Risk & Compliance

Florida Lender, CEO Found Liable for Misleading Investors

A jury's finding allows the SEC to pursue civil actions against BBX