Regulators File New Charges Against Knapp

The Securities and Exchange Commission has filed charges against Charles W. Knapp and some of his former business associates, accusing them of taking part in a fraudulent scheme to raise money in the securities market for a Beverly Hills-based bank that eventually failed.

The SEC action, filed Monday, was announced Tuesday as Knapp was being sentenced to 6 1/2 years in prison by a Los Angeles federal court for his role in defrauding an Arizona savings and loan.

According to the SEC complaint, Knapp and three others helped Los Angeles banker Leonard Sands execute a complex plan in 1987 to make Sands’ First Pacific Bancorp look healthier than it was.

Attorneys representing Sands were not available for comment. Knapp said he could not comment because he was unaware of the lawsuit.

State banking regulators ultimately closed FPB’s operating subsidiary, First Pacific Bank of Beverly Hills, in 1990 after determining that its capital had been exhausted by loan losses and operating expenses.

The SEC’s lawsuit claims Sands raised $500,000 through an initial public offering of Pacven, a shell company he controlled. He then transferred the cash to Knapp, who invested the money in another public offering by First Pacific Bancorp, which Sands also controlled.

At the time of Knapp’s investment, FPB’s offering was in danger of being canceled because it had not raised its preset minimum of $1.5 million. But Knapp’s investment, coupled with $1 million Sands borrowed and used to buy FPB securities, allowed the holding company to meet its goal and keep about $188,000 that had already been raised from other investors, the SEC said.

The suit asks that Sands pay the government $688,000, which would then be used to reimburse investors who lost money in the two offerings.