Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 1 of 29 Page ID #:1
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`GLANCY PRONGAY & MURRAY LLP
`Lionel Z. Glancy (#134180)
`Robert V. Prongay (#270796)
`Lesley F. Portnoy (#304851)
`Charles H. Linehan (#307439)
`1925 Century Park East, Suite 2100
`Los Angeles, California 90067
`Telephone: (310) 201-9150
`Facsimile: (310) 201-9160
`Email: rprongay@glancylaw.com
` info@glancylaw.com
`
`
`Attorneys for Plaintiff
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`FERNANDO X. GARCIA,
`Individually and on Behalf of All
`Others Similarly Situated,
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`
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`BANC OF CALIFORNIA, INC.,
`STEVEN A. SUGARMAN,
`RONALD J. NICOLAS, JR., and
`JAMES J. MCKINNEY,
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`v.
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` Case No.:
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`CLASS ACTION COMPLAINT
`FOR VIOLATIONS OF THE
`FEDERAL SECURITIES LAWS
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`JURY TRIAL DEMANDED
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`Plaintiff,
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`Defendants.
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`CLASS ACTION COMPLAINT
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 2 of 29 Page ID #:2
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`Plaintiff Fernando X. Garcia (“Plaintiff”), by and through his attorneys,
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`alleges the following upon information and belief, except as to those allegations
`concerning Plaintiff, which are alleged upon personal knowledge. Plaintiff’s
`information and belief is based upon, among other things, his counsel’s
`investigation, which includes without limitation: (a) review and analysis of
`regulatory filings made by Banc of California, Inc. (“Banc of California” or the
`“Company”), with the United States (“U.S.”) Securities and Exchange Commission
`(“SEC”); (b) review and analysis of press releases and media reports issued by and
`disseminated by Banc of California; and (c) review of other publicly available
`information concerning Banc of California.
`NATURE OF THE ACTION AND OVERVIEW
`1.
`This is a class action on behalf of persons and entities that acquired
`Banc of California securities between October 29, 2015, and January 20, 2017,
`inclusive (the “Class Period”), against Defendants,1 seeking to pursue remedies
`under the Securities Exchange Act of 1934 (the “Exchange Act”).
`2.
`Banc of California is purportedly a financial holding company
`regulated by the Federal Reserve Board that serves California’s private businesses
`and entrepreneurs. The Company claims to offer a variety of financial products,
`including both deposit products offered through multiple channels that include retail
`banking, business banking, and private banking; and lending products including
`residential mortgage lending, commercial lending, commercial real estate lending,
`multifamily lending, and specialty lending including Small Business Administration
`lending, commercial specialty finance, and construction lending.
`3.
`On October 18, 2016, a SeekingAlpha.com contributor with the user
`name “Aurelius” published an article on SeekingAlpha.com entitled “BANC:
`Extensive Ties To Notorious Fraudster Jason Galanis Make Shares Un-Investible.”
`
`1 “Defendants” refers collectively to Banc of California, Steven A. Sugarman,
`Ronald J. Nicolas, Jr., and James J. McKinney.
`CLASS ACTION COMPLAINT
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 3 of 29 Page ID #:3
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`The article alleged that Banc of California’s senior-most officers and board
`members had ties to Jason Galanis (“Galanis”), who the article claims has “long
`history of secretly gaining control of banks and public companies via front men,
`looting assets, and leaving unsuspecting investors and taxpayers with hundreds of
`millions in losses.” The article’s summary of key research conclusions alleged that:
`(1) Galanis Controlled COR Capital, Banc of California’s founding shareholder; (2)
`an off-balance sheet lender Controlled by Banc of California’s senior-most officers
`financed Galanis; (3) Banc of California’s lead “independent” director, Chad
`Brownstein, has strong ties to Galanis; and (4) there are parallels between Gerova
`Financial (which the article alleges was a financial institution that collapsed on the
`revelation of Galanis’ secret control) and Banc of California.
`4.
