SEC Nails TierOne Officers for Hiding Losses

     (CN) – Three former executives with failed TierOne Bank understated millions of dollars in loan losses in order for the bank to meet capital requirements, regulators say in court.
     The Securities and Exchange Commission filed parallel federal complaints in Omaha against former chairman of the board and CEO Gilbert Lundstrom, his son Trevor Lundstrom, former president and COO James Laphen, and former senior vice president and chief credit officer Don Langford.
     The three officers face claims that they schemed to mislead regulators and investors about the bank’s true financial condition during the height of the 2008 and 2009 financial crisis.
     “They did so by materially understating TierOne’s loan losses and losses on real estate repossessed by the bank (commonly referred to as ‘other real estate owned’ or ‘OREO’) so that the bank would appear to meet its mandated regulatory capital requirements,” according to the complaint against the Lundstroms and Laphen. “In particular, G. Lundstrom and Laphen disregarded information showing that the collateral securing certain of TierOne’s loans and TierOne’s OREO was substantially over-valued due to the bank’s reliance on stale and inadequately discounted appraisals. G. Lundstrom and Laphen also signed untrue management representation letters that were provided to the bank’s outside auditor and knowingly circumvented and failed to implement an effective system of internal controls at TierOne.”
     The SEC said that the loan losses were not revealed to the public until late 2009, after regulators required the bank to get new appraisals for the impaired loans.
     “TierOne ultimately disclosed over $130 million of additional loan losses,” the complaint states. “Had TierOne recorded these additional loss provisions in the proper quarters, it would have missed the OTS [regulator Office of Thrift Supervision] – required capital ratios as of the end of December 31, 2008, and for each quarter thereafter.”
     Landford is named in the second complaint for his alleged role in the scheme.
     “Langford disregarded information showing that the collateral securing certain of TierOne’s loans and TierOne’s OREO was substantially over-valued due to the bank’s reliance on stale and inadequately discounted appraisals,” the SEC says.
     TiereOne’s stock plummeted over 70 percent after the announcements, and the OTS ultimately shut the bank down in June 2010, according to the complaint. It filed for bankruptcy shortly thereafter.
     Gilbert Lundstrom is also accused of tipping off his son with insider information in 2009 about an asset sale between TierOne and Great Western Bank.
     “T. Lundstrom bought nearly 210,000 TierOne shares between June 2009 and September 2009 in anticipation of the asset sale,” the complaint states. “Following the announcement of the proposed transaction on September 4, 2009, T. Lundstrom sold his TierOne holdings and realized approximately $225,921 in illicit profits.”
     The Lundstroms and Laphen settled the charges against them on the same day they were filed last week, agreeing to collectively pay nearly $1.2 million subject to court approval.
     The SEC’s case continues against Langford, who did not participate in the settlement.
     Lincoln, Neb.-based TierOne was a century-old thrift bank that focused on residential and agricultural loans in the midwestern United States until 2004, when it took on riskier loans in high-growth areas of the country, according to the complaints.
     In the suit against Langford, the SEC is seeking injunctive relief and civil penalties for violations of the Exchange Act.

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