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Banking Department Issues Consent Order to Cease and Desist to Chinese American Bank


State of New York Banking Department
New York, New York


In the Matter of  

CHINESE AMERICAN BANK NEW YORK, NEW YORK 


ORDER TO CEASE AND DESIST ISSUED UPON CONSENT

WHEREAS, CHINESE AMERICAN BANK, NEW YORK, NEW YORK (the “Bank”), is a New York state-chartered insured nonmember bank having its principal place of business at 77 Bowery, New York, New York 10002, and is at all times mentioned herein subject to the New York Banking Law (the “Banking Law”)and related rules and regulations promulgated thereunder; and

WHEREAS, in recognition of their common goals to ensure compliance with all applicable federal and state laws, rules and regulations by the Bank, the New York State Banking Department (the “Banking Department”) and the Bank mutually have agreed to enter into this Order to Cease and Desist Issued Upon Consent (the “Order”); and

WHEREAS, the Federal Deposit Insurance Corporation (the “FDIC”) recently engaged in a safety and soundness examination of the Bank, as of December 31, 2002 (the “December 31, 2002 Examination”); and

WHEREAS, the Federal Reserve Bank of New York and the FDIC recently engaged in a special examination of CAB Holding, LLC, the parent company of the Bank, as of June 30, 2003 (the “Special Examination”), relating to intercompany transactions and compliance with Sections 23A and 23B of the Federal Reserve Act; and

WHEREAS, as a result of the December 31, 2002 Examination and the Special Examination, the Banking Department has identified certain supervisory concerns relating to the conduct of the Bank’s business, including the following unsafe or unsound banking practices and violations:

  1. Operating the Bank in violation of Section 22(h) of the Federal Reserve Act, as amended (12 United States Code Section 375b) and Section 215.4(c) of Regulation O (“Regulation O”) (12 Code of Federal Regulations Section 215.4(c)); and 

  2. Operating the Bank in violation of Section 23A of the Federal Reserve Act, as amended (12 U.S.C. Section 371c); and

  3. Operating the Bank in violation of the legal lending limit requirements of Banking Law Section 103; and 

  4. Operating the Bank with a Board of Directors (the “Board”) which has failed to provide adequate supervision over and direction to the active management of the Bank; and

  5. Declaring a dividend, in the amount of $6,000,000, without first seeking a proper waiver from the Banking Department; and

WHEREAS, the Superintendent of Banks of the State of New York (the “Superintendent”) has determined that the Bank has failed to establish the controls necessary to ensure that the Bank operates in a safe, prudent and lawful manner; and

WHEREAS, given the foregoing, the Superintendent is concerned that the Bank has failed to conduct its operations in a safe and sound manner by failing to take appropriate steps to assure that its employees act consistently in compliance with all applicable federal and state laws and regulations; and

WHEREAS, the Superintendent possesses the authority under  Banking Law Section 39 to issue an order to the Bank to discontinue unlawful or unsafe practices; and

WHEREAS, pursuant to Banking Law Sections 39 and 44, the Superintendent is issuing this Order and assessing a monetary payment against the Bank for its apparent violation of the legal lending limit requirements of Banking Law Section 103; and

WHEREAS, the Superintendent believes that prompt enforcement action is necessary to address numerous supervisory concerns with regard to the Bank and further believes that additional enforcement action may be necessary to address any other supervisory concerns which may come to the attention of the Banking Department; and

WHEREAS, on March 16, 2004, at a duly constituted meeting, the Board adopted resolutions:

  1. Authorizing and directing Mr. Seng C. Chang, Chairman of the Board, to enter into this Order on behalf of the Bank and consenting to compliance by the Bank and each of its insiders, as defined in Part 11 of the General Regulations of the Banking Board (“Part 11”), and its successors and assigns, with each and every provision of this Order; and

  2. Waiving any and all rights that the Bank may have pursuant to Banking Law Sections 39 and 44 with respect to (1) the issuance of a notice of charges and of hearing on any matter set forth in this Order; (2) a hearing for the purpose of taking evidence on any matters set forth in this Order; (3) judicial review of this Order; and (4) the challenging or contesting of, in any manner, the basis, issuance, validity, terms, effectiveness or enforceability of this Order or any provision thereof.

NOW, THEREFORE, before the taking of any testimony or the making of any findings of fact or conclusions of law, and without this Order constituting an admission or denial of any allegation made or implied by the Banking Department in connection with this proceeding, and solely for the purpose of settlement of this proceeding without a protracted or extended hearing, and pursuant to the aforesaid resolutions:

IT IS HEREBY ORDERED that the Bank, and each of its insiders, as defined in Part 11, and its successors and assigns, shall cease and desist from committing any further violations of the nature described herein and shall take affirmative action as follows:

  1.  

  1. Within ten (10) days of the effective date of this Order, the Bank shall develop and submit a plan (the “Plan”) acceptable to the Banking Department to correct any violations of Regulation O, Section 23A of the Federal Reserve Act and the legal lending limit requirements imposed by Banking Law Section 103 and related regulations (the “State Legal Lending Limits”. 

  2. The Bank shall not engage or participate, directly or indirectly, in any violations of Regulation O, Sections 23A and 23B of the Federal Reserve Act or the State Legal Lending Limits.