`On this news, Banc of California’s stock price fell $4.61 per share, or
`29%, to close at $11.26 per share on October 18, 2016, on unusually heavy trading
`volume.
`5.
`On January 23, 2017, Banc of California announced its CEO
`resignation and that the United States Securities and Exchange Commission had
`opened an investigation into whether the Company had misled investors in its
`response to the October 2016 Seeking alpha report.
`6.
`On this news the Company’s shares fell $1.50 per share, or nearly 10%,
`to close on January 23, 2017 at $14.65 per share, on unusually high volume of over
`6 million shares.
`7.
`Throughout the Class Period, Defendants made false and/or misleading
`statements, as well as failed to disclose material adverse facts about the Company’s
`business, operations, and prospects. Specifically, Defendants made false and/or
`misleading statements and/or failed to disclose: (1) that the Company had extensive
`ties to Galanis; (2) that, given Galanis’ history, the Company’s ties to Galanis
`created substantial regulatory risk; (3) that revelation of Galanis’ ties to the
`Company could cause a substantial decline in the market price of the Company’s
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 4 of 29 Page ID #:4
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`securities; (4) that the Company’s communications to investors regarding the
`Seeking Alpha investigation was misleading; and (5) that, as a result of the
`foregoing, Defendants’ positive statements about Banc of California’s business,
`operations, and prospects, were false and misleading and/or lacked a reasonable
`basis.
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`8.
`As a result of Defendants’ wrongful acts and omissions, and the
`precipitous decline in the market value of the Company’s securities, Plaintiff and
`other Class members have suffered significant losses and damages.
`JURISDICTION AND VENUE
`9.
`The claims asserted herein arise under Sections 10(b) and 20(a) of the
`Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated
`thereunder by the SEC (17 C.F.R. § 240.10b-5).
`10. This Court has jurisdiction over the subject matter of this action
`pursuant to 28 U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C. §
`78aa).
`11. Venue is proper in this Judicial District pursuant to 28 U.S.C. §
`1391(b) and Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)). Substantial acts
`in furtherance of the alleged fraud or the effects of the fraud have occurred in this
`Judicial District. Many of the acts charged herein, including the dissemination of
`materially false and/or misleading information, occurred in substantial part in this
`Judicial District. In addition, the Company’s headquarters are located in this
`Judicial District.
`12.
`In connection with the acts, transactions, and conduct alleged herein,
`Defendants directly and indirectly used the means and instrumentalities of interstate
`commerce, including the United States mail, interstate telephone communications,
`and the facilities of a national securities exchange.
`PARTIES
`13. Plaintiff, as set forth in the accompanying certification, incorporated by
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 5 of 29 Page ID #:5
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`reference herein, purchased Banc of California securities during the Class Period,
`and suffered damages as a result of the federal securities law violations and false
`and/or misleading statements and/or material omissions alleged herein.
`14. Defendant Banc of California, Inc. is a Maryland corporation with its
`principal executive offices located at 18500 Van Karman Avenue, Suite 1100,
`Irvine, California. During the Class Period, the Company’s common stock traded
`on the New York Stock Exchange (the “NYSE”) under the symbol “BANC.”
`15. Defendant Steven A. Sugarman (“Sugarman”) was, at all relevant
`times, the Chairman, President, and Chief Executive Officer (“CEO”) of Banc of
`California until his abrupt resignation announced on January 23, 2017.
`16. Defendant Ronald J. Nicolas, Jr. (“Nicolas”) was the Executive Vice
`President and Chief Financial Officer (“CFO”) of Banc of California until
`November 10, 2015.
`17. Defendant James J. McKinney (“McKinney”) was, at all relevant times,
`the Executive Vice President and Chief Accounting Officer (“CAO”) of Banc of
`California until November 18, 2016.
