The U.S. Securities and Exchange Commission has filed a lawsuit against eleven ex-Superior Bank executives and board members. The regulator says that the bankers took part in numerous scams to hide just how bad the loan losses were at the bank after the financial crisis struck. Nine of the individuals have consented to settle the SEC’s charges.
The SEC is accusing the directors and officers of purposely misleading regulators and investors by using fake appraisals, straw borrowers, and insider deals to make the bank’s financial health seem more robust than what was actual. Bank officials are accused of improperly renewing, extending, and rolling over loans that were bad, in part to avoid having to report loan and lease losses.
Because of this, Superior Bank overstated its net income by 99% in public filings for 2009 and by 50% in 2010. The bank failed in 2011 and the Office of Thrift Supervision closed it last year. The Federal Deposit Insurance Corporation was appointed as its receiver.
The Commission maintains that there was “pervasive and fraudulent” conduct at Superior Bank’s executive offices. The fraud involved a lot of the biggest loans in the bank’s portfolio. Purported lending schemes included using non-recourse loans. With these loans, which borrowers of record for a delinquent loan would be replaced with borrowers who were in default on a number of other loans from the bank. Alleged aims of the scam included avoiding foreclosure or collection on previous loans with the understanding that there was no obligation to pay back the bank under the new loans. Also, out-of-date appraisals were often used without justification. This overstated loan properties’ value and identified projected property uses that were not viable or accurate.
The bank executives and directors allegedly approved the modifications or renewals of loans that were delinquent so as to make the loan seem up-to-date. They also are accused of proposing, designing, and documenting non-recourse joint venture deals with defaulted borrowers to give off the impression that a loan was current even though it was almost certain to default.
Ex-Superior Bancorp. chairman and CEO Charles Bailey, former Superior Bancorp CFO James White, ex-Superior Bank CEO and president Charles M. Scott Jr., and George J. Hall, also another former Superior Bank president, purportedly ran a separating account scam that involved not properly impairing over $250K in subpar loans that were actively promoted to third parties for purchase at under 50 cents on the dollar.
The SSEK Partners Group is an institutional investor fraud law firm.
Read the SEC Complaint (PDF)