To look at its financial statements, American Commerce National Bank seemed to be a healthy community bank.

At the end of last year, its core capital stood t a hefty 7.8% of assets. And the Anaheim, Calif., bank was modestly profitable, earning 74 cents on each $100 of assets in 1992.

Then, last month, regulators seized the $139 million-asset bank.

At first blush, it appears the regulators may have moved in too quickly. Indeed, never before had they seized a bank with such a high capital ratio.

Longtime Suspicious

But the real story may be why it took regulators so long to act. It turns out that examiners from the Comptroller of the Currency had long suspected that the managers of the Anaheim bank were hiding deep problems.

Rather than being strongly capitalized, regulators now say, American Commerce was actually insolvent. They estimate its failure will cost the government $20 million.

The case of American Commerce illustrates just how cautiously regulators sometimes move after suspicions have been aroused. It also demonstrates how defiant executives and legal red tape can thwart an agency's efforts.

Although it suspected major violations of banking law as long as five years ago, the Comptroller's office felt it did not have enough proof to take strong action: It never tried to remove top management, levy financial penalties, or issue a cease-and-desist order. Meanwhile, examiners permitted American Commerce to double its loans between 1987 and 1992, to $115 million.

Say Records Were Hidden

Regulators charge that the bank's managers hid records and assets and fought corrective action at every step. They also allege that chairman and chief executive Gerald J. Garner and 12 other insiders used bank funds for personal expenses and got highly preferential treatment on loans.

Regulators also allege that Mr. Garner tampered with the loan file of his brother, Daniel, removing information about Daniel's personal bankruptcy. Daniel Garner was a senior vice president at American Commerce.

The Comptroller's office will seek to bar Gerald Garner and 12 other insiders from working in banking, said Fred Finke, deputy comptroller for special supervision. It may also seek fines. Mr. Finke said the case could be referred to the Justice Department for criminal prosecution.

Gerald Garner did not return phone calls seeking comment.

No Takeover Authority

Mr. Finke admitted the agency was extremely careful in building its case against American Commerce because it "expected to be sued" by Mr. Garner, who has been involved in multiple lawsuits.

He also noted that the Comptroller's office didn't receive the authority to take over banks with capital until December 1992, when a provision of the Federal Deposit Insurance Corporation Improvement Act of 1991 kicked in.

The most important holdup, though, was the lack of clear-cut proof, said Mr. Finke.

"We could not show that [the violations] were as serious as they were," he said. "We didn't have a complete picture. We'd ask to see a file and we'd never get a file.

"Before we can fine someone, we have to have a case we can prove," he added. "It's kind of like proving a negative."

Suspicions from Day One

According to Mr. Finke, regulators suspected American Commerce's management of concealing information almost from the day it was chartered - Feb. 29, 1984.

An examination in 1988 uncovered problems in credit quality. It also found that American Commerce's top managers were not involving the board of directors in important decisions.

Early in 1989, the Comptroller's office hit the bank with a formal enforcement action demanding that managerial problems be corrected. The bank simply ignored the order, and the agency never followed up with stronger actions.

Too Soon to Tell

The regulators returned in the summer of 1989, but Mr. Finke said it was too soon after the previous exam to tell if the bank was complying with the agency's instructions.

"As part of that '89 exam, we started to realize the information in loan files was not complete," he said.

The Comptroller's office examined the bank again in June 1990, and, Mr. Finke said, "We were concerned that maybe we weren't getting the entire picture."

He said the agency started gathering information in 1990 to oust Mr. Garner.

That August, the agency subpoenaed bank documents, mainly regarding insiders' legal bills that were allegedy paid by the bank. Among them, the agency said, were fees to lawyers who represented Mr. Garner when he was barred from practicing law in New York for allegedly using his notary powers improperly in an adoption case. The bank refused to provide the documents, so the agency sued.

Insider loans at American Commerce totaled $9.6 million when the bank was closed. Regulators found fault with more than $5 million of them.

Regulators questioned other activities, including the practice of having a chauffeured limousine on call at the bank's one branch.

Formal Investigation Launched

In mid-1991, as the courts were considering the subpoena request, the Comptroller's office launched a formal investigation of American Commerce seeking information missing from loan files. Employees and customers were interviewed about the bank's operations. Although the bank was reporting profits, the level of problem assets doubled from 1991 to 1992. By yearend 1992, nonperforming assets totaled a sizable 72% of core capital and reserves.

In the fall of 1991, the agency began another exam of American Commerce. By the next summer, the investigation was expanded. That September, the agency persuaded an appeals court to order American Commerce to release the information. It finally got the documents earlier this year, Mr. Finke said.

"It takes two years to be able to get the final court order -- of course, that's to much time, but it's just part of the process," he said.

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