`18. Defendants Sugarman, Nicolas and McKinney are collectively referred
`to hereinafter as the “Individual Defendants.” The Individual Defendants, because
`of their positions with the Company, possessed the power and authority to control
`the contents of Banc of California’s reports to the SEC, press releases and
`presentations to securities analysts, money and portfolio managers and institutional
`investors, i.e., the market. Each defendant was provided with copies of the
`Company’s reports and press releases alleged herein to be misleading prior to, or
`shortly after, their issuance and had the ability and opportunity to prevent their
`issuance or cause them to be corrected. Because of their positions and access to
`material non-public information available to them, each of these defendants knew
`that the adverse facts specified herein had not been disclosed to, and were being
`concealed from, the public, and that the positive representations which were being
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 6 of 29 Page ID #:6
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`made were then materially false and/or misleading. The Individual Defendants are
`liable for the false statements pleaded herein, as those statements were each “group-
`published” information, the result of the collective actions of the Individual
`Defendants.
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`SUBSTANTIVE ALLEGATIONS
`19. Banc of California is purportedly a financial holding company
`regulated by the Federal Reserve Board that serves California’s private businesses
`and entrepreneurs. The Company claims to offer a variety of financial products,
`including both deposit products offered through multiple channels that include retail
`banking, business banking, and private banking; and lending products including
`residential mortgage lending, commercial lending, commercial real estate lending,
`multifamily lending, and specialty lending including Small Business Administration
`lending, commercial specialty finance, and construction lending.
`Materially False and Misleading
`Statements Issued During the Class Period
`20. The Class Period begins on October 29, 2015. On that day, Banc of
`California issued a press release entitled “Banc of California Reports Third Quarter
`Earnings.” Therein, the Company, in relevant part, stated:
`IRVINE, Calif.--(BUSINESS WIRE)-- Banc of California, Inc.
`(NYSE: BANC) today reported net income of $14.5 million and net
`income available to common shareholders of $11.5 million, resulting in
`$0.29 per diluted common share for the quarter ended September 30,
`2015.
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`Net income available to common shareholders for the nine months
`ended September 30, 2015 was $36.2 million, resulting in $0.93 per
`diluted common share, compared to $17.4 million, resulting in $0.63
`per diluted common share for the nine months ended September 30,
`2014.
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`Highlights for the third quarter, compared to the prior quarter, included:
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` Record quarterly core deposit growth exceeding $500 million
`(net of branch sales and offsetting the reduction in brokered and
`treasury deposits)
` Record quarterly commercial banking segment loan originations
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 7 of 29 Page ID #:7
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`of $729 million (excludes mortgage banking originations)
` Noninterest bearing deposits increased by $143 million, or 17%,
`quarter over quarter and now exceed $1 billion
` Noninterest expenses declined by $6.2 million quarter over
`quarter
` Continued strong and stable asset quality
`“The third quarter was highlighted by strong core deposit growth and
`accelerating loan originations in our commercial banking segment,”
`said Steven Sugarman, Chairman and Chief Executive Officer. “We are
`especially pleased with the growth of noninterest bearing deposits
`during the quarter which reflect our team’s success growing and
`deepening client relationships.”
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`The Company’s consolidated assets totaled $7.3 billion at September
`30, 2015, an increase of $0.8 billion compared to the prior quarter, and
`an increase of $2.7 billion compared to a year ago. Return on average
`assets for the third quarter was 0.9%, and return on average tangible
`common equity was 12% for the third quarter.
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`“The third quarter results mark the sixth straight quarter since the
`reorganization of our bank’s Board of Directors and management team
`in which the Company has exceeded consensus earnings estimates, and
`we are on pace to exceed analysts’ full year 2015 consensus earnings
`estimates,” Mr. Sugarman continued. “The Board and executive
`management team have set preliminary targets for 2016 that include
`earnings per share growth of 15%, return on average assets of 1% and
`return on tangible common equity of 15%. Additionally, in light of the
`benefits of scale we are beginning to see throughout the business, we
`are lowering our efficiency ratio target for 2016 by 5% to 65-70%.”
`
`21. On November 6, 2016, Banc of California filed its Quarterly Report
`with the SEC on Form 10-Q for the fiscal quarter ended September 30, 2015. The
`Company’s Form 10-Q was signed by Defendants Sugarman, Nicolas, and
`McKinney, and reaffirmed the Company’s financial results announced in the press
`release issued on October 29, 2015.
