Bank Holding Company Enters Guilty Plea for Securities Fraud

A bank holding company entered into a plea agreement for filing false securities statements as to its initial public offering and subsequent annual filings.

The Bank pled guilty to one count of securities fraud for originating at least $5 billion in loans through its residential mortgage loan program. In the Criminal Information, the DOJ alleged that the Bank touted its Program’s “flexible documentation requirements” and “fast underwriting and closing capabilities.” The DOJ asserted that in order to increase the Program’s loan originations, senior management encouraged loan officers to falsify and/or conceal information from the Bank’s credit officers. This allowed the Bank to extend loans to borrowers who would have otherwise not have qualified under Bank policies. The DOJ said that the origination of the fraudulent loans directly increased the Bank’s revenue through associated fees and interest.

The DOJ charged the Bank with artificially inflating its revenue when it went public. In doing so, it made materially false and misleading statements on its initial public offering and subsequent filings of Form S-1 and Form 10-K with the SEC. The DOJ found that the Bank’s fraudulent statements caused its non-insider shareholders an overall loss of almost $70 million.

Under the terms of the Agreement, the Bank will consent to (i) a term of probation through 2026, (ii) enhanced reporting obligations to the DOJ, and (iii) payment of approximately $27.2 million in restitution to non-insider shareholders. Among other factors informing the penalty amount, the DOJ reasoned that a larger payment or fine may undercut the Bank’s viability and threaten further risk of loss for the shareholders.

The DOJ also cited the Bank’s cooperation throughout its investigation and “extensive” remedial measures, such as (i) terminating employees involved in the Bank’s fraudulent activities, (ii) overhauling senior management and several of its departments, (iii) permanently ending the loan program at issue and (iv) hiring a new chair, CEO and president.