Banking Law

A Bank? Just Kidding!

I suppose that every few years, the Texas Department of Banking has to remind businesses that you can't claim to be a "bank" unless, you know, YOU ARE A BANK!

State regulators have taken steps to sanction a Houston firm describing itself as a bank.

Houston Petroleum Bank LLC had been advertising services on a Web site and was soliciting customer "deposits" from clients with a minimum $250,000 to invest in a wealth management account administered by Wachovia Securities LLC.

On March 11, the Texas Department of Banking issued a cease and desist order against the bank and its principals, John Gallagher, chairman and CEO, and William Smith, president.

The banking department order states: "Gallagher and Smith have used and are using the term 'bank' in their name and Web site in a manner that implies to the public that HPB, Gallagher and Smith are engaged in the business of banking in Texas, in violation of Texas law."

[...]

Serena Kuvet, assistant general counsel for the state's banking department, says a consumer inquiry led to the investigation.

[...]

Kuvet claims that the Web site wording was clearly misleading. The name Houston Petroleum Bank LLC was displayed in bold letters along with the phrase, "Customer deposits are never at risk because we don't make loans."

[...]

The state's filing says Houston Petroleum Bank made an application with the Texas Secretary of State to register the firm as an out-of-state financial institution that would "issue loans ... take demand deposits and expand money."

The application states that Houston Petroleum Bank was incorporated in Nauru, a Pacific island off the coast of Australia in 1999, but maintains a Houston office.

Let's hope this isn't merely the tip of the spear of a Naru-led invasion of bad banking behavior in Tejas. Those dreaded Naruvians have a bad attitude, although, certainly, plenty of "street cred." On the other hand, if we Texans handle this correctly, we might be able to enlist them in our ongoing battles with Mexican drug cartels and any current or future Miley Cyrus tour. I break out in a cold sweat contemplating either of those evils.

Whatever the Petroleum Not-A-Bank was doing didn't thrill Wachovia Securities, either.

At the same time, attorneys representing Wachovia also contacted the Houston firm in response to the Web site allegation that Houston Petroleum Bank had "formed a strategic partnership with Wachovia Securities LLC ..." Joe Stroop, vice president of corporate communications for Wachovia Central Banking Group, says the firm did not receive permission to make such a statement on the site. "While Wachovia cannot confirm or discuss client relationships, when we discovered that Houston Petroleum Bank was using Wachovia's name on its Web site without authorization we demanded that they cease doing so, and they did," Stroop says.

Well, that prompt compliance must have pleased the Department of Banking. The last time we ran into this situation, the offending party put up a bit of a scrap, and got a tad defensive about it, although it eventually settled with the Department of Banking and stopped using the awful "B Word." After this blog posted about it, the author received a tense voice mail message from someone who alleged that he was connected with the defendant and who used the words "ass" and "kick" in the same sentence, or maybe it was in more than one sentence. Time dulls the memory.

Let;s hope that history doesn't repeat itself. If it does, I must thank all that is right and holy with this country that (A) the US Constitution has the Second Amendment, and (B) the Lone Star State has a concealed carry law. This might be the only state where blogging about bank law and keeping a 9mm Glock at the ready go hand-in-hand.

Full post as published by Bank Lawyers Blog on April 04, 2008 (boomark / email).