`22. On January 28, 2016, Banc of California issued a press release entitled
`“Banc of California Reports Record 2015 Earnings.” Therein, the Company, in
`relevant part, stated:
`IRVINE, Calif., Jan. 28, 2016 /PRNewswire/ -- Banc of California, Inc.
`(NYSE: BANC) today reported net income of $19.0 million for the
`fourth quarter of 2015, resulting in diluted earnings per share of $0.39
`for the quarter and $1.34 for the full year.
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 8 of 29 Page ID #:8
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`Pre-tax income for the full year 2015 was $104.3 million, an increase
`of 294% compared to full year 2014. Net income available to common
`shareholders for 2015 grew to $52.2 million, an increase of 97%
`compared to full year 2014.
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`Highlights for the fourth quarter included:
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` Record quarterly core deposit growth of $540 million; including
`$110 million from non-interest bearing deposits.
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` Record quarterly commercial banking segment loan and lease
`originations of $914 million; resulting in $2.8 billion for the full
`year.
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` Full year 2015 total loan originations of $7.1 billion.
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` Commercial Banking profits increased to 90% of total, fully
`allocated segment profitability with Financial Advisory finishing
`at 9% and Mortgage Banking falling to 1% for the quarter.
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` The Company’s return on average assets for the quarter was
`1.0%, and its return on average tangible common equity
`(ROTCE) for the quarter was 16.6%.
`The Company’s consolidated assets totaled $8.2 billion at December
`31, 2015, an increase of $1.0 billion compared to the prior quarter, and
`an increase of $2.3 billion compared to a year ago.
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`“Banc of California finished 2015 with accelerating growth and
`profitability across our businesses,” said Steven Sugarman, Chairman
`and Chief Executive Officer. “Our return on tangible common equity
`over 15% and return on assets over 1% demonstrates the long-term
`earnings power of our franchise. Combining these returns with our
`industry leading growth continues to yield significant value creation for
`shareholders. Our strong results are a testament to the hard work and
`dedication of our talented employees, who as employee-shareholders
`take pride in the shared success in growing the long-term value of the
`franchise. I am also particularly proud that Banc of California ranked
`#1 for total shareholder return in 2015 of all west coast banks included
`on Forbes Magazine’s list of America’s Top 100 banks.”
`
`23. On February 18, 2016, Banc of California filed its Annual Report with
`the SEC on Form 10-K for the fiscal year ended December 31, 2015. The
`Company’s Form 10-K was signed by Defendant Sugarman and reaffirmed the
`Company’s financial results announced in the press release issued on January 28,
`2016.
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`24. On April 21, 2016, Banc of California issued a press release entitled
`“Banc of California Reports Record First Quarter Earnings.” Therein, the
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 9 of 29 Page ID #:9
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`Company, in relevant part, stated:
`IRVINE, Calif., April 21, 2016 /PRNewswire/ -- Banc of California,
`Inc. (NYSE: BANC) today reported record quarterly net income of
`$19.7 million for the first quarter of 2016, resulting in diluted earnings
`per share of $0.36 for the quarter.
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`Pre-tax income for the first quarter of 2016 was $33.0 million, an
`increase of 49% compared to first quarter of 2015. Net income
`available to common shareholders for the first quarter was $15.1
`million, an increase of 30% compared to the first quarter of 2015.
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`Highlights for the first quarter included:
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` Record quarterly non-interest bearing deposit growth of $278
`million, or 25%.
`
`lease
`loan and
` Quarterly commercial banking segment
`originations of $823 million, an increase of 66% from a year ago.
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` The Company’s return on average assets for the quarter was
`0.9%, and its return on average tangible common equity
`(ROTCE) for the quarter was 14.5%.
`The Company’s consolidated assets totaled $9.6 billion at March 31,
`2016, an increase of $1.4 billion, or 17%, compared to the prior quarter,
`and an increase of $3.5 billion, or 58%, compared to a year ago. The
`Company’s growth over this period has been entirely organic as Banc
`of California’s last acquisition occurred in 2014.
