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Independence Bank Will Force Out Owner Accused of Fronting for BCCI

October 17, 1991

LOS ANGELES (AP) _ Independence Bank, struggling to recover from the Bank of Credit and Commerce International scandal, wants to force the bank’s owner of record - reputed BCCI front man Ghaith Pharaon - to forfeit his shares.

The tactic, employing a rarely used section of California law, is a necessary first step if the troubled bank is to raise enough capital to avoid insolvency, Independence Chairman Fulvio Dobrich said Thursday in a telephone interview.

State regulators have told Independence that it must raise a minimum of $27 million to comply with its requirement for net worth, Dobrich said.

The first step towards raising capital is forcing Pharaon to forfeit his shares, Dobrich said.

″It’s important to any number of people who have shown interest in pursuing discussions about investing in the bank,″ he said.

Dobrich said those investors will never move as long as there is any doubt about whether BCCI, through Pharoan, still controls Independence. Though Pharoan is nominally the 100 percent shareholder, the Federal Reserve has charged BCCI controls 85 percent of the bank.

″This is part of our strategy to disassociate ourselves with the existing shareholder,″ said Dobrich. He was hired to head Independence in 1989, four years after Pharoan bought the small community bank based in Encino, a section of Los Angeles.

Under California law, shareholders of a state bank can be asked to contribute more capital or risk losing their shares. If forfeited, the shares are publicly auctioned off.

Based on that provision, Pharaon’s shares will be auctioned off on Monday, Dobrich said. He was first quoted on the matter in Thursday’s editions of the Los Angeles Daily News.

Dobrich said he does not expect a Pharoan representative to attend. The Federal Reserve would prevent Pharoan, a wealthy Saudi with powerful U.S. political connections, from recapitalizing the bank even if he wished to do so, Dobrich said.

Pharoan attorney Richard Lawler of New York did not immediately return a telephone call.

If no bidder comes forward, the shares are turned over to the bank or bank holding company. Dobrich said he doesn’t expect any immediate bids. Rather, the auction is a first step toward a sale, he said.

Ghaith Pharoan bought Independence in 1985 for $23 million, but according to the Federal Reserve was a front man for BCCI from the beginning.

Independence was one of four U.S. financial institutions secretly taken over by the international rogue bank, which is accused of billions of dollars in international fraud, laundering drug profits and bankrolling terrorists.

Under BCCI’s ownership, Independence grew rapidly. But it also ran up big losses by investing directly in real estate. That reduced the bank’s net worth, or cushion against loss, and it is now in danger of being seized by regulators.

The negative publicity about BCCI has all but ruined the chances of raising new capital unless all questions of ownership can be put aside, Dobrich said.

The bad publicity about BCCI and capital problems has caused other problems. ″The first thing people do when they read something like that is stop paying their loans,″ Dobrich said.

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