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SEC sues BankAtlantic, CEO Alan Levan for fraud
By Palm Beach Business.com
FORT LAUDERDALE — The Securities and Exchange Commission is suing BankAtlantic and CEO Alan Levan, alleging the bank founder lied about the condition of its commercial loan portfolio and committed accounting fraud by improperly recording loans they were trying to sell five years ago.
“BankAtlantic and Levan used accounting gimmicks to conceal from investors the losses in a critical loan portfolio," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This is exactly the type of information that is important to investors, and corporate executives who fail to make that required disclosure will face severe consequences."
Levan, in a statement, called the SEC's allegations "unsupportable." He also noted that the lawsuit involves BankAtlantic's holding company and not the bank itself.
According to the SEC’s complaint, filed in federal district court in South Florida, BankAtlantic and Levan knew that a large portion of the loan portfolio — which included loans on large tracts of lands intended for development into single family homes and condos — was deteriorating in early 2007. Borrowers on many of the loans were requiring extension because they didn’t have the money to make their payments.
Some loans were kept current only by extending the loan terms or increasing the loan principal. Many of the loans had been internally downgraded to non-passing status, indicating the bank was deeply concerned about those loans.
Despite all this, BankAtlantic’s public filings with the SEC in early 2007 only made general warnings about what might happen if the Florida’s real estate market tanked.
BankAtlantic finally acknowledged the problems in the third quarter of 2007 by announcing a large unexpected loss. The investing public did not expect a loss of that magnitude, and BankAtlantic’s share price immediately dropped 37 percent.
“BankAtlantic and Levan publicly minimized the risks in the bank’s commercial residential loan portfolio when in reality, they had significant concerns about the borrowers’ ability to pay,” said Eric I. Bustillo, direcot of the SEC’s Miami office. “Investors had a right to know this key information.”
Levan, however, said BankAtlantic acted properly and made the disclosures it was supposed to.
"As the real estate market deteriorated we warned investors that our collateral was at risk if the downturn continued. It did," Levan said. "We even drilled down into our loans to identify those most likely to have a problem if things got worse. We warned the market particularly about those loans. And we were right.
"When our borrowers could not or did not repay their loans, in many cases through no fault of their own as the market had collapsed around them, we took losses and impairments. We disclosed this as well. We publicly disclosed problems we were seeing in financial markets a good year before the government publicly acknowledged the problems with the economy."
The SEC seeks financial penalties and permanent injunctions against BankAtlantic and Levan. The SEC also seeks to bar Levan from acting as an officer or director of any public company.