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`“Based on total shareholder return since the beginning of 2015, Banc of
`California
`is
`the #1 performing bank stock amongst Forbes’
`Magazine’s list of America’s Top 100 Banks,” said Steven Sugarman,
`Chairman and Chief Executive Officer of Banc of California. “In the
`first quarter of 2016 alone, Banc of California’s 21% return
`outperformed the next closest bank by 7%. As all our employees are
`shareholders, we are proud and excited by this accomplishment. The
`continued strength of our financial performance showcases our
`strategy, focus and execution quarter-over-quarter as we are winning
`market share and top talent. Banc of California is a business built for
`the long-term.”
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`During the first quarter, the Company raised $81 million in common
`stock, raised $125 million in Perpetual, Non-Cumulative Preferred
`Stock and liquidated its wholly owned subsidiary PTB Property
`Holdings LLC. Since the end of the first quarter, the Company has
`redeemed its $42 million preferred stock from the Small Business
`Lending Fund (SBLF), redeemed $85 million of 7.50% Senior Notes,
`announced the sale of its wholly owned subsidiary, The Palisades
`Group, LLC, and increased its undrawn line of credit to $75 million.
`
`“Banc of California has meaningfully deleveraged and simplified its
`balance sheet, increased its liquidity and streamlined its businesses and
`organizational structure during 2016,” said James McKinney, Chief
`Financial Officer of Banc of California. “We expect these actions will
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 10 of 29 Page ID #:10
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`not only make us a safer and stronger financial institution, but they will
`be accretive to the holders of our debt, preferred stock and common
`stock. These actions are part of our strategy to strengthen, and increase
`the durability of, our balance-sheet and liquidity in advance of our
`growth beyond $10 billion in assets. We will continue to seek
`opportunities to strengthen our franchise for the benefit of all our
`clients and other stakeholders.”
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`During the quarter, Banc of California grew its recurring net interest
`income by $8 million, built its earning assets by $1.4 billion, and
`strengthened its liquidity position by $0.9 billion, while maintaining its
`net interest margin. These results occurred while the yield on the 10-
`year Treasury fell from 2.27% to 1.78%.
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`“We are proud that our interest rate risk controls and balance sheet
`management strategy enabled our bank to successfully navigate a
`volatile rate environment without impacting the consistency and
`predictability of our earnings,” Sugarman said. “The negative fair
`value adjustments on our mortgage servicing rights and SWAPs were
`offset by concurrent intra-quarter fair value gains recognized in our
`securities portfolio. We believe this further validates the investments
`we have made and continue to make in our enterprise risk analytics and
`controls. Our analytical approach to building our balance sheet and our
`business continues to support our track record of consistent, growing
`earnings.”
`25. On May 4, 2016, Banc of California filed its Quarterly Report with the
`SEC on Form 10-Q for the fiscal quarter ended March 31, 2016. The Company’s
`Form 10-Q was signed by Defendants Sugarman and McKinney, and reaffirmed the
`Company’s financial results announced in the press release issued on April 21,
`2016.
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`26. On July 21, 2016, Banc of California issued a press release entitled
`“Banc of California Reports Record Second Quarter Earnings.” Therein, the
`Company, in relevant part, stated:
`IRVINE, Calif., July 21, 2016 /PRNewswire/ -- Banc of California, Inc.
`(NYSE: BANC) today reported record quarterly net income of $26.5
`million for the second quarter of 2016, resulting in earnings per share
`of $0.43 for the quarter, fully diluted. Excluding $2.7 million of debt
`extinguishment costs related to the redemption of senior notes during
`the quarter, earnings per share for the second quarter was $0.46.
`
`Pre-tax income for the second quarter of 2016 was $44.8 million, an
`increase of 63% compared to second quarter of 2015. Net income
`available to common shareholders for the second quarter was $21.4
`million, an increase of 64% compared to the second quarter of 2015.
