Two recent SEC enforcement cases continue to remind us that the SEC’s anti-fraud enforcement program is alive and well, and that the anti-fraud provisions of the federal securities laws apply to private companies as well as public companies.
First, on January 18, the SEC filed securities fraud charges against BankAtlantic Bancorp, the holding company of Florida’s BankAtlantic, and its Chairman and CEO Alan Levan, in connection with alleged false and misleading statements and improper accounting in order to hide problems with the bank’s commercial residential real estate land acquisition and development portfolio during the beginning of the financial crisis in 2007. According to the SEC’s complaint, BankAtlantic and Mr. Levan knew that a large portion of the portfolio was deteriorating in early 2007 because many of the loans required extensions due to the borrower’s inability to meet their obligations on the loans. Some loans were kept current only by extending the loan terms or replenishing the interest reserves from an increase in loan principal. Further, many of the loans had been internally downgraded. However, during the first two quarters of 2007, despite being aware of these issues, the company’s public filings contained only general risk disclosure about what could happen if Florida’s real estate downturn continued and no discussion of the existing problems in the commercial residential loan portfolio....
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