Financial General Bankshares

Financial General Bankshares was a bank holding company that became a target of acquisition by the BCCI.¹

Acquisition Attempts and BCCI Involvement

In February 1978, BCCI orchestrated a hostile bid for Financial General Bankshares with the help of Bert Lance.¹ Financial General, in turn, sued Lance, Agha Hasan Abedi, BCCI, and the Arab investors for making an illegal attempt to take over the bank.¹ The Securities and Exchange Commission later filed suit against BCCI, Abedi, Lance, and others in connection with the purchase of Financial General Bankshares stock.¹

Clark Clifford and Robert Altman were retained as counsel by Abedi, BCCI, and the front men to handle the Financial General suit and serve as principal liaisons with the shareholders and regulators.² In August 1981, regulators approved the sale of Financial General to Middle Eastern investors connected with BCCI, based on Clifford's assurances that there would be no link between BCCI and Financial General Bankshares.¹

BCCI secretly acquired control of Financial General Bankshares through nominees, including Kamal Adham, Faisal Saud al-Fulaij, and Abdullah Darwaish.³ These front men bought up nearly 20 percent of Financial General's stock, violating the law by failing to declare that they were acting as a group.³

Legal and Regulatory Scrutiny

The acquisition attempts led to lawsuits and regulatory scrutiny, highlighting BCCI's use of front men and illicit financial practices to gain control of American banking institutions.³ The Federal Reserve Board later fined BCCI $200 million for illegally acquiring control of three prominent U.S. banking institutions, including Financial General Bankshares.¹

Ownership Before the Fight

In April 1977 Middendorf and a group of about twenty investors bought the interest of the previous controlling shareholder, Olmstead, and Middendorf became chairman. The group, which included the former ambassador to Iran Joseph Farland, the Arkansas banker Jackson Stephens, and the Occidental Petroleum chairman Armand Hammer, split by November 1977, with Stephens leading a faction opposed to Middendorf. The company's outside counsel, Eugene Metzger, owned about 1.6 percent of its stock.⁴⁵

Four Accounts of the Origin

The Kerry-Brown Senate Report set out mutually inconsistent accounts of how BCCI came to Financial General. The Washington Post reported in 1978, and Robert Altman wrote to the Federal Reserve on May 9, 1978, that Stephens had proposed it during the negotiations over the sale of the National Bank of Georgia in November 1977, and on November 26, meeting Agha Hasan Abedi in Atlanta with Bert Lance, had offered a block of 4.9 percent and recommended that Abedi meet Metzger. The Federal Reserve found in 1991 that at Lance's suggestion the BCCI officer Abdus Sami had met Stephens, who "told Sami that Financial General might be a good investment for BCCI clients." Kamal Adham wrote to the Federal Reserve in April 1991 that a friend, Hasan Yassin, had told him of the opportunity, and Clark Clifford testified that it had come through "a friend who was associated with the Saudi Arabian embassy." The report found the Federal Reserve's account "the only account that is consistent with the contemporaneous documentary records."⁴

Litigation and Approval

Financial General sued on February 17, 1978, after learning that Middle Eastern investors had acquired twenty percent of its shares; the Securities and Exchange Commission filed and settled its own action on March 18, 1978. The Senate report states that on April 27, 1978, a federal judge "permanently enjoined Lance and ten other defendants" from violating the securities laws and found that the BCCI clients had relied "heavily, if not exclusively" on Abedi and BCCI; the later opinion of the D.C. Circuit describes the order of that date as a preliminary injunction on the company's disclosure claim. On May 21, 1980, all the defendants except Metzger settled with the company, which agreed not to oppose the takeover in return for a premium price.⁴⁵

The Virginia bank regulator Sidney A. Bailey objected that the acquisition "will be inimical to the convenience and needs of the community." After a hearing convened on April 23, 1981, the Federal Reserve approved the application of Credit and Commerce American Holdings (CCAH) on August 25, 1981, and at Altman's request sealed parts of the transcript. A year later the company changed the name of its banks to First American and of its holding company to First American Corporation; the holding company above the banks was later known as First American Bankshares, Inc.⁴⁶ The Federal Reserve found in 1991 that all four Middle Easterners who had appeared at the 1981 hearing had been BCCI nominees.⁴