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`Highlights for the quarter included:
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` Record quarterly deposit growth of $1.1 billion, or 16%,
`resulting in a reduction in quarter over quarter total interest
`expense.
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` Record quarterly loan production of $2.6 billion, driven by
`record quarterly commercial banking segment loan and lease
`originations of $1.3 billion, an increase of 109% from a year ago.
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` The Company’s return on average assets for the quarter was
`1.1% and its return on average tangible common equity for the
`quarter was 15.7%.
`The Company finished the quarter with consolidated assets totaling
`$10.2 billion, an increase of $0.5 billion, or 6%, compared to the prior
`quarter, and an increase of $3.7 billion, or 58%, compared to a year
`ago. The Company’s growth over this period has been organic as Banc
`of California’s last acquisition occurred in 2014. Banc of California
`joins Pacific Western Bank, East West Bank, Cathay Bank and Silicon
`Valley Bank as the only mid-sized banks headquartered in California.
`
`“Our strong second quarter performance is the direct result of our
`differentiated value proposition as California’s Bank. Based on total
`shareholder return since the beginning of 2015, Banc of California is
`the #1 performing bank stock amongst Forbes’ Magazine’s list of
`America’s Top 100 Banks,” said Steven Sugarman, Chairman and
`Chief Executive Officer of Banc of California. “Banc of California’s
`scale as a $10 billion bank is enabling the achievement of our long-
`term financial targets. This includes a return on tangible common
`equity over 15% and a return on assets over 1%. We are proud of these
`accomplishments. The consistent and strong financial performance
`showcases our strategy, focus and execution quarter-over-quarter. We
`are winning market share and we are winning top talent. Banc of
`California is a business built for the long-term.”
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`During the second quarter, the Company raised $100 million in
`common stock, completed its redemption of $85 million of 7.50%
`Senior Notes and increased its line of credit to $75 million. The
`redemption of the senior notes directly resulted in non-core expenses
`related to capital transactions of $2.7 million during the quarter.
`
`“Banc of California meaningfully deleveraged its balance sheet,
`increased its liquidity and strengthened its capital structure during the
`second quarter,” said James McKinney, Chief Financial Officer of
`Banc of California. “We expect these actions will not only make us a
`safer and stronger financial institution, but they will be accretive to the
`holders of our debt, preferred stock and common stock. These actions
`are part of our on-going strategy to strengthen, and increase the
`durability of, our balance-sheet and liquidity as we grow beyond $10
`billion in assets. We continue to seek opportunities to strengthen our
`franchise for the benefit of all our clients and other stakeholders.”
`
`During the quarter, Banc of California grew its recurring net interest
`income by $10.6 million, or 15% from the prior quarter, increased its
`total assets by $0.5 billion, reduced its total borrowings by over $0.6
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 12 of 29 Page ID #:12
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`billion, and maintained its net interest margin. These results occurred
`while the yield on the 10-year Treasury fell from 1.78% to 1.49%.
`
`“We are proud that our interest rate risk controls and balance sheet
`management strategy enabled our bank to successfully navigate a
`volatile rate environment for the second quarter in a row without
`impacting
`the consistency and predictability of our earnings,”
`Sugarman said. “The losses from negative valuation marks in our
`mortgage servicing rights and SWAPs were offset by concurrent fair
`market value gains realized in our securities portfolio. We believe this
`further validates the investments we have made and continue to make
`in our enterprise risk analytics and controls. Our analytical approach to
`building our balance sheet and our business continues to support our
`track record of consistent, growing earnings.”
`27. On August 4, 2016, Banc of California filed its Quarterly Report with
`the SEC on Form 10-Q for the fiscal quarter ended June 30, 2016. The Company’s
`Form 10-Q was signed by Defendants Sugarman and McKinney, and reaffirmed the
`Company’s financial results announced in the press release issued on July 21, 2016.
