Huffpost Business
The Blog

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors

Mark Nickolas Headshot

Still No Answer Why McCain's Son Quit Board Of Failing Bank

Posted: Updated:

Recall that a week ago, John McCain's (R) son -- Andrew K. McCain -- suddenly resigned as a member of the board of directors and audit committee of Silver State Bancorp (and its subsidiary Silver State Bank) citing "personal reasons." From various published accounts, the bank is on exceptionally shaky financial footing and some believe it is only a matter of time before the FDIC steps in and takes over the bank.

However, six days after McCain suddenly quit, there's still a great deal of mystery about his departure as no one is talking, according to today's Arizona Republic:

One of U.S. Sen. John McCain's sons has resigned from the board of a Nevada-based bank that operates four branches in Arizona, just five months after he was appointed director.

Andrew McCain quit as a director of Silver State Bancorp, where he served on the audit committee.

...A Silver State spokesman declined to comment on the resignation. McCain didn't return phone calls.

So, no one is talking... still?

Let's look at a very quick timeline of events:

Apr 1, 2008: McCain joins Silver State as director and member of Audit Committee following the bank's merger with Choice Bank where McCain was a director since 2006; (stock's share price is $8.70);

Apr 7, 2008: SEC files civil complaint concerning CMKM Diamonds (more on that shortly);

Apr 11, 2008: Silver State's stock price starts to sharply tumble (see chart below);

May 1, 2008: Silver State reports a net loss for the first quarter of $14.4 million, stunning financial analysts who had estimated it would report a profit of more than $3 million. Stock drops more than 11% that day, from $4.19 to $3.67 per share;

May 2, 2008: Stock downgraded by investment firm Sandler O'Neill to a "Sell." Stock plummets another 24% by end of day to $2.80;

May 5-8, 2008:  Stock continues to sink on successive days to $2.56 (5th) to $2.30 (6th) to $2.23 (7th) to $2.02 (8th);

May 23, 2008: Bank announces that Douglas French, executive vice president of commercial real estate lending, has resigned "for personal reasons."  Subsequent story mentions that French had sold 162,200 shares of company stock since November 2007 because "they were purchased with borrowed money."

Jun 5, 2008: Bank files statement with SEC stating its intention to raise $40 million in capital through additional stock issuance, which would double the number of outstanding shares, effectively diluting its stock's value by half;

Jul 1, 2008: CMKM Diamonds awarded a $33,675,365 judgment in a Nevada District Court against one of the former insiders of the Company (again, will discuss shortly);

Jul 26, 2008: Bank announces that McCain has resigned from board of directors and Audit Committee immediately "for personal reasons." According to other reports, resignation took place late Friday and hit the wires on Saturday.

So, what accounts for the mysterious departure from the bank by McCain and his refusal -- as well as the bank's -- to comment on why he left? After all, he is the son of the Republican nominee for president during the middle of the biggest banking crisis in 20 years and he served on the board and audit committee of a bank that is clearly failing.

Did Andrew McCain run from the bank knowing it was on the verge of failure and did not want to be seen as an officer of another bank failure in the middle of his father's presidential bid? Did he leave after discovering financial irregularities as a result of his position on the Audit Committee? Was he involved in any improprieties? Did it involve Douglas French's sudden resignation in mid May, over whom McCain would have had responsibility? Why has Silver State's share price tumbled 85 percent (to just $1.28 today) since McCain joined the bank's board in April?

We simply don't know.

But there's another major issue that I've discovered that is hovering over Silver State, and that has to do the April 7 and July 1 timeline entries above concerning CMKM Diamonds (a massive stock fraud scandal that even The New York Times has spent time covering). It may have nothing to do with McCain's departure or it may have everything to do with it. His sudden exit leaves many questions like these unanswered.

Here's what Mark Faulking has been reporting on his website (a site I have never heard of, nor whose credibility I can vouch for, but the alleged fact-pattern seems relevant to the current financial health of Silver State):

In yet another bizarre development in the saga of CMKM Diamonds, better known as CMKX, one of the largest financial frauds in history, Andrew McCain, the son of presumptive Republican presidential candidate John McCain, resigned from the Board of Directors of Henderson, Nevada based Silver State Bank, the bank where hundreds of millions of dollars was deposited as it was stolen from CMKX shareholders.   



...But the younger McCain, who had only been with Silver State Bank for a little over four months after Choice Bank, where McCain was director, was taken over by Silver State, might have to answer questions of his own. Silver State Bank has its own history of problems, and it appears that Andrew McCain either ignored the bank’s past woes, or didn’t properly research the company before joining the Board of Directors.



...Andrew McCain served on the bank’s Audit Committee, which means his responsibilities included, according to the company’s bylaws, an understanding of finance and accounting:

“All of the members of the Audit Committee must have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements. At least one member of the Audit Committee must be an audit committee financial expert, as determined by the Board, consistent with the applicable rules and regulations of the Securities and Exchange Commission and the applicable rules and regulations of the stock exchange on which the Corporation’s shares are listed.”

But a little diamond mining company from Canada that turned out to be the biggest penny stock fraud in history might become a major problem for McCain’s campaign as well. Insiders with CMKX defrauded over 50,000 shareholders of in excess of $250 million. A large portion of that money was run through a single Silver State Bank branch in Las Vegas. In all, former CMKX CEO Urban Casavant and reputed mastermind John Edwards (no, not that John Edwards) opened over 100 bank accounts at Silver State, and ran tens of millions of dollars through the bank.



...The scam finally came crashing down in late 2005 when the SEC finally delisted CMKX...and recently filed charges against eleven individuals and three companies in the CMKX case...Silver State Bank has not been charged in the CMKM Diamonds case, although they did fire an employee named Patricia DeCosta, who approved most of the transactions...



...The fact remains that Silver State Bank never filed a single Suspicious Activities Report (SARS) while 50,000 CMKX shareholders lost their entire investments. Did Andrew McCain look into the bank’s shady past, and if so, is he now just quietly trying to slip out the side door before the building comes tumbling down?

Finally, we may get some answers on Monday as Silver State announced late this evening that it will be holding a conference call on Monday morning at 9:00 am ET "to discuss the Company's performance and second quarter results." They'll no doubt be asked about the circumstances of McCain's sudden departure and if they stick to the "personal reasons" excuse, I suspect the national press begins to finally ask questions. I'm looking forward to joining that call.

This whole matter has quite a mysterious air about it, even more surprising considering the person involved and the fact it involves a failing bank in the middle of this banking crisis...

(cross-posted at Political Base)