The Securities and Exchange Commission has charged three former executives of the Bank of the Commonwealth.
It says they understated millions of dollars in losses and masked the true health of the bank’s loan portfolio at the height of the financial crisis. See the SEC complaint.
The SEC alleges past CEO Edward J. Woodard was responsible, along with CFO Cynthia A. Sabol and executive vice president Stephen G. Fields.
Regulators say the consistent message in Commonwealth’s public statements and SEC filings was that the bank’s portfolio of loans was conservatively managed according to strict underwriting standards.
In reality, the SEC alleges the bank’s internal practice deviated significantly from these statements. It adds Woodard knew the true state of Commonwealth’s rapidly deteriorating loan portfolio, and says he continued to hide the problems, particularly in earnings releases.
“During times of financial stress, it’s more important than ever for executives to make full and honest disclosure to the investing public,” says Scott W. Friestad, associate director of the SEC’s Division of Enforcement.
He adds, “Commonwealth’s executives did the opposite and hid the company’s worsening performance from shareholders through masking practices that understated the losses on its most troubled loans.”
According to the SEC’s complaint, Commonwealth understated its allowance for loan and lease losses by approximately 17%-to-25% from November 2008 to August 2010. It adds the bank also played down losses on real estate repossessed by the bank in two fiscal quarters.
The SEC’s charges Woodard, Sabol, and Fields with violations of the antifraud, reporting, recordkeeping, internal controls, deceit of auditors, and Sarbanes-Oxley certification provisions of the federal securities laws.
Its investigation is continuing and is being conducted by Laura B. Josephs, Thomas D. Silverstein, David S. Karp, Lucas R. Moskowitz, and David Estabrook. The litigation will be led by Richard Hong.
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