`28. The above statements contained in ¶¶20-27 were materially false and/or
`misleading, as well as failed to disclose material adverse facts about the Company’s
`business, operations, and prospects. Specifically, these statements were false and/or
`misleading statements and/or failed to disclose: (1) that the Company had extensive
`ties to Galanis; (2) that, given Galanis’ history, the Company’s ties to Galanis
`created substantial regulatory risk; (3) that revelation of Galanis’ ties to the
`Company could cause a substantial decline in the market price of the Company’s
`securities; (4) that the Company’s communications to investors regarding the
`Seeking Alpha investigation was misleading; and (5) that, as a result of the
`foregoing, Defendants’ positive statements about Banc of California’s business,
`operations, and prospects, were false and misleading and/or lacked a reasonable
`basis.
`
`Disclosures at the End of the Class Period
`29. On October 18, 2016, a SeekingAlpha.com contributor with the user
`name “Aurelius” published an article on SeekingAlpha.com entitled “BANC:
`Extensive Ties To Notorious Fraudster Jason Galanis Make Shares Un-Investible.”
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 13 of 29 Page ID #:13
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`The article, in relevant part, stated:
`Our research establishes that BANC’s senior-most officers and
`board members have a broad mosaic of extensive and indisputable
`ties to Jason Galanis. We believe this introduces a significant un-
`discounted risk that notorious criminals gained control over the
`$10 Billion taxpayer guaranteed Banc of California.
`
`Jason Galanis and his infamous father, John Galanis, have a long
`history of secretly gaining control of banks and public companies
`via front men, looting assets, and leaving unsuspecting investors and
`taxpayers with hundreds of millions in losses. The mere presence of a
`bank leadership team associated with Galanis should send diligent
`investors running for the hills.
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`We see striking similarities between BANC and Gerova Financial, a $1
`Billion NYSE listed financial institution that collapsed on the
`revelation of Galanis’ secret control. Like BANC, Gerova’s executives
`had significant ties to Galanis and touted their community reinvestment
`efforts with politicians to establish credibility. In the end, the
`promotion was a diversion from a giant fraud that left investors with
`devastating losses.
`
`As a result, we believe Banc Of California is simply un-investible.
` summary of key research conclusions we are releasing in this report
`include:
` Jason Galanis Controlled COR, BANC’s Founding
`Shareholder. SEC documents detail how Galanis gained control of
`COR portfolio companies to orchestrate the Tribal Bonds Ponzi
`Scheme. Galanis laid claim to Banc of California to display his
`financial wherewithal and even managed the scheme out of an office
`in the same building as BANC’s headquarters.
` An Off-Balance Sheet Lender Controlled By BANC’s Senior-
`Most Officers Financed Galanis. Steven Sugarman holds an
`undisclosed interest in Camden Capital, an off-balance sheet lender
`controlled by BANC’s Vice Chairman, Jeffrey Seabold. Camden
`was used to finance Galanis amidst the recent Tribal Bond Scheme
`and engaged in transactions with Galanis during the Gerova
`Financial fraud.
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` BANC’s Lead “Independent” Director Has Strong Ties To
`Galanis. BANC’s Lead “Independent” Director, Chad Brownstein,
`has strong ties to Jason Galanis, his indicted associates, and COR
`Capital. Mr. Brownstein also accepted an undisclosed loan from
`Camden that is secured by his Los Angeles Mansion but appears to
`finance his outside business ventures.
`
` We See Similarities Between BANC And Galanis’ Gerova
`Financial fraud.In wrapping BANC in the flag of “community
`reinvestment”, Steven Sugarman has recycled a nearly identical
`narrative to what Galanis propagated at Gerova Financial. Further
`parallels include a leadership team and founding shareholder with
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`Case 8:17-cv-00118-AG-DFM Document 1 Filed 01/23/17 Page 14 of 29 Page ID #:14
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`undisclosed ties to Galanis, a bevy of suspect related party
`transactions, and the use of opaque assets as regulatory capital.
`30. On this news, Banc of California’s stock price fell $4.61 per share, or
`29%, to close at $11.26 per share on October 18, 2016, on unusually heavy trading
`volume.
`31. The above statements contained in ¶29 were materially false and/or
`m