An internal probe into alleged legal and ethical violations at Banc of California has found no laws were broken and that the institution was not controlled by a convicted fraudster, the lender said Thursday.

The Irvine bank last year hired law firm WilmerHale to investigate claims made by an anonymous short-seller that it was secretly controlled by L.A. financier Jason Galanis, who pleaded guilty to securities fraud charges last summer.

The firm also looked into concerns about the bank’s related-party transactions and whether relationships between bank insiders and related parties were properly reported.

The bank said WilmerHale’s investigation found no evidence that Galanis had “indirect or direct control or undue influence” over the bank, that the bank broke any laws or that “any loan, related-party transaction, or any other circumstance has impaired the independence of any director.”


In a statement, bank Chairman Robert Sznewajs said the board is “pleased to have this investigation behind us.” The bank did not release the text of the report.

Banc of California has grown rapidly over the last few years, becoming one of the region’s largest locally headquartered lenders. But it has been recently dogged by questions about related-party transactions — including ones that benefited members of former Chairman and Chief Executive Steven Sugarman’s family — and the extent to which independent board members effectively oversaw management.

While the bank reported that the investigation found no wrongdoing, it has already made a handful of changes aimed at addressing ethics and corporate governance concerns. Sznewajs said Thursday that the bank was “committed to continuing this effort.”

Last month, the bank said that it would now keep the roles of chairman and chief executive separate. Sugarman had held both roles until he resigned last month.


And on Wednesday the board said it approved a new policy aimed at restricting related-party transactions. Bank spokesman Ian Campbell said the policy aims to ensure such transactions “are rare; that they meet more rigorous standards; and that they are in, or don’t conflict with, the best interests of the bank.”

Another new policy prohibits board members from “engaging in outside business activities that create an actual or apparent conflict of interest.”

Also on Wednesday, the bank said that investor Richard Lashley, whose firm PL Capital owns a sizable stake in Banc of California and who has been critical of the bank’s corporate governance, would join the board later this month and that longtime board member Chad Brownstein had resigned.

Brownstein had outside business ties to Sugarman and Sugarman’s brother — relationships that corporate governance experts said could raise questions about Brownstein’s independence. It’s not clear if those are the types of business activities the new policy aims to prevent.


The bank’s statement Thursday indicates that the WilmerHale investigation did not find that Brownstein’s independence was impaired, though it does not mention him by name.

Though the internal inquiry is complete, the bank is still the subject of a Securities and Exchange Commission investigation that appears to focus on false statements made in an October press release related to the short-seller’s allegations and a previous internal inquiry at the bank.

The October release reported that the bank’s board had hired a different law firm, Winston & Strawn, to investigate potential connections to Galanis. But the bank acknowledged last month that the Winston & Strawn investigation was initiated and overseen by the bank’s management, not the board.

What’s more, the bank’s October release described the investigation as independent but did not mention that Winston & Strawn had previously represented the bank and Sugarman.


Shares of the bank closed up $3.65, or 23%, to $19.75 on Thursday.

james.koren@latimes.com

Follow me: @jrkoren