The Securities and Exchange Commission has fined Fifth Third Bancorp (FITB) for misclassifying troubled loans during the housing crisis.
The Cincinnati bank has agreed to pay $6.5 million to settle the agency's charges of improper accounting, the SEC said Wednesday. The agency also levied a $100,000 fine against Daniel Poston, the company's former chief financial officer, and barred him from working as an accountant for any publicly traded company or any company the agency regulates.
The SEC charged that in late 2008, Fifth Third misclassified a group of loans that it had decided to sell as loans "held for investment," rather than as "held for sale," as accounting rules require. By classifying the loans as "held for sale," Fifth Third would have had to list the loans at fair value, which would have increased its third-quarter pretax loss by 132%, the SEC says. The $126 billion-asset company recorded a loss of $81 million in the third quarter of 2008.
Poston knew that Fifth Third had sought to sell this pool of loans but failed to ensure that they were properly accounted for, the SEC says. The agency also alleges that he misled the company's auditors.
"By failing to classify large pools of loans as required, Fifth Third and Poston kept investors from knowing the full truth behind its commercial real estate loan portfolio," said Stephen Cohen, associate director in the SEC's enforcement division, in the news release.
In November, after announcing that it had informally reached an agreement with the SEC, Fifth Third reassigned Poston named Tayfun Tuzun its new CFO. Poston had been interim CFO during 2008 and was named to the post permanently in 2009.
Fifth Third neither admitted nor denied the SEC's allegations under the settlement.