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SEC Sues Top Officers of Dissolved Bank

NORFOLK, Va. (CN) - Three top officers of the (Virginia) Bank of the Commonwealth lied about the bank's finances during the height of the financial crisis by understating millions of dollars in losses, the SEC claims in court.

The SEC sued former CEO Edward J. Woodard, who also was bank president and chairman of the board; former CFO Cynthia A. Sabol, and former Executive Vice President Stephen G. Fields, in Federal Court.

The SEC claims the executives misrepresented to investors and to the SEC what was going on at the bank.

"The consistent message in Commonwealth's filings and public statements was that Commonwealth's portfolio of loans was conservatively managed according to strict underwriting standards aimed at keeping Commonwealth's loan losses low during a time of unprecedented economic turmoil," the SEC says in its complaint. "In reality, internal practice deviated so much from what the investing public was told that, beginning in 2008, Commonwealth understated its ALLL [allowance for loan and lease losses] by approximately 17 percent to 25 percent with a corresponding understatement to its reported loss before income taxes for fiscal year 2008 of approximately 64 percent, understated its OREO [other real estate owned] in two quarters by approximately 19 percent to 20 percent with a corresponding understatement of Commonwealth's reported loss before income taxes in the first quarter of 2010 of approximately 35 percent, and underreported its total non-performing loans throughout the entire period by at least 30 percent."

The complaint continues: "Woodard, Commonwealth's then chairman of the board, president and chief executive officer, knew of the true state of the bank's loan portfolio and was involved in the activity to hide the deterioration of many of the loans at issue. He was also responsible for the misleading public statements and in particular those in earnings releases. Fields, then a Commonwealth executive vice president and senior commercial loan officer with the largest portfolio of loans, knowingly engaged in the activity that masked the bank's rapidly deteriorating loan portfolio. Sabol, then Commonwealth's chief financial officer, knew of the

masking practices, and knew, or was reckless in not knowing, of the effect of these practices on Commonwealth's financial statements and disclosures.

"By the time Woodard and Fields left Commonwealth at the end of 2010, the bank had become so critically undercapitalized that state banking regulators closed the bank, sold substantially all of its assets to another bank, and appointed the Federal Deposit Insurance Corporation (the 'FDIC') as receiver.

"By engaging in the misconduct described herein, Woodard, Sabol and Fields violated, or aided and abetted others in the violation of, the antifraud, reporting, internal controls, and record-keeping provisions of the federal securities laws. For these violations, the Commission seeks a judgment against all three defendants ordering injunctive relief, civil penalties, permanent officer and director bars, and other appropriate and necessary equitable relief."

Woodard, 69, of Norfolk; Sabol, 49, of Virginia Beach; and Fields, 49, of Chesapeake, all invoked the Fifth Amendment during the SEC investigation, the agency says.

Woodard's compensation was $699,183 in 2008; $576,089 in 2009; and $923,991 in 2010, the SEC says.

For those three years, Sabol's compensation came to $262,577; $257,855; and $338,189, according to the complaint.

The complaint does not say how much Fields was paid.

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