policy (FDIC Policy #5000) which states in pertinent part:

Discrimination in lending on the basis of race or other prohibited factors is destructive, morally repugnant, and against the law. It prevents those who are discriminated against from enjoying the benefits of access to credit. The Agencies will not tolerate lending discrimination in any form. Further, fair lending is not inconsistent with safe and sound operations. Lenders must continue to ensure that their lending practices are consistent with safe and sound operating policies.

Please advise me at your earliest opportunity of the following:

1. Has Hanmi Bank been involved with the same or similar matters involving Korean American businesses?

2. If so, were the actions taken by Hanmi Bank to remedy these matters the same or similar to the actions it has taken in connection with XXXXXX and/or any other Latino or non-Korean-American owned business?

3. What percentage of employees of Hanmi Bank are:

(a) Korean ethnic origin

(b) Other Asian/Pacific Islander

(c) Latino

(d) Anglo-American

(e) African American

(f) Jewish ethnic origin

(g) Inter-racial and/or other

4. Do any of Hanmi Bank’s operations involve trade related business in connection with the US-Korea (“KORUS”) Free Trade Agreement?

5. Please identify the policies, procedures, guidelines, rules and regulations by which Hanmi Bank complies with:

(a) California Government Code Section 12950.1

(b) California Government Code Section 12940

(c) 42 USC 1981

(d) 18 USC 1961 et seq (the “Racketeer Influenced and Corrupt Organization Act” aka “RICO”)

(e) California Civil Code Section 51 (Unruh Civil Rights Act)

(f) California Civil Code Section 51.7 (Ralph Civil Rights Act)

(g) California Civil Code Section 52.1 (Bane Civil Rights Act)

Thanking you for your prompt attention, I remain,

Respectfully Yours, Jan B. Tucker

cc: Korean American Institute for Human Rights