Jury Rejects SEC Market Crisis Fraud Claims Against Bank, CEO

Last week the SEC prevailed on a partial motion for summary judgment, obtaining a ruling that certain individuals involved in an offering fraud acted as unregistered broker dealers. This week, the Commission lost a long running battle in court when a jury rejected a series of fraud claims tied to the market crisis.

SEC v. BankAtlantic Corp., Case No. 0:12-CV60082 (S.D. Fla. Filed Jan 18, 2012) is an action against the holding company for one of Florida’s largest banks and its CEO and Chairman, Alan Levan. The complaint alleged that as the market crisis unfolded, the defendants failed to disclose, and made false statements regarding, the bank’s commercial residential loan portfolio and its deteriorating condition.

The defendants knew that the condition of the portfolio was deteriorating because a number of the loans were kept current by granting extensions. Specifically, Mr. Levan knew about the condition of the portfolio from participating on the bank’s Major Loan Committee which approved the extensions and related principal increases. Despite this knowledge, the disclosure documents for the first two quarters of 2007 contained only generic warnings about what might occur in the future if Florida’s real estate downturn continued. Those documents also failed to disclose the downward trend already occurring in its own portfolio. The MD&A should also have disclosed these matters. Nevertheless, Mr. Levan signed the filings. The complaint alleged violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B).

Following trial the jury rejected each of the Commission’s claims. Specifically, the jury rejected claims that 1) the two defendants made false and or misleading statements during a second quarter 2007 earnings call; 2) that the firm’s Form 10-K for 2007 was false and or misleading; 3) that Mr. Levan knowingly failed to implement a system of internal accounting controls at the bank; 4) that he falsely certified the company’s 2007 Form 10-k; 5) that the books and records of the firm for 2007 were false; 6) that Mr. Levan made false statements to an accountant; and that the firm failed to keep books, records and accounts in reasonable detail which accurately and fairly reflected the transactions and dispositions of company assets in 2007. Judgment was entered in favor of each defendant. The Court dismissed the case with prejudice.

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