Chad Brownstein, a Los Angeles investor and longtime board member of Banc of California, has resigned from the troubled Irvine bank amid a Securities and Exchange Commission investigation and investors’ calls for a boardroom shake-up
Brownstein’s resignation Wednesday comes two weeks after the departure of former Chairman and Chief Executive Steven Sugarman. Sugarman resigned Jan. 23, the same day the bank acknowledged that it is under investigation by the SEC over its response to allegations of impropriety, inside dealing and connections to a convicted fraudster.
The bank’s board asked Sugarman to resign, according to sources with knowledge of the situation. In an SEC filing Wednesday, the bank described Brownstein’s departure as voluntary, saying he “has decided to retire.”
Brownstein, the bank’s longest-tenured board member will be replaced on the board by Richard Lashley, an activist investor. For the last few years, Lashley has pushed for changes at the bank, saying it was not properly managed, and even questioned whether Brownstein was too close to Sugarman.
Lashley’s firm, PL Capital, owns a 6.9% stake in the bank, making it the company’s largest active shareholder.
In a 2014 letter to the bank, Lashley criticized the terms of Sugarman’s compensation package as overly generous and complained that the bank had done an inordinate number of deals with companies connected to bank insiders, including Sugarman and his family members.
In another letter that year, Lashley said the bank should hire an outside consultant to, among other things, “examine whether Mr. Brownstein is sufficiently independent of Mr. Sugarman to serve as an effective lead director.”
Though classified by the company as an independent director — meaning he does not work for the bank — Brownstein for years had business relationships with Sugarman and his brother, Jason.
Though those relationships probably did not preclude Brownstein from serving on the board or being called an independent director, corporate governance experts said Brownstein appears to have enough connections to the Sugarmans to cause legitimate concern.
“It doesn’t look good,” said Steven Bank, a business law professor at UCLA. “It sounds to me like these guys are intertwined in a way that, if there were litigation, shareholders might feel independence was not sufficient.”
Many of Lashley’s concerns were echoed late last month by Legion Partners, an L.A. investment firm that recently disclosed an ownership stake in the company and said it planned to push for governance changes and potentially a sale of the bank.
Brad Vizi, a managing director at Legion, told The Times last month that the bank needs new leadership and independent board members.
“The bank demonstrates some of the worst corporate governance I’ve ever invested in. The folks that have been at the helm have been asleep at the wheel,” he said.
Though Vizi did not single out Brownstein, the longtime board member had since 2013 been chairman of the bank committee that oversees corporate governance and executive compensation. In that role, Brownstein would have been responsible for signing off on some of the related-party transactions — specifically deals that benefited members of the former CEO’s family.
Though Brownstein has retired from the board, he has not severed all ties with the bank. The son of powerful Denver lawyer and lobbyist Norman Brownstein, he will continue to represent the bank on the board of the LA 2024 Olympic bid committee, according to an SEC filing.
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james.koren@latimes.com
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