“Throughout history, con artists repeatedly have found their way to positions of great power at large, public top companies”
-Steven Sugarman in The Forewarned Investor, a treatise on identifying corporate fraud
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We believe that Banc of California (NYSE:BANC) deceived investors in both its most recently filed 8-k with the SEC and public conference call. Under the false guise of “Independence”, BANC hired Winston & Strawn, defense counsel to both COR and Steven Sugarman (personally) with leading the long-running and previously undisclosed internal investigation into “potential impropriety” involving COR, BANC executives, and Jason Galanis. In our opinion, the company’s statements to investors concerning the independence of the investigation are materially false and cast doubt on every aspect of the company’s public statements regarding Jason Galanis.
We re-iterate our research conclusions which rely on publicly obtained documents that indisputably demonstrate ties between BANC’s senior leadership and Jason Galanis. While failing to address the vast majority of our report, BANC has confused investors by mis-characterizing the declaration of an FBI agent which merely demonstrates that an unnamed COR Capital representative made statements to the FBI denying ties to Galanis and entities he controlled.
Numerous research findings directly contradict COR Capital’s statement to the FBI as well as BANC’s contention that COR had no “entanglements” with Galanis controlled entities. Undisclosed litigation documents filed by the very firm leading BANC’s independent investigation show that Steven Sugarman’s COR made a convertible debt investment in Burnham Financial alongside COR Fund Advisors, an entity controlled by Galanis and named in BANC’s retraction demand to Seeking Alpha.
We demand that Banc of California immediately retract its censorship demands against Seeking Alpha and abandon its attempts to infringe on our protected first amendment rights to publish critical research opinions.
We will soon release thousands of pages of our source materials at www.bancexposed.com; we demand that BANC and Steven Sugarman join our efforts in providing the disclosure and documentation it has thus far failed to provide investors and taxpayers.
Earlier this week, we released a detailed research report that exposed extensive and indisputable ties between Banc of California’s leadership team and a notorious criminal, Jason Galanis. The myriad of publicly sourced documents we shared in our report speak for themselves and wholly support our research conclusions.
After our report was published, a lawyer representing Banc of California, David L. Aronoff from Winston & Strawn LLP, sent a letter to Seeking Alpha demanding an immediate retraction of our research report. In the letter, Banc of California claimed that our report purportedly contains “numerous false statements, lies and fabrications” and threatened legal action. In making overt threats against its critics, Banc of California has chosen to follow the failed path of Gerova Financial, a NYSE-listed financial institution that attempted to conceal a massive fraud by aggressively pursuing the research firm that exposed the company’s secret ties to Galanis.
BANC’s Purportedly “Independent” Investigation
The company has publicly stated in an SEC filing that Winston & Strawn is leading BANC’s previously secret “independent” investigation into “potential impropriety” related to Galanis. The only Winston & Strawn lawyer that has been publicly identified is David L. Aronoff, the attorney who sent the retraction demand to Seeking Alpha.
Banc of Calfornia’s website specifically highlights Mr. Aronoff and Winston & Strawn as an example of a California entrepreneur “who we serve.” The profile of the purportedly independent Mr. Aronoff calls Banc of California “my bank” and states that “I’m constantly impressed with Banc of California.”
On the company’s conference call, BANC’s General Counsel made brief comments on Winston & Strawn’s ongoing independent investigation initiated by unnamed Directors:
The Board of Directors determined to retain outside counsel to independently investigate the matters raised and report any information that might indicate the possible existence of any potential impropriety. The results of that investigation, which has continued over the course of more than a year, failed to disclose any ownership interest by Galanis in the company or the Bank, and affirmatively confirmed that he exercised no direct or indirect control over the company or the Bank or any entity owned or affiliated with Steven Sugarman or any other member of the Board of Directors.
In trumpeting the results of this purportedly independent investigation, BANC also failed to disclose to investors that Mr. Aronoff and Winston & Strawn have long acted as defense counsel for both Steven Sugarman and COR. Mr. Aronoff, for example, is currently representing COR Securities Holdings in a matter against Burnham, a party to the internal investigation. He has also defended Steven Sugarman personally against claims asserted by a judicially-recognized whistleblower alleging that COR Clearing engaged in significant anti-money laundering violations and that Steven Sugarman allegedly engaged in “abusive behavior” towards the whistleblower.
Mr. Aronoff also defended Sugarman family members against previously undisclosed civil fraud allegations as well as attempts by a civil receiver to recover alleged “net winnings” paid to the Sugarman family from the Westmoore Ponzi scheme. In short, the company has tasked Winston & Strawn, Steven Sugarman’s personal legal defense firm and a client of the bank, with independently investigating Mr. Sugarman’s own conduct regarding Galanis.
