CEO and CFO Fined and Censured for Overvaluing Assets
The SEC censured and fined the CEO and CFO of a bank owned by a public holding company for overvaluing collateral on impaired loans and thereby overstating the bank’s net income in public filings. The SEC charges that the bank officers mis-applied FAS 157 by overriding third party appraisals or using stale valuations, each time valuing the collateral higher than it should have been. The SEC avers violations of the Exchange Act’s reporting, internal controls, and books and records rules.
OUR TAKE: FAS 157 also applies to non-exchange traded securities held by funds and advisers. Firms that override outside valuation data to their benefit risk heightened scrutiny by regulators. Also, this case shows the SEC’s continued effort to bring cases against individuals and not just their organizations, whether or not the SEC alleges specific personal benefit.