  3. Within thirty (30) days from the effective date of this Order, the Bank shall submit to the Banking Department an acceptable written plan, including an acceptable amortization schedule, to correct those violations of (1) the conditions, imposed in writing in November 1998, on Dr. Huang and on CAB Holding, LLC, by the Board of Governors of the Federal Reserve System in its approval of CAB Holding’s application to acquire the Bank (the “Conditions”), (2) Section 23A of the Federal Reserve Act and (3) the legal lending limit requirements imposed by Banking Law Section 103 that occurred in connection with the loan which Dr. Huang received from the Bank in 2003 (the “2003 Loan”).

  4. The Bank shall not extend any new indebtedness to Dr Huang or to CAB Holding, LLC, prior to repayment of the full amount of the 2003 Loan and of the indebtedness incurred by CAB Holding, LLC, and CAB International Holding Limited, the latter of which borrowed funds from other financial institutions to enable CAB Holding, LLC, and Dr. Huang to purchase the Bank (the “Acquisition Indebtedness”).

  5. The Bank shall submit to the Banking Department written evidence of the actions taken to comply with the requirements of this Paragraph 1 within ten (10) days of taking such action.

  1.  

  1. The Bank shall not declare or pay any dividends without the prior written consent of the Banking Department.  Such declarations and payments are to be made solely in accordance with all applicable federal and state laws and regulations.

  2. In the event that the Bank pays dividends to CAB Holding, LLC, and, in turn, CAB Holding, LLC, pays dividends to Dr. Huang, Dr. Huang shall use all such dividend payments solely to repay the 2003 Loan and Acquisition Indebtedness, and to pay federal and state tax liabilities that will be incurred by Dr, Huang or CAB Holding, LLC, as a direct result of such dividend payments, in the following order of priority, until such indebtedness is repaid in full: (1) the 2003 Loan; (2) any indebtedness to Dr. Huang or to Dr. Huang’s related interests on the books of CAB Holding, LLC; and (3) any remaining Acquisition Indebtedness.

  1.  

  1. Within thirty (30) days from the effective date of this Order, the Bank shall develop and submit to the Banking Department for review and comment a written policy (the “Policy”) to ensure that the Bank does not engage in transactions or payment of funds which violate Regulation O, Sections 23A and 23B of the Federal Reserve Act and the State Legal Lending Limits.  Among other things, this Policy shall limit the payment of any management, consulting or other fees or funds of any nature, directly or indirectly, to or for the benefit of the Bank’s parent company, CAB Holding, LLC, Wilmington, Delaware, to only those fees or funds paid in connection with services performed by CAB Holding, LLC, on behalf of or for the benefit of the Bank. 

  2. Upon receipt and consideration of the Banking Department’s comments on the Policy submitted and reviewed pursuant to Paragraph 3(a) of this Order, the Bank shall adopt and implement the Policy within ten (10) business days of approval and note such approval in the official minute books of the Board.

  1. Within thirty (30) days from the effective date of this Order, the Board shall establish a committee comprised of Board members (the “Board Compliance Committee”) with the responsibility to ensure that the Bank complies with the provisions of this Order.  At least two-thirds of the members of the Board Compliance Committee shall be independent, outside directors.  The Board Compliance Committee shall report monthly in writing to the entire Board, and a copy of each monthly report and any discussion relating to such monthly report or to this Order shall be included in the official minute books of the Board.  Nothing contained herein shall diminish the responsibility of the entire Board to ensure compliance with all the provisions of this Order.

  2. Upon the effective date of this Order, the Bank shall send to CAB Holding, LLC, the Bank’s sole shareholder, a copy of this Order.  The Bank shall ensure that CAB Holding, LLC, shall provide written notice to the Banking Department of its receipt of the Order.

  3. The Bank hereby is assessed and shall pay to the Banking Department a monetary payment in the amount of     $5,000 pursuant to Banking Law Section 44 for the apparent violation of the legal lending limit requirements of Banking Law Section 103.  The monetary payment assessed by this Order shall be remitted in full at the time of execution of this Order by wire transfer in immediately available funds pursuant to transfer instructions received from the Banking Department.

  4. All communications regarding this Order shall be sent to:

  1. Mr. Anthony Calabrese
    Deputy Superintendent of Banks
    New York State Banking Department
    One State Street
    New York, New York  10004

  2. Mr. Seng C. Chang
    Chairman of the Board
    Chinese American Bank
    77 Bowery
    New York, New York  10002

  1. Upon the event of noncompliance with any provision of this Order, the Bank shall notify, in writing, the Banking Department within one day of such event.  Such written notification shall include a description of the event, the circumstances precipitating the event, all actions taken to correct the noncompliance and a date by which full compliance will be achieved.

  2. The provisions of this Order shall remain effective until modified, terminated or suspended in writing by the Banking Department.  Each provision of this Order shall be binding upon the Bank, its directors, officers, employees, agents, and its insiders, as defined in Part 11, and its successors and assigns.

  3. The provisions of this Order shall not bar, estop or otherwise prevent the Banking Department or any other federal or state agency or department from taking any other action affecting the Bank, or any current or former insiders, as defined in Part 11, and its successors and assigns.

  4. This Order arises out of confidential bank examinations and related communications material.  As such, its contents are subject to the New York Banking Law Section 36(10) and may not be disclosed without the prior written consent of the Banking Department.

  5. This Order shall become effective immediately upon execution by the Banking Department.

Date: March 16, 2004

By: /S/ Diana L. Taylor
Superintendent of Banks
New York State Banking Department

Date: March 16, 2004

By: /S/ Seng C. Chang
Chairman of the Board
Chinese American Bank