Securities Law Prof Blog

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

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Wednesday, September 26, 2012

SEC Charges Nebraska Bank Executives with Understating Losses

The SEC charged three former bank executives in Nebraska for participating in a scheme to understate millions of dollars in losses and mislead investors and federal regulators at the height of the financial crisis. One of the executives and his son also are charged with insider trading. The SEC alleges that Gilbert G. Lundstrom, who was the CEO and chairman of the board at Lincoln, Neb.-based TierOne Bank, along with president and chief operating officer James A. Laphen and chief credit officer Don A. Langford played a role in TierOne understating its loan-related losses as well as losses on real estate repossessed by the bank. TierOne had expanded into riskier types of lending in Las Vegas and other high-growth geographic areas in Arizona and Florida, and the bank was experiencing a significant rise in high-risk problem loans. TierOne’s primary banking regulator, the Office of Thrift Supervision (OTS), directed TierOne to maintain higher capital ratios as a result of the bank’s increase in high-risk problem loans. To appear to comply with the heightened capital requirements, Lundstrom, Laphen, and Langford disregarded information showing that the collateral securing certain TierOne loans and real estate repossessed by the bank was overvalued due to the bank’s reliance on stale and inadequately discounted appraisals. The losses were understated by millions of dollars in multiple SEC filings.

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