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Sonoma Valley Bank's downfall
Community bank's collapse can be traced to series of large, risky loans to developers with previous defaults

  • Chad Empey checks for tenants in condos he once owned in the foreclosed Park Lane Villas on Sebastopol Road. Empey, a glass contractor, testified last year that Marin County developer Bijan Madjlessi bought two Park Lane condos in Empey's name in an effort to defraud banks. (JOHN BURGESS / The Press Democrat)

CORRECTION: February 4, 2011

A previous version of this story and photo caption incorrectly described Chad Empey as current owner of two condominium units in Park Lane Villas. He lost the units to foreclosure in 2009, and developer Bijan Madjlessi is not currently collecting rent on Empey's behalf. Empey testified in U.S. Bankruptcy Court that Madjlessi had made mortgage payments on the condos, rented them out and collected rent when Empey was the owner of record.

The story also imprecisely referred to loans for the Sonoma Storage Emporium and Petaluma Greenbriar projects. The loans were made to entities operated by Madjlessi and developer Glenn Larsen.

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The collapse of Sonoma Valley Bank is now under federal investigation amid allegations of fraud, negligence and loose lending practices.

A wide range of federal agencies, including the Federal Bureau of Investigation, the Internal Revenue Service and the Treasury Department, are jointly investigating the bank and its loans, according to sources.

Regulators seized the community bank in August, eight months after discovering bank officials had provided financial statements that did not disclose nearly $15 million in bad loans.

At the center of the bank's downfall is a series of large loans made to a small group of North Bay developers who were behind three Sonoma County projects that fell into foreclosure over the past few years.

The bank continued to fund the projects even after it became public in land records and lawsuits that the developers were defaulting on multimillion-dollar loans from other banks and were not paying construction contractors.

Regulators seized the bank and its three branches in the Sonoma Valley because not enough money had been reserved to weather the recession, making it the only Sonoma County financial institution to fail during the extended economic slump.

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