The U.S. Justice Department announced that a Michigan-based bank holding company has agreed to plead guilty to securities fraud, according to InsuranceNewsNet.
Sterling Bancorp, Inc., headquartered in Southfield, will admit to filing false securities statements relating to its 2017 initial public offering (IPO) and its 2018 and 2019 annual filings.
The case involves Sterling’s residential mortgage loan program known as the Advantage Loan Program (ALP), through which bank employees and agents originated at least $5 billion in loans over an eight-year period. ALP required a minimum down payment of 35% and charged higher rates and fees than elsewhere in the market, but did not require submission of typical loan documents such as an applicant’s tax returns or payroll records.
According to prosecutors, Sterling was encouraging its loan officers to push the ALP program to customers in the lead-up to the 2017 IPO in order to increase the bank’s revenue. But with the knowledge of Sterling’s founder and certain senior executives, the officers allegedly falsified and concealed information from the bank’s underwriting and quality control departments that would have delayed or prevented loans being granted. As a result of the false information the bank extended credit to borrowers who otherwise would not have qualified under the underwriting guidelines, the Justice Department said. The fraudulent loans increased the bank’s revenue.
“For years, Sterling originated residential mortgages that were rife with fraud to pad its bottom line and then lied about these loans in its IPO and subsequent public filings, defrauding unwitting investors,” said Assistant Attorney General Kenneth A. Polite, Jr. “This proposed guilty plea reflects the nature and seriousness of the wrongdoing and demonstrates the Department of Justice’s commitment to protecting the integrity of our public markets, holding corporations accountable for their criminal misconduct, and compensating victims for their losses.”
Prosecutors said that when Sterling went public in the fall of 2017, its SEC Form S-1 contained false and misleading statements touting the soundness of the ALP loans when it fact many were fraudulent. The total loss to the bank’s non-insider victim-shareholders was calculated at nearly $70 million.
Sterling agreed to plead guilty to one count of securities fraud. The company will also have to serve a term of probation through 2026, submit to enhanced reporting obligations, and pay over $27.2 million in restitution. Any payment over that amount was regarded as likely to threaten the company’s viability and subject shareholders to further loss. Under the plea agreement, Sterling agreed to fully cooperate with the government’s investigation of the matter.
Lewitas Hyman routinely represents investors harmed when financial professionals and their firms engaged in misconduct that caused their clients investment losses. We bring a unique level of knowledge and experience when representing the rights of investors, including resolving cases through arbitration and litigation when necessary. If you think your financial professional or firm engaged in misconduct that caused you investment losses, contact Lewitas Hyman at (888) 655-6002 or through our online contact form for a no-cost evaluation of your matter.