Prosecutor Rests His Case in Bank Fraud Trial : Courts: One defendant told investigators he funneled funds without knowing it was illegal, according to transcript.

A U.S. prosecutor rested his case Wednesday on the words of one of two Thousand Oaks men accused of defrauding banking regulators in a bid to keep their failing bank afloat and millions in investments intact.

According to a transcript read into court records by Assistant U.S. Atty. Brent Whittlesey, Phillip L. Chase admitted to state banking investigators that he funneled his own bank’s funds through customers and back into bank stock without knowing it was illegal.

Chase, 51, of the Westlake area of Thousand Oaks and Olen B. Phillips, 53, of Oak View, are fighting charges that they made false statements to the Federal Deposit Insurance Corp. and loaned bank funds to themselves through “straw borrowers” to save their floundering United Community Bank in 1989.

The Thousand Oaks bank eventually was shut down anyway--at a cost to taxpayers of $9.5 million needed to cover FDIC-insured accounts.

Chase faces eight criminal counts and Phillips seven, each one of which carries a penalty of up to 30 years in prison and $1 million. If convicted, however, they are unlikely to get the maximum punishment, which usually is reserved for the worst of felons, Whittlesey said.

Whittlesey has argued that Chase, the bank’s chairman and largest stockholder, and Phillips, a board member and the second-largest stockholder, used their own bank’s funds to buy stock shares in it. The move was meant to make it seem as though the bank had received a fresh infusion of cash that would keep state regulators at bay, Whittlesey said.

Chase’s attorney has acknowledged that the banker helped arrange for two couples to borrow a total of $300,000 from the bank and then loan it back to Chase and Phillips. But the attorney, Richard Marmaro, also said Chase never intended to break the law.

The prosecution’s final witness was a Pasadena bank executive, who testified she never would have let Chase and Phillips continue carrying a year-old $750,000 loan to support their bank if she knew they had incurred those other debts.

Sally Hazen, an officer at a Pasadena bank, testified Wednesday that in May, 1989, she reviewed a $750,000 loan that her bank had made to Chase and Phillips in 1988.

Hazen said the men never revealed during the routine review that they had incurred the $300,000 debt in late 1988.

“Had I known they had the outstanding debt they had, I would not have made this loan, or I would have called the note,” said Hazen, senior vice president of the Community Bank in Pasadena, which is not related to the defendants’ bank. “We would have made it immediately payable.”

Hazen also testified, however, that Chase and Phillips have continued to make payments on the $750,000 loan, and the remaining balance is $40,000.

Whittlesey then closed his direct case by having transcripts into the court record from a November, 1989, interview of Chase by banking investigators.

Chase told investigators from the California State Banking Department that Phillips, a commercial airline pilot, had introduced him to a potential investor named Patrick Holmes, whom Phillips described as “a fellow pilot and an investor” who could help them generate capital for the bank, according to the transcript.

“Mr. Phillips indicated to me . . . that they were willing to lend money to us on a personal basis,” Chase said in the transcript. “I was not aware this was any infringement of the law.”

Chase told investigators that the bank loaned $200,000 to Patrick and Barbara Holmes “for investments” and later loaned another $100,000 to a couple Chase had known for 10 years--Lawrence and Wanda Thomas.

Chase told investigators he and Phillips later approached the Holmeses and the Thomases and borrowed money to invest in stock in the bank.

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“I was not aware at the time that this relationship accrued to my benefit, that there was a federal or state law that prohibited an officer of a bank to make a loan from the bank and then buy stock in that bank,” Chase said in the transcript. “I raised . . . $8 million on behalf of this institution to make this thing work. We never intended to violate any laws or regulations.”

Asked why he did not borrow money directly from United Community Bank, Chase told the investigators, “I believe it would be inappropriate to borrow from my own bank,” the transcript said. “I don’t even have a credit card from that bank.”

By late afternoon, Chase’s attorney had begun questioning FBI agent Ted Bowler, who testified that some of the prosecution witnesses had never described to him incidents they later testified about in court.

Marmaro said he expects to present his last witnesses, including Chase himself, today.