Facts

Claimants Nara Bancorp Inc. and Nara Bank are a holding company and banking subsidiary serving primarily Southern California Korean clientele. Benjamin Hong, respondent and counter claimant, is claimants' former CEO and a longtime banker.

Claimants claimed breach of fiduciary duties, breach of employment agreement and unlawful stock trading predicated on the contents and nondisclosure of a October 2002 letter between Hong and claimants, when Hong was CEO.

Hong counter claimed based on his return to be interim CEO for 14 months, during which claimants allegedly agreed to compensate him with a bonus of $742,201. The parties entered into arbitration.

CLAIMANTS' CONTENTIONS:
Claimants claimed that Hong breached his fiduciary duties and his employment contract by not disclosing an Oct. 10, 2002 letter between Hong and claimants, which stated that Hong would forego his 2002 bonus in order to "smooth" the earnings of claimants. Claimants contended that the letter between Hong and them created a legal obligation to pay Hong, and therefore should have been disclosed in the various public earnings releases.

After a new CEO, aware of the 2002 letter, claimants retained advice from independent auditors and counsel to restate 2002's financial results. Claimants claim this resulted in enormous damages. Claimants also alleged that prior to the restatement period, Hong sold substantial amounts of stock while possessing material nonpublic information, violating securities law.

Claimants further contended they were entitled to reimbursement for a Mercedes automobile whose ownership was in dispute. Hong had been given the car by claimants, which was later damaged in a collision. Claimants paid the difference between the new and old car, as well as insurance premiums.

RESPONDENT'S CONTENTIONS:
Hong denied all claims and alleged that the letter was not secret, and did not create an obligation to record or disclose the reason he permanently sacrificed his bonus in 2002. No restatement of the 2002 financial statements was needed. Consequently, Hong argued his stock trades were permissible. Regarding the Mercedes automobile, Hong claimed it had always belonged to him.

Result

An interim award of $742,201 plus ten percent interest was awarded to Hong on his counterclaim. The arbitrators found that the letter did not create a new legal obligation from claimants to Hong, and therefore did not have to be reported as a liability on their financial statements. Accordingly, there was no requirement in 2005 to restate the financial statements of 2002. Claimants' claims were denied, including the reimbursement for the Mercedes automobile.