SEC Charges Florida Bank, CEO with CRE Portfolio Fraud
The SEC has charged the holding company for one of Florida’s largest banks and its CEO with misleading investors about growing problems in one of its loan portfolios.
The SEC alleged that BankAtlantic Bancorp and CEO/Chairman Alan Levan made misleading statements in public filings and earnings calls in order to hide the deteriorating state of a large portion of the bank’s commercial real estate land acquisition and development portfolio in 2007.
BankAtlantic and Levan then allegedly committed accounting fraud when they minimized the bank’s losses on their books by improperly recording loans they were trying to sell from this portfolio in late 2007.
According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, BankAtlantic and Levan knew that a large portion of the loan portfolio, which consisted primarily of loans on large tracts of lands intended for development into single-family housing and condominiums, was deteriorating in early 2007 because many of the loans had required extensions due to borrowers’ inability to meet their loan obligations.
Some loans were kept current only by extending the loan terms or replenishing the interest reserves from an increase in the loan principal, the SEC said. Levan allegedly knew this negative information in part from participating in the bank’s major loan committee that approved the extensions and principal increases.
As a result, BankAtlantic experienced a net loss of more than $45 million in its CRE portfolio. In 2007, the bank had approximately $1.5 billion in CRE loans.
The SEC said BankAtlantic and Levan also were aware that many of the loans had been internally downgraded to non-passing status, indicating the bank was deeply concerned about those loans.
The SEC alleged that despite this knowledge, BankAtlantic’s public filings in the first two quarters of 2007 made only generic warnings of what may occur in the future if Florida’s real estate downturn continued.
Because of the portfolio’s deterioration, it should have been disclosed in the management’s discussion and analysis section of BankAtlantic’s filings, which were signed by Levan, the SEC said.
Levan later allegedly made misleading statement to investors during the bank’s earnings calls, according to the SEC. BankAtlantic finally acknowledged the problems in the third quarter of 2007 by announcing “a large unexpected loss.”
The SEC said investors did not expect a loss of that magnitude, and BankAtlantic’s share price immediately dropped 37%. The bank also attempted to understate its net loss by more than 10% in its 2007 annual report.
The SEC’s complaint seeks financial penalties and permanent injunctive relief against BankAtlantic and Levan to enjoin them from future violations of the federal securities laws. The complaint also seeks an officer and director bar against Levan.