Durkee case prompts scrutiny of banking regulations

The small bank in which Democratic fiscal agent Kinde Durkee handled scores of campaign accounts is drawing nearly as much attention as Durkee herself, who has been accused in federal court of fraud and misappropriating her clients’ funds.

A civil filing against Durkee by Democratic Reps. Loretta Sanchez and Linda Sanchez of Orange County and Susan Davis of San Diego, and state Sen. Lou Correa of Santa Ana, contains familiar allegations that Durkee looted their campaign accounts. The suit also complains that First California Bank failed to spot such signals of potential fraud as large numbers of transactions moving money in and out of the Durkee-controlled accounts.

Apart from the purported fraud, the complex case also raises questions about state banking rules, which do not require banks to conduct detailed transactional surveillance of their customers.

The political impact of the Durkee case notwithstanding, the ultimate significance of the legal fight in the Capitol may be to increase banks’ monitoring of political campaign accounts.

“A fraud of the scale alleged herein could not have occurred, and did not occur, without the knowing involvement of First California Bank,” notes the recent civil complaint filed against Durkee. The complaint included Westlake Village-based First California Bank as a defendant.

The politicians’ complaint contends the bank, which has 19 branches in Southern California, of playing an active role in the alleged schemes and of deliberately helping Durkee.

Their Feb. 29 complaint echoes that of U.S. Sen. Dianne Feinstein, who in a September 2011 suit filed shortly after Durkee’s arrest, claimed her campaign treasury lost millions through fraud and that the bank should have been aware of what was happening. The bank has denied any impropriety.

By most estimates, Durkee, viewed for decades as an expert in the unusual niche occupation of campaign accountancy, has handled some 400 accounts for state, local and federal campaigns and had an estimated 100 active accounts at the time for her arrest.

A number of her Democratic clients have claimed they lost campaign cash, starting with Orange County Assemblyman Jose Solorio, who publicly alleged a $677,000 campaign loss. It was this allegation that led to Durkee’s arrest on federal charges last September. She faces a March 16 preliminary hearing Sacramento.

The state’s Department of Financial Institutions sent an “examination team” into the bank shortly after Durkee was arrested. The results have not been disclosed, although the findings likely would have been turned over to the FBI as part of an ongoing federal investigation. The state and the FBI declined to comment on whether the results had been turned over to federal officials. Daniel Nixon, Durkee’s attorney, also declined to comment.

The DFI said investigators looked at the accounts shortly after Durkee’s arrest.

“There was that one examination. It was not a routine examination and the results are not public,” said DFI spokeswoman Alana Golden.

The federal case stemmed from state investigators at the Fair Political Practices Commission: The FPPC staff in 2007 found disparities in Durkee’s campaign accounts and launched a full inquiry. They turned their findings over to the FBI, which launched a probe that culminated in Durkee’s Sept. 2, 2011 arrest.

First California said the latest suits are similar to the earlier allegations filed by Feinstein, and “in that case, we have asked the court to dismiss the lawsuit because the plaintiffs have failed to demonstrate that First California Bank had any knowledge of Ms. Durkee’s alleged misconduct,” bank spokeswoman Diane Dickerson wrote in an email. 

Dickerson noted that banks do not have “a duty to monitor accounts on a transaction-by-transaction basis for possible misconduct by authorized account signatories, such as Ms. Durkee in this instance.  The law is, in fact, clear that banks have no such duty.  Rather, the onus is on the campaigns to monitor the activities of their treasurer.”

That contention goes to the heart of the lawsuits, which contend the bank did in fact bear the burden of protecting its clients’ accounts.

“They certainly do have rules and there should have been a procedure whereby the red flags should have been popping up and brought this to their attention. They have fiduciary duties and they should look after the accounts,” said Orange County attorney Wylie Aitken, who has long been active in Democratic political circles and who represents the four political figures, all Democrats.

Six months after Durkee’s arrest, evidence gathering in the case apparently is continuing. Federal prosecutors have sought delays in the case, most recently to review potential evidence from the seizure of a number of computers in connection with the case.

“The government needs additional time to review, analyze, and synthesize materials that it has obtained during the course of this investigation,” federal prosecutors said.

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