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The ""Securities and Exchange Commission"":http://www.sec.gov (SEC) on Wednesday charged the holding company for one of Florida's largest banks and its top executive with misleading investors about growing problems with the company's loan portfolio early in the financial crisis.
[IMAGE]The SEC alleges that ""BankAtlantic Bancorp"":http://www.bankatlanticbancorp.com/ and its CEO and chairman Alan Levan made false statements in public filings and earnings calls in order to hide the deteriorating state of the bank's commercial residential real estate land acquisition and development portfolio.
The federal agency says BankAtlantic and Levan then committed accounting fraud when they schemed to minimize the company's losses on their books by improperly recording loans they were trying to sell from the portfolio in late 2007.
""BankAtlantic and Levan used accounting gimmicks to conceal from investors the losses in a critical loan portfolio,"" said Robert Khuzami, director of the SEC's enforcement division. ""This is exactly the type of information that is important to investors, and corporate executives who fail to make that required disclosure will face severe consequences.""
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.
[COLUMN_BREAK]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 says Levan has knowledge of this information from his participation in the bank's major loan committee, which approved the extensions and principal increases.
Levan was also aware that many of the loans had been internally downgraded to non-passing status â€" a move which indicates the bank was concerned with the performance of the loans, according to the SEC.
The federal regulator alleges that despite this knowledge, BankAtlantic's public filings in the first two quarters of 2007 made only generic warnings of what might occur in the future if Florida's real estate downturn continued.
BankAtlantic failed to disclose the downward trend already occurring in its own portfolio, even though the steady deterioration evident in the portfolio constituted a known trend that should have been disclosed in the company filings, according to the SEC.
During earnings calls in the same time period, the SEC says Levan made further misleading statements to investors about the portfolio.
BankAtlantic finally acknowledged the problems in the third quarter of 2007 by announcing a large unexpected loss. The investing public did not expect a loss of that magnitude, and BankAtlantic's share price immediately dropped 37 percent.
According to the SEC's complaint, BankAtlantic and Levan attempted to sell some of the deteriorating loans after this announcement, but failed to account for them properly as being ""held for sale,"" as required by Generally Accepted Accounting Principles (GAAP).
The SEC says BankAtlantic concealed the attempted sales from both auditors and investors because proper accounting would have required the company to write down the loans and incur immediate additional losses. Instead, BankAtlantic schemed to understate its net loss by more than 10 percent in its 2007 annual report, according to officials.
The SEC's complaint seeks financial penalties and permanent injunctive relief against BankAtlantic and Levan to enjoin them from future violations of federal securities laws. The complaint also seeks an officer and director bar against Levan.
