Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, January 18, 2012

SEC Charges Florida Bank and CEO with Misleading Investors about Loan Risks

The SEC charged BankAtlantic Bancorp, the holding company for one of Florida’s largest banks, and its its CEO and chairman Alan Levan with misleading investors about growing problems in one of its significant loan portfolios early in the financial crisis.  According to the SEC, they made misleading statements in public filings and earnings calls in order to hide the deteriorating state of a large portion of the bank’s commercial residential real estate land acquisition and development portfolio in 2007. BankAtlantic and Levan then committed accounting fraud when they schemed to minimize BankAtlantic’s losses on their books by improperly recording loans they were trying to sell from this portfolio in late 2007.

According to the SEC’s complaint, 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. Some loans were kept current only by extending the loan terms or replenishing 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 that approved the extensions and principal increases. BankAtlantic and Levan also were aware that many of the loans had been internally downgraded to non-passing status, indicating the bank was deeply concerned about those loans.

The SEC’s complaint seeks financial penalties and permanent injunctive relief against BankAtlantic and Levan to enjoin them from future violations of the federal securities laws. The complaint also seeks an officer and director bar against Levan.

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