On September 25, 2012, the Securities and Exchange Commission charged three former bank executives in Nebraska with allegedly participating in a scheme to understate millions of dollars in losses and mislead investors and federal regulators at the height of the financial crisis, in 2008 and 2009.
The SEC alleges that Gilbert G. Lundstrom, James A. Laphen and Don A. Langford (collectively, the “charged executives”) played a role in the understating of TierOne Bank’s loan-related losses as well as losses on Other Real Estate Owned (OREO) properties.
According to the complaints against the charged executives, TierOne had expanded into riskier types of lending in Las Vegas and other high-growth geographic areas in Arizona and Florida and, as a result thereof, was experiencing a significant rise in high-risk problem loans. TierOne’s primary banking regulator at the time, the Office of Thrift Supervision, directed TierOne to maintain higher capital ratios as a result of TierOne’s increase in high-risk problem loans.
The SEC alleges that the charged executives disregarded information showing that the collateral securing certain TierOne loans and OREOs were overvalued due to TierOne’s reliance on stale and inadequately discounted appraisals so that TierOne would appear to comply with the heightened capital requirements. According to the complaints against the charged executives, the losses were understated by millions of dollars in multiple SEC filings.
Ultimately, Lundstrom and Laphen agreed to settle the SEC’s charges and collectively pay nearly $1.2 million in the settlements, which are subject to court approval. The SEC’s case continues against Langford.
This matter raises yet another example of the significant consequences associated with the management of regulatory enforcement actions and orders, and the substantial responsibility imposed upon (and significant liability assumed by) executives and/or directors of financial institutions in connection therewith.
Read a copy of the complaints:
This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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