Eagle in Maryland paying $12.6 million to settle long-running SEC probe

Eagle Bancorp in Bethesda, Maryland, has agreed to pay more than $12.6 million to settle a Securities and Exchange Commission investigation that involved the bank’s links to a former Washington councilman.

The settlement, disclosed Wednesday, moves Eagle a step closer to resolving a long-simmering string of legal and regulatory issues that have bedeviled the company over the past three years, costing it tens of millions of dollars in legal fees. In its first-quarter 10-Q report it filed with the SEC May 10, the $11.2 billion-asset Eagle disclosed that coverage under its director and officer insurance policies, which has helped defray the costs of representing the company and its officers, is nearing exhaustion.

The SEC probe was one of two federal investigations Eagle has been dealing with since 2019. The company is still the subject of an outstanding investigation by the Federal Reserve Board. In November, the Board issued a prohibition order barring Eagle’s former general counsel, Laurence Bensignor, from working at banks after determining he engaged in “unsafe and unsound banking practices.”

A so-called Wells notice, served in July 2021 against Eagle’s current chief financial officer, Charles Levingston, also remains outstanding. The Wells notice signals the possibility of an enforcement action involving its subject — in this case Levingston.

According to Eagle, the SEC and Federal Reserve investigations are related to “the relationship of the company and certain of its former officers and directors with a local public official.” News reports suggest that official is former District of Columbia Councilman Jack Evans, who resigned in 2020 following allegations of influence peddling that included the introduction of legislation that would have resulted in the city moving more of its deposits into local banks.

Evans failed to disclose that he held a significant ownership stake in Eagle, more than 2,000 shares according to a November 2019 report by a law firm the City Council hired to investigate Evan's dealings. The report found Evans had also entered into a consulting relationship with the bank and a real estate firm owned by its former CEO, Ron Paul.

Paul resigned in March 2019, shortly before Eagle first disclosed its legal and regulatory woes. Since the beginning of 2019, Eagle has reported $41.7 million in legal, accounting and professional fees, including $1.6 million during the quarter that ended March 31.

In February, Eagle paid $7.5 million to settle a class action filed in June 2019 alleging it violated federal securities laws by failing to properly disclose its legal and regulatory issues.

While the legal fees and recent settlements have weighed on earnings, Eagle has remained profitable, reporting net income of $176.7 million in 2021 and $45.7 million for the first quarter.

In a research note Thursday, Christopher Marinac, director of research at Janney Montgomery Scott, characterized the SEC settlement as “positive,” though he suggested Eagle shares would continue to trade at a discount compared to peers “as long as regulatory uncertainty persists.”

Eagle shares closed at $48.45 Thursday, up about 1%.