Banc of California Tumbles as CEO Resigns, SEC Begins Probeby and
Robert Sznewajs named chairman as team takes on CEO duties
October press release had ‘inaccurate statements,’ bank says
Banc of California Inc. tumbled the most since October after Chief Executive Officer Steven Sugarman resigned and U.S. regulators opened an investigation into whether the firm misled investors in its fight against a short seller.
A team of executives will temporarily take over Sugarman’s duties while the firm searches for a replacement, the Irvine, California-based company said Monday in a statement. Robert Sznewajs, the current chairman of the joint audit committee, was named chairman of the board.
Since Sugarman helped recapitalize the bank in 2010, the lender’s assets have soared more than 10-fold. It was riding high enough to pay $100 million for the naming rights on Los Angeles’s new soccer stadium, although shareholders raised concerns about deals that benefited his family members.
Banc of California’s stock plummetedin October after an anonymous short seller published a report alleging ties between the bank’s leadership and Jason Galanis, a California financier incarcerated in New York. The bank responded with a press release saying it was conducting an independent investigation. It now admits the statement was inaccurate and says the SEC subpoenaed related documents.
That press release, issued on Oct. 18, said the board of directors had initiated an independent investigation into the short seller’s claims, when that probe was actually directed by the company’s management. The statement also called the review “independent,” without disclosing that the law firm conducting it, Winston & Strawn LLP, had previously represented the company and Sugarman.
Shares of the company fell 9.3 percent to $14.65 at 4:15 p.m. in New York, the biggest drop since October and the worst performer in the 90-company S&P SmallCap Financials Index.
The board commissioned WilmerHale for its own independent review, and it expects a final report from the investigation “will take place within a few weeks,” according to a separate statement Monday. WilmerHale has so far found no violations of the law or any evidence that Galanis has any influence over the bank, according to the statement.
Banc of California said it intends to fully cooperate with the SEC and the board will share the results of its independent review with the agency’s staff.
Joe Hixson, a spokesman for Banc of California, declined to comment beyond Monday’s statements. David Aronoff, a Winston & Strawn attorney who’s represented Banc of California, didn’t respond to requests for comment.
Hugh Boyle, the firm’s chief risk officer, will assume the title of interim chief executive officer. Chief Financial Officer J. Francisco A. Turner will take over as interim president, Banc of California said. The board will conduct an internal and external search for Sugarman’s replacement, according to the statement.
Sugarman is a former McKinsey & Co. consultant with degrees from Dartmouth College and Yale Law School. At 42, he was the youngest CEO of a bank with a market value exceeding $500 million. He wrote a book called “The Forewarned Investor” that cautioned against companies run by family and friends, while his bank did deals that helped his brother, sister-in-law and a board member.
The company said Sugarman would get a severance package, which it will disclose later.
“I want to thank my colleagues for their loyalty and support,” Sugarman said in the statement Monday. “It has been a privilege to lead this bank through a period of unparalleled success.”