Nine former officers and directors of a failed bank in Alabama have settled federal charges of fraud, the Securities and Exchange Commission said Wednesday. They will pay more than $1 million in combined penalties.

The agency is still pursuing cases against two other officials and the bank's holding company.

High-ranking executives and board members of Superior Bank in Birmingham "schemed to mislead investors and bank regulators by propping up [its] financial condition through straw borrowers, bogus appraisals and insider deals," the SEC said in a press release. Profits were overstated by 99% in 2009 and 50% in 2010 before authorities shuttered the bank in 2011, the release said.

The nine officials who settled the charges neither admitted nor denied guilt and are each permanently barred from serving as officers or directors of public companies. They include Charles S. Bailey, who was the former chairman and chief executive of the holding company, Superior Bancorp; James A. White, the former chief financial officer of the holding company; and Dewayne S. Maddox, former market executive at the bank, the SEC said.

Bailey has agreed to pay a $250,000 penalty, and White and Maddox will each pay $200,000.

Three others will pay between $100,000 and $150,000, and the court will determine the penalties of the remaining three, the release said.

Two additional executives were not parties to the announced settlements. Kenneth D. Pomeroy, the president of the bank's central Florida region, and William C. McKinnon, who was a senior vice president and commercial loan officer, are contesting charges filed in federal court in Tallahassee, Fla., the release said.

The fraud involved many of the largest loans on the bank's books, the SEC said. The defendants were accused of efforts to extend, renew and roll over bad loans to avoid impairment charges and to tamp down allowances for loan losses, the agency said.

Their alleged tactics, according to the SEC, included:

  • The replacement of the borrowers of record for delinquent loans with alternative borrowers who were in default on multiple other loans, accommodating the alternative buyers by avoiding foreclosure or collection efforts on their previous loans.
  • Frequent use of outdated appraisals to hide the declining value of loan-related properties and to exaggerate their potential future use.
  • And approval of renewals or modifications of problem loans by moving forward payment dates or funding new loans to borrowers and using proceeds to pay down prior loans.

Bailey, White and other defendants were also accused of failing to appropriately impair more than $250 million in substandard loans that were marketed to third parties at less than 50% of their original value, the SEC said.
Superior Bank had $3 billion in assets, $2.7 billion in total deposits and 73 branches when it failed.

The cost to the Deposit Insurance Fund was $320 million, according to the latest estimate on the Federal Deposit Insurance Corp.'s website.

The FDIC sold essentially all of Superior's assets to a newly chartered unit of Community Bancorp LLC in Houston. The new bank also agreed to assume the thrift's deposits and entered into a loss-sharing agreement with the FDIC on $1.84 billion of its assets.

Superior Bancorp had tried to recapitalize the thrift by filing a $58 million claim against the Gulf Coast Claims Facility, a fund created by BP to cover damages from the Deepwater Horizon oil spill. The lender said the spill put additional stresses on its portfolio.

 

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