Banc of California Drops Amid Accusations From Short Seller

  • Firm says con man’s claims of ties to directors ‘fraudulent’
  • Anonymous short seller published report containing allegations

Banc of California, the lender that’s paying $100 million to sponsor a soccer stadium, plummeted after Seeking Alpha published an anonymous short seller’s report alleging ties between the bank’s leadership and an imprisoned con man.

The stock dropped 29 percent to $11.26 in New York, the most since 2002 and the worst performance in the Russell 3000 Index. A short seller using the name Aurelius wrote a post Tuesday calling the bank “un-investible" because of the alleged ties to Jason Galanis, a California financier incarcerated at New York’s Metropolitan Correctional Center.

Banc of California said in a statement that it was aware Galanis had indicated he has an affiliation with its leadership. The board ordered an independent investigation led by law firm Winston & Strawn, and has been getting briefings over the past year. The lender said a Department of Justice complaint “clearly states” that Galanis’s description of a link was “fraudulent.”

Short sellers have been betting against the bank, with short interest almost doubling since August to about 9 percent of shares outstanding, according to Markit data. The stock has declined 23 percent this year.

Since Chief Executive Officer Steven Sugarman helped recapitalize the bank in 2010, its assets have soared more than tenfold to $10.2 billion as of midyear, making it the fastest-growing publicly traded U.S. lender. It is riding high enough to pay $100 million for the naming rights on Los Angeles’s new soccer stadium, one of the richest prices ever in Major League Soccer. Its market-beating returns have come despite concerns raised about deals benefiting Sugarman’s family and board members.

Short Seller

The short seller’s report alleges ties between Banc of California’s directors and Galanis, who pleaded guilty in July to manipulating markets and said he’s innocent of separate charges that he stole money raised by selling bonds on behalf of an American Indian tribe. Bloomberg reported in September that Sugarman’s brother Jason and Hugh Dunkerley, a director at one of Steven Sugarman’s personal holding companies until last year, had both worked for companies controlled by Galanis.

Court documents cited by the short seller show that Galanis claimed in an e-mail to have ties to Sugarman’s holding company and asked a business partner to use them as evidence of his financial strength. An FBI agent said in a separate court filing that some or all of the claims were false.

The Sugarmans weren’t accused by prosecutors of any involvement in Galanis’s alleged scam, and Steven Sugarman said last month that his company had no role.

— With assistance by Joshua Fineman

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