SEC Hammers Bank and CFO for 2008 Decisions about Non-Performing Loans
A bank agreed to pay a $6.5 Million fine and its CFO was barred from appearing before the SEC and fined $100,000 for its 2008 failure to re-classify non-performing loans as “held for sale” versus “held for investment.” The SEC claims that, as a result, the bank did not disclose a $169 Million impairment on its third quarter 2008 10-Q. The SEC alleges that the firm should have made the classification change when it entered into agreements with brokers to sell the loans. The SEC also alleges that earlier actions may have also indicated a change in classification. The SEC faults the CFO for signing a misleading 10-Q and making material misrepresentations to the bank’s auditors.
OUR TAKE: We’re not auditors so we can’t comment on how difficult it is for a CFO to make the “held for sale” versus “held for investment” decision. However, we did live through 2008 and know how fast information was moving and changing in the third quarter when these events occurred. The lesson here is that the SEC does not give you any mulligans, even when you are operating in an environment that nobody has experienced.