As a result, it comes as no surprise that, according to BANC’s General counsel, Winston & Strawn has exonerated BANC’s leadership of any wrongdoing thus far. In falsely presenting Winston & Strawn’s investigation to investors as independent, we believe that the company deceived investors in both its recent 8-k and its public conference call. This, in our opinion, casts doubt on every aspect of the company’s public statements regarding Jason Galanis.
Cases that Mr. Aronoff and Winston & Strawn have served as counsel include:
1) Bussing v. COR Clearing (8:12-cv-00238-JMG-CRZ)
In 2014, Mr. Aronoff represented Steven Sugarman personally against allegations made by a judicially-recognized whistleblower.
2) COR Securities Holdings, Inc V. Burnham Financial Group. Los Angeles Superior Court Case No. BC 605755.
Mr. Aronoff represented COR Securities Holdings in recent litigation to recover its convertible investment in Burnham Financial. This means that Mr. Aronoff was actively engaged in litigation with parties his firm was tasked with independently investigating. More importantly, COR’s own lawsuit demonstrates that Steven Sugarman’s firm made an investment in Burnham Financial alongside COR Fund Advisors, an entity controlled by Jason Galanis.
Mr. Aronoff’s assertion in BANC’s retraction demand that Galanis entities, including Burnham, had no “entanglements” with COR are rendered false by documents provided by Mr. Aronoff himself pursuant to this case.
Furthermore, documents in the suit include a sworn declaration from COR Clearing’s Carlos Salas (who also recently became BANC’s undisclosed “Chief of Staff”) attesting to his knowledge of the convertible note issued to Burnham.
3) David Gill v. et al 8:12-cv-02236-AG-JPR
In 2012, Mr. Aronoff defended Sugarman Family Partners LP (owned by Steven Sugarman’s father) against attempts by the receiver to collect “net winnings” that the Westmoore Ponzi Scheme allegedly paid on Mr. Sugarman’s loan to Westmoore (the suit was settled in late 2014).
While neither Steven Sugarman or Jason Sugarman were named in the Westmoore complaint or accused of any wrongdoing, we discovered that Steven Sugarman has not disclosed that both he and his wife held real estate licenses at Westmoore Realty. Westmoore Realty is included as an entity subject to the Ponzi scheme receivership efforts.
As part of the receiver’s litigation, Matthew Jennings, the head of the ponzi scheme, made a 2014 court declaration. Discussing his relationship with Jason Sugarman, Mr. Jennings states that “we were so close that I named Jason Sugarman to the Board of Directors of at least one Westmoore Company”.
4) Gottex Fund Management Ltd v. MKA (8:13-cv-00922-AG-JPR)
In 2013, Mr. Aronoff represented entities affiliated with MKA Capital as well as Jason & Elizabeth Sugarman against civil fraud allegations.
We Reiterate Our Research Conclusion That Jason Galanis Gained Control Of COR
BANC has failed to address the vast majority of our research report. We believe that is because the ties between BANC’s senior-most officers and board members and Jason Galanis are indisputable and evidenced by documents that speak for themselves.
In recent days, BANC has mis-characterized a short section of an FBI agent’s lengthy declaration made pursuant to the tribal bond criminal indictment. BANC’s attorneys have used this text to confuse investors in an attempt to refute our research conclusion that Jason Galanis gained control of COR.
In BANC’s retraction demand, David L. Aronoff, claims that his undisclosed client, COR, “had no involvement with the allegations surrounding Jason Galanis.” In support of this, Mr. Aronoff highlights the following two paragraphs of the FBI agent’s declaration:
40. Based on my conversations with a representative of COR Capital, I have learned that, contrary to the representations made in the June 3, 2014 email sent by JASON GALANIS, the defendant, to MICHELLE MORTON, the defendant, (referenced in paragraph 39c above), Burnham, CORFA and Wealth-Assurance AG were not affiliates of COR Capital.
41. Based on my review of documents, I have learned that on June 3, 2014, JASON GALANIS, the defendant, sent an email to BEVAN COONEY, the defendant, which forwarded the email JASON GALANIS sent to MICHELLE MORTON, the defendant, earlier that same day, attaching the description of COR Capital which fraudulently asserted that certain entities were affiliates of COR Capital. In JASON GALANIS’S email to COONEY, JASON GALANIS wrote “whoring it out shamelessly[.] thank you [first name of COR Capital representative.]”
BANC contends that this section “clarifies that Galanis had in fact lied about his connection to COR Capital, and that no such entanglements actually existed.” The problem with Mr. Aronoff and BANC’s logic is that the FBI agent clearly states that his declaration is based on a conversation with a representative with COR Capital.
In our opinion, this text merely demonstrates that an unnamed COR Capital representative made statements to the FBI denying ties to Galanis and entities he controlled. Given that Mr. Aronoff is COR’s counsel, we believe his use of COR’s comments to refute our conclusions render the bank’s response meaningless and act to further highlight the conflicts of interest in the independent investigation.
