Trinity Capital in N.M. to Pay $1.5M to Settle SEC Investigation

Trinity Capital in Los Alamos, New Mexico, and its subsidiary Los Alamos National Bank will pay a $1.5 million penalty to the Securities and Exchange Commission following charges of accounting fraud.

The $1.5 billion-asset Trinity was also placed under a cease-and-desist order with the regulator, according to a news release.

The charges stem from an investigation into Trinity's reporting of its quarterly and annual filings with the SEC from 2010 through the first two quarters of 2012.

The SEC investigation alleged that Trinity misreported its provision for loan losses and its allowance for loan and lease losses. In 2011, for instance, the bank reportedly recorded net income of $4.9 million instead of a $25.6 million loss through the manipulation.

Trinity made the changes to have Los Alamos National Bank released from a formal supervisory agreement with the Office of the Comptroller of the Currency, the SEC said.

Trinity did not admit or deny the SEC's allegations.

John Gulas, the bank's CEO and president, told American Banker that he feels the matters addressed in the C&D order are largely concluded.

The order "basically tells us not to do this again," Gulas said.

The $1.5 million penalty will not affect future earnings, as the money had already been set aside in an escrow account prior to the charges being announced, Gulas said.

Former executives at the bank holding company, including chief executive William Enloe, chief credit officer Jill Cook and senior lending officer Mark Pierce, directed the fraud, according to the SEC.

All the individuals associated with the alleged misdoings have since left the company, Gulas said.

Enloe, Cook and Pierce were also charged by the SEC, along with former chief financial officer Daniel Bartholomew and the vice president of internal audit Karl Hjelvik. Bartholomew and Hjelvik were cited for not implementing appropriate internal controls and monitoring reporting to prevent such fraud.

"Trinity was facing dire financial straits but rather than accurately report its losses, we allege that the firm's executives grossly misreported its income to shareholders and regulators," Andrew Ceresney, director of the SEC's enforcement division, said in a release.

Enloe, Bartholomew and Hjelvik have agreed to settle with the SEC, while litigation continues against Cook and Pierce. Trinity has agreed to submit to further investigation and assist the SEC in proceedings, the company said in a Sept. 29 news release.

"The SEC's acknowledgement of significant remedial measures and [Los Alamos National Bank's] willingness to cooperate demonstrate its resolve to move forward," Gulas said in a release. "The bank has undertaken significant actions to correct the causes of the SEC restatement and prevent any similar occurrences in the future."

"Most of the charges are specifically directed at individuals and our part in it has concluded as an organization," Gulas said in an interview.

Trinity announced in November that it would restate earnings going back to 2009. The bank agreed to consent orders with the OCC in December 2013 and the Federal Reserve in September 2013. Gulas became CEO last May, succeeding Enloe, who stepped down in May 2013.