Two senior officers tied to a fraud that eventually led to Sterling Financial Corp.'s forced sale have settled a civil lawsuit with the Securities and Exchange Commission.
The SEC filed the civil action Thursday in the U.S. District Court for the Eastern Division of Pennsylvania against Joseph Braas of Lilitz, Pa., and Michael Schlager of Lancaster, Pa. They were senior officers of Equipment Finance LLC, a unit of Sterling Financial, which was based in Lancaster.
In 2007, Sterling uncovered fraud at the finance unit and a resulting $281 million in charges wiped out half of Sterling's equity and erased three years of earnings. The $3.3 billion-asset company sold itself to PNC Financial Services Group Inc. in Pittsburgh as a result of the fraud.
The SEC's complaint alleged that from February 2002 to April 2007, Braas and Schlager, "orchestrated a pervasive and wide-ranging scheme using fraudulent underwriting and reporting practices to hide mounting losses and defaults."
The agency barred the former executives from serving as officers or directors of a public company. Braas was ordered to pay $1.5 million and Schlager was ordered to pay $1.1 million. Given that both former executives agreed to pay restitution as part of their pleas in a related criminal case, the amounts would be deemed satisfied by equal restitution orders. The settlement agreements are awaiting final approval from the court.