Gold Banc Corp. Inc. of Leawood, Kan., says it expects to lose its status as a “well-managed” financial holding company as a result of a fraud committed by its former chief executive officer, Michael W. Gullion.
In an amended annual report filed with the Securities and Exchange Commission on April 15, the $3.8 billion-asset company alerted investors that a recent examination had found it to be in violation of the Bank Secrecy Act and other regulations regarding information technology, loans to officers and directors, and transactions with affiliates.
Though no enforcement action has been taken yet, Gold said that its audit committee met with regulators on April 9 and that, because of those discussions, it expects the Federal Reserve Bank of Kansas City, Mo., and state regulators to take action against it and its lead bank, Gold Bank-Kansas.
Losing its well-managed status could have severe implications for Gold, the largest commercial banking company based in Kansas. Under the Gramm-Leach-Bliley Act of 1999, only well-managed financial holding companies can offer products and services such as merchant banking, insurance, and mutual funds — all lines of business that help drive Gold’s fee income.
If it loses that designation and does not show any measurable improvement within 180 days of receiving notice, the Federal Reserve Board could order it out of those lines of business or force it to sell its subsidiary banks, the filing said. Gold is the parent of three community banks with operations in Kansas, Missouri, Oklahoma, and Florida.
Mr. Gullion, who had headed Gold since 1978, resigned under pressure on March 14. This month the bank said it had discovered that he diverted as much as $2.5 million of Gold Bank-Kansas money into his own accounts. Malcolm “Mick” Aslin, who had been the parent company’s president and chief operating officer since 1999, succeeded him.
Daniel Cardenas, an analyst with Howe Barnes Investments Inc. in Chicago, said this is the first time that he has seen a company face this kind of action. However, he added that, even if formal action against Gold is taken, it would still have 180 days to correct any problems.
“They’ve taken some pretty strong steps to address the problems. I think they will be able to maintain their status,” Mr. Cardenas said.
In addition to firing Mr. Gullion and the head cashier, Gold outsourced its internal audit functions, separated the jobs of chairman and president, and added assistant cashiers’ positions. It is now seeking an auditing expert to join its board of directors.
In its filing, Gold said that Mr. Gullion’s actions might cause it to default on loans and lines of credit from LaSalle Bank and the Federal Home Loan Bank of Des Moines. It has asked both to waive any defaults.
Additionally, Gold said it is negotiating to buy 735,000 of Mr. Gullion’s shares, of which 640,000 have been pledged to secure a personal loan from LaSalle.
Gold’s board does not want Mr. Gullion or LaSalle to sell a large block of the stock on the open market, because doing so would depress the share price.
If the company repurchases the shares, part of the proceeds would go to pay Mr. Gullion’s obligation to LaSalle, and the rest would be applied to what he owes to Gold, the filing said.
