Securities and Investment Fraud and Misrepresentation Litigation and FINRA Arbitration Attorney, Russell L. Forkey, Esq.
SEC V. BANKATLANTIC BANCORP., INC. AND ALAN LEVAN (UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA, CASE NO. 0:12-CV60082, FILED JANUARY 18, 2012)
Recently, the Securities and Exchange Commission filed securities fraud charges against BankAtlantic Bancorp, Inc. (at the time of its misconduct the holding company for BankAtlantic, one of Florida’s largest banks) (“Bancorp” or “the bank”) and its Chief Executive Officer and Chairman, Alan Levan, with securities fraud intended to hide growing problems early in the financial crisis. The SEC’s civil complaint alleges that (1) Bancorp and Levan made misleading statements in public filings and earnings calls regarding the deteriorating state of a large portion of Bancorp’s commercial real estate portfolio in the first two quarters of 2007; and (2) Bancorp and Levan improperly accounted for loans they were trying to sell from this portfolio in late 2007 to minimize Bancorp’s losses.
The SEC’s complaint, filed in the Southern District of Florida, alleges that Bancorp and Levan knew that a large portion of the commercial residential portfolio was deteriorating early in 2007 due to the fact that many of the loans had required extensions because of the borrowers’ inability to meet their loan obligations. A number of loans were kept “current” only by extending the terms or replenishment of the interest reserves from an increase in the loan principal. Levan knew this negative information in part from participating in the bank’s Major Loan Committee (which approved the extensions and principal increases). Bancorp and Levan were also aware that many of the loans had been internally downgraded to non-passing status, indicating the bank was deeply concerned about the loans.
Despite this knowledge, Bancorp’s public filings in the first two quarters of 2007 made only generic warnings of what may occur in the future if Florida’s real estate downturn continued and failed to disclose the downward trend already occurring in its own portfolio. The steady deterioration of this portfolio constituted a known trend of the type that should have been disclosed in the Management’s Discussion and Analysis (“MD&A”) of Bancorp’s periodic filings, which were signed by Levan. Levan also made misleading statements to investors about the portfolio during earnings calls in the same time period. Bancorp finally acknowledged the problem in the third quarter of 2007 by announcing a large unexpected loss.
The SEC also alleges that Bancorp and Levan attempted to sell a number of the deteriorating loans after this announcement but failed to account for them properly as being “held for sale” as required by GAAP because doing so would have required Bancorp to write them down, incurring immediate additional losses. As a result of this scheme, Bancorp understated its net loss by more than 10% in its 2007 Form 10-K.
The complaint charges Bancorp with violating, and Levan with violating and aiding and abetting, the antifraud provisions in Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder; Bancorp with violating, and Levan with aiding and abetting, the reporting provisions in Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; and Levan with violating the falsification of books and records, lying to accountants, and certification provisions in Section 13(b)(5) of the Exchange Act and Rules 13b2-1, 13b2-2, and 13a-14(a) thereunder.
The complaint seeks a final judgment permanently enjoining the defendants from future violations of these provisions of the federal securities laws and ordering them to pay financial penalties, and also seeks an officer and director bar against Levan.