The government has charged three former executives of a failed bank in Nebraska with misleading investors about the extent of the bank's losses during the financial crisis.
Gilbert Lundstrom, the ex-chief executive of TierOne Bank of Lincoln, James Laphen, the bank's former president, and erstwhile chief credit officer Don Langford concealed the extent of losses on real estate owned by TierOne so the bank would appear to satisfy capital requirements over a roughly 13-month period beginning in October 2008, the Securities Exchange Commission alleged in a complaint filed Tuesday in Omaha federal court.
The agency also charged Trevor Lundstrom, Gilbert's son, with netting roughly $223,000 from a sale of shares in TierOne based on inside information he received from his father about an impending sale of assets by TierOne to Great Western Bank of Sioux Falls, S.D. in September 2009.
The Lundstroms and Laphen have agreed to settle the charges without admitting or denying wrongdoing. Under the terms of the settlement, which the court must approve, Lundstrom will pay $500,921 and Laphen $225,000 in penalties. Both men agreed to be barred permanently from serving as officers or directors of a public company. Trevor Lundstrom has agreed to surrender his profits and pay a $225,921 penalty.
The SEC will continue its case against Langford, who has not settled.
According to the SEC, the defendants, following an order from the Office of Thrift Supervision in June 2008 to boost TierOne's regulatory capital, disregarded information that showed real estate securing some of the bank's loans to be overvalued. The executives also allegedly misrepresented, in a series of regulatory filings, the extent of the company's losses so the bank would appear to satisfy capital requirements.
"The full extent of TierOne's loan-related losses did not become publicly known until late 2009, after OTS required TierOne to obtain new appraisals for its impaired loans," the SEC wrote in its complaint. "TierOne ultimately disclosed over $130 million of additional loan losses."
The SEC contends TierOne would have failed to meet the higher capital ratios starting at the end of 2008 had it recorded its losses properly. "Following the announcements of the additional loss provisions, TierOne's stock price dropped more than 70 percent," the SEC added.
Lawyers for the defendants did not immediately return calls seeking comment.
TierOne, which focused historically on residential and agricultural loans to borrowers in Nebraska, Iowa and Kansas, struggled financially starting in 2004 when it took on real estate and construction lending in Nevada, Florida, Arizona and other states damaged by the credit bubble.
The Office of Thrift Supervision shuttered the bank in June 2010, and the FDIC sold its roughly $2.2 billion in deposits to Great Western.