Maryland bank, former CEO charged with failing to disclose loans to family trusts

On Behalf of | Aug 26, 2022 | Regulatory Investigations

A Maryland bank and its former top executive have been charged with violating federal securities laws by failing to disclose loans made to family trusts, according to the Securities and Exchange Commission.

The SEC announced the charges against Eagle Bancorp, Inc., based in Bethesda, and its former Chief Executive Officer and Chairman of the Board, Ronald D. Paul. Regulators determined that from 2015 to 2018, Eagle made loans to Paul’s family trusts totaling nearly $90 million without including that information in the related party loan balances in their annual reports and proxy statements to investors.

Eagle also allegedly omitted tens of millions of dollars in loans to Eagle directors and their family members, in violation of SEC regulations and Generally Accepted Accounting Principles.

In addition, the SEC found that Eagle and Paul falsely stated in press releases, news articles, and meetings with investors that the loans to Paul’s family trusts detailed in a short seller’s report were not related party loans and that Eagle was in compliance with all related party loan requirements.

“Adequate disclosures of related party transactions are essential to enable investors to evaluate an issuer’s corporate governance,” said Sanjay Wadhwa, Deputy Director of the SEC’s Enforcement Division. “Here, faced with a short seller’s report alleging undisclosed related party loans by the bank, both Eagle and Paul failed to respond truthfully and accurately.”

Eagle was found by the SEC to have violated the negligence-based anti-fraud, proxy, reporting, books and records, and internal accounting controls provisions of the federal securities laws. The company did not admit or deny the findings, but did agree to cease and desist from future violations and to pay disgorgement of $2.6 million, a civil penalty of $10 million, and prejudgment interest of $750,493.

Paul was charged with violating the negligence-based antifraud and proxy provisions and making false certifications. He did not admit or deny the allegations, but agreed to a permanent injunction, a two-year officer and director bar, and to pay disgorgement of $109,000, prejudgment interest of $22,216, and a penalty of $300,000.

The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (844) 651-2641 or through our online contact form.

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