COR Capital’s conversation with the FBI directly contradicts the documented facts presented in our report. For example, the COR representative’s contention that Wealth-Assurance AG (Valor’s primary subsidiary) was not an affiliate of COR Capital is wholly refuted by numerous data points:
- Wealth Assurance AG’s current website includes a press release naming COR Capital as its owner;
- COR’s deleted website specifically named Wealth-Assurance AG as a company that COR was a principal investor;
- Valor, the parent company of Wealth-Assurance AG, lists COR as its owner in a company factsheet;
- Valorlife’s website, a Valor subsidiary, currently lists COR as its owner on its current website;
- Valor was incorporated by Hugh Dunkerley while he was an executive at COR;
- An SEC filings names Jason Sugarman (a paid BANC consultant) as the “Founder, Chairman & CEO of Valor.” Mr. Sugarman’s Linkedin Profile has been deleted and his biography at Merriman Capital has recently been password protected;
- Mr. Sugarman’s fellow Valor board member is Rory Knight, who was a former Gerova Financial board member. Mr. Knight has been deleted from Valor’s website.
- Both the FBI and SEC depict Valor as being integral to the Tribal bonds fraud and controlled by Galanis.
As a result, we continue to question how Jason Galanis could control an offshore insurance company, Valor, that was simultaneously owned by COR and managed by Jason Sugarman?
Our analysis of the facts continues to be that Jason Galanis controlled COR.
If BANC wants to contest this conclusion further, it should simply provide transparency to investors by releasing the supporting documentation that we demand below. Provided that unnamed “disinterested” board members have spent over a year investigating these matters, documentation should be easily accomodated.
We Demand that Banc of California Joins Us In Releasing Documents To Investors And Taxpayers
In its SEC filed 8-k dated October 18th, Banc of California announced that the board had already “been aware of matters relating to Jason Galanis” and that “Disinterested Directors” had “immediately initiated a thorough independent investigation” that remains ongoing. In brief comments on the call, BANC’s general counsel stated that the investigation began in 2015, which means that the company concealed an obviously material internal investigation into associations with a convicted fraudster for roughly a year. When specifically asked, Steven Sugarman failed to even name the supposedly “disinterested” directors involved in the investigation. In fact, BANC provided investors with almost no explanatory disclosure and dismissed legitimate analyst questions for transparency with the General Counsel’s refrain of “We will not discuss Galanis.”
Our research conclusions are supported by hundreds, if not thousands, of publicly obtained documents. By contrast, the company publicly declared us liars while simultaneously refusing to provide even basic disclosure regarding its long-running and “thorough” internal Galanis investigation to its investors. As a heavily regulated and taxpayer guaranteed financial institution, this is simply unacceptable.
That is why we will soon be releasing thousands of pages of our source materials to the public. We will post these publicly obtained documents on www.bancexposed.com on Monday, October 24th. We believe these documents contain additional research findings, and we invite investors to download our source materials and come to their own conclusions.
Similarly, we demand that the bank and Steven Sugarman publicly release documents and disclosures to back up the bank’s claims and offer transparency to investors and taxpayers. Given that BANC has been investigating these matters for roughly a year, our requests should be easily accomodated.
Below is a list of requested documents, questions, and disclosures:
- Attestations from all of BANC’s senior officers and directors affirmatively describing any meetings or communications with Jason Galanis, John Galanis, and/or their indicted associates.
- Attestations from all senior officers and directors regarding their awareness of Jason Galanis and Hugh Dunkerley’s claimed physical presence inside the same building as BANC’s headquarters.
- The date BANC was made aware of potential ties to Galanis and the date BANC initiated the independent investigation.
- The names of each “disinterested” board member.
- How BANC made the determination that Winston & Strawn was independent.
- We also encourage Winston & Strawn to contact the SEC’s staff to advise it of that law firm’s interpretation of the word “independent” as reflected in the recent BANC filing with the SEC. This would be an important point for the SEC staff to know since it is at variance with the use of the word “independent” by other speakers of the English language.
- Any interim or final reports made pursuant BANC’s internal investigation of “potential impropriety” related to Galanis.
- Have BANC, COR, and affiliated persons received subpoenas or informal requests for documents or testimony from any federal regulatory or law enforcement agency? If so, what specific documents did BANC and COR provide and who has given testimony?
- An ownership chart naming the portfolio companies owned by COR Capital and its affiliates.
- All documentation pertaining to COR Capital (and its affiliates) relationship with Valor Group, Wealth Assurance AG, and Thorsdale.
- An explanation as to why COR Capital has deleted its websites.
- An ownership list of all beneficial owners of COR Capital and its affiliates.
- A full list of all beneficial debt and equity holders of CS Financial prior to BANC’s formal acquisition.
- A list of all loans and/or investments made by Camden Capital to BANC insiders, affiliates, and Jason Galanis. Have these activities been disclosed to regulators?
Disclosure: I am/we are short BANC.