WASHINGTON – In the sixth bank failure this year, Hawaii regulators on Friday closed the troubled Bank of Honolulu, and immediately sold most of its $66.9 million of assets.

Though regulators had not yet released a detailed explanation of why they closed the bank, it had operated under a cease and desist order by the Federal Deposit Insurance Corp. for nearly two years.

The agency cited it in December 1998 for inadequate management, insufficient equity capital, bad loans, and lax collection practices. An FDIC spokesman said Saturday that the order had never been lifted.

Furthermore, the bank’s former chief executive officer and majority stockholder, Sukamto Sia, was arrested at gunpoint by Federal Bureau of Investigation agents in August this year, and indicted by a federal grand jury on fraud charges stemming from a $300 million personal bankruptcy case, the Los Angeles Times and Honolulu Advertiser have reported.

Authorities accused Mr. Sia of hiding assets prior to filing for bankruptcy to undervalue his true financial condition. News reports said that Mr. Sia filed for bankruptcy in November 1998 after being charged in Las Vegas with writing $8 million worth of bad checks to casinos.

An FDIC spokesman said the agency had suspended Mr. Sia from all bank activities in January this year, but news reports said he still maintained a majority interest in the institution.

“The closing is very unfortunate and an isolated case which does not reflect on the health of other financial institutions,” Hawaii Banking Commissioner Lynn Wakatsuki said in a statement.

The FDIC estimated the failure would cost the Bank Insurance Fund approximately $2.5 million. This is the fifth BIF-insured failure this year, and the second in the past two weeks.

The bank’s three offices were reopened on Saturday as branches of San Francisco-based Bank of the Orient, which paid $1 million for $57.3 million of insured deposits. The Bank of the Orient also purchased approximately $52.2 million of the failed bank’s assets for $855,000. The California bank has a 30-day exclusive purchase option on another $9.3 million of assets, the FDIC said.

The FDIC decided to pay uninsured depositors 65% of their verifiable claims. The payment is based on anticipated recoveries from the sale of assets, the agency said.

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