Skip to main content

Former Bank Exec Sentenced To Eight Years In Bailout Fraud Case

  • Author:
  • Updated:

Ebrahim Shabudin was sentenced to 97 months in prison on Sept. 1 for his role as a main perpetrator in a securities fraud scheme that exacerbated the decline of United Commercial Bank (UCB) during the 2008 economic collapse.

Shabudin was found guilty of lying to auditors about the value of the collateral UCB put up to receive government loans, Reuters reported. He allegedly inflated the value of the collateral, and was sentenced to the 97 months in prison at a federal court in Oakland, California.

During 2008 and 2009, Shabudin held the title of Chief Operating Officer, making him the second most senior officer in executive management behind CEO Tommy Wu, according to the Justice Department’s report on the case.

Less than a year after the federal government provided UCB with a $300 million taxpayer bailout, the bank used up all the cash and became the first bank to receive government bailout funds and fail during the financial collapse, the Washington Post noted. The Post also reported than UCB was the ninth-largest bank to fail since 2007 and cost taxpayers $675 million altogether.

In their research, investigators uncovered incriminating details from Shabudin’s work practices that contributed to the bank’s demise. For example, Shabudin reportedly falsified financial records to keep major loan losses hidden from potential investors and auditors.

Considered “one of the most significant prosecutions” by lead investigators and lawyers, Shabudin was initially convicted in March of seven counts of conspiracy and corporate fraud.

“Shabudin had every opportunity to do the right thing, but he was motivated instead to preserve the bank’s reputation at all costs, even if it meant committing a crime,” Christy Goldsmith Romero, the special inspector general of the Troubled Asset Relief Program, said about the conviction. “He was essentially gambling with taxpayers’ bailout dollars, and it was taxpayers who ultimately lost.”

UCB grew quickly through real estate loans and high risk lending practices. The bank’s lending portfolio doubled in a three-year period from 2004 to 2007. Moreover, UCB became the first American financial institution to by a Chinese bank.

As the bank began to suffer, Shabudin and Wu both told employees to understate the bank’s major losses by at least $65 million and lied about the company’s growth in press releases and annual reports.

Wu faces a civil lawsuit, but was never criminally charged for his role in the bank’s collapse. Other former bank executives testified against Shabudin and pleaded guilty to their charges.

Sources: The Washington Post, U.S. Department of Justice, Reuters

Photo Credit: Wikimedia Commons/Dietmar Rabich, Wikipedia CC/Vlad Lazarenko


Popular Video