The Securities and Exchange Commission said it had obtained a $40,000 judgment against G. Matthias Heinzelmann 3d, the former president of Surety Capital Corp. of Fort Worth, for his role in hiding $1.8 million of loan losses.
Mr. Heinzelmann, who had also been a director of the bank holding company, neither admitted nor denied guilt in consenting to the Feb. 6 judgment, the SEC said Friday.
The U.S. District Court for the Northern District of Texas in Fort Worth also barred Mr. Heinzelmann from serving as an officer or director of any public company.
Surety Capital is negotiating a new formal operating agreement with the Office of the Comptroller of the Currency to replace the one with which it fell out of compliance last year.
The SEC sought the judgment against Mr. Heinzelmann last April, alleging that he "engaged in an elaborate scheme to hide loan losses" in Surety Bank's insurance premium finance division that resulted in a "material impact" on its financial statements. The agency said the bank, then located in Hurst, Tex., overstated pretax income by 7% in 1996 and understated pretax losses by 16% and 97% in 1997 and 1998, respectively.
According to the suit, Mr. Heinzelmann covered the losses by diverting refunds due to some customers into unrelated delinquent accounts and concealed them with "improper journal entries and adjustments," the SEC said.
Mr. Heinzelmann, who resigned in 1999, settled other charges brought by the agency last year, pleading guilty to one count of conspiracy to make false entries in the books and records of a bank. A judge sentenced him in October to six months of "home confinement" and three years of probation and ordered him to pay a $10,000 fine.
Surety Capital settled an administrative proceeding with the SEC last year but remains subject to a formal agreement with the OCC and a memorandum of understanding with the Federal Reserve Board.
According to a form 10-Q filed by the holding company, the bank was not in compliance with the OCC's requirement that it maintain a risk-based capital ratio of 14%. The company said the bank's risk-based capital ratio was 12.96% on June 30. The bank's third-quarter call report filed with the Federal Deposit Insurance Corp. put the total risk-based capital ratio at 10.92% on Sept. 30.
In an interview Tuesday, Richard Abrams, the holding company's current chief executive officer, said it notified the OCC that it would not be in compliance with the agreement at the end of the year.
"We are going to enter into a new formal agreement" with the OCC "which they are presenting to us today at a board meeting," Mr. Abrams said. "Hopefully, we will be in compliance with that in the time frame" set by the OCC, he said. He expected that to be 60 to 90 days, he said.
Mr. Abrams said steps the bank has taken include trying to shed municipal deposits. To that end, he said, it has shifted them to no-interest accounts.
He said he hopes the bank's problems are nearing an end. "We have been profitable since May of last year, other than one month, and so far this year we're profitable," Mr. Abrams said.
