The Securities and Exchange Commission has filed accounting and disclosure fraud charges against Wilmington Trust for failing to report the true volume of its loans at least 90 days past due as they substantially increased in number during the financial crisis. The successor to the bank has agreed to pay a multimillion dollar settlement.
The federal regulatory agency also disclosed that the investigation is continuing.
The civil charges come after criminal cases being filed against former officers of the bank that was later acquired for $300 million by M&T after the extent of the loan losses became clear. Criminal investigations are also continuing at the federal level.
An SEC investigation found that as the real estate market declined in 2009 and 2010 and its construction loans began to mature without repayment or completion of the underlying project, Wilmington Trust Company did not renew, extend, or take other appropriate action for 90 days or more on its matured loans. Instead of disclosing the amount of these accruing loans as required by accounting guidance, Wilmington Trust excluded the matured loans from its public financial reporting.
Wilmington Trust, which was acquired by M&T Bank in May 2011, has agreed to pay $18.5 million in disgorgement and prejudgment interest to settle the SEC’s charges.
“Improper application of accounting principles by Wilmington Trust had the effect of misleading investors about a key credit quality metric during a time of significant upheaval and financial distress for the bank,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement. “Investors must know when banking institutions are unable to recover on material amounts of outstanding loans, which means those institutions must carefully adhere to relevant accounting rules.”
Andrew M. Calamari, Director of the SEC’s New York Regional Office, added, “By failing to fully disclose the actual volume of accruing loans past due 90 days or more, Wilmington Trust prevented investors from learning the full scope of the troubles in its commercial real estate loan portfolio.”
According to the SEC’s order instituting a settled administrative proceeding, Wilmington Trust omitted from its disclosures in the third and fourth quarters of 2009 approximately $338.9 million and $330.2 million, respectively, in matured loans 90 days or more past due. Instead, it disclosed just $38.7 million in such loans for the third quarter and only $30.6 million in its annual report following the fourth quarter.
Wilmington Trust also materially misreported this category of loans in the first and second quarters of 2010. Furthermore, Wilmington Trust failed to accurately disclose during the second half of 2009 the amount of non-accruing loans in its portfolio, and materially understated its loan loss provision and allowance for loan losses during this same period, according to the SEC filing.
In addition to the monetary sanctions, Wilmington Trust (M&T) agreed to cease and desist from committing or causing any violations and any future violations of these provisions.
M&T had previously cautioned that it faced costs related to its acquisition of Wilmington Trust. However, with a market value of $16.4 billion, the fine won’t have much of an impact on the financials of the company.
The SEC’s investigation, which is continuing, has been conducted by Margaret Spillane, James Addison, and Michael Osnato of the New York Regional Office. The SEC acknowledged the assistance of the U. S. Attorney’s Office for the District of Delaware, Federal Bureau of Investigation, Federal Reserve, and Office of the Special Inspector General for the Troubled Asset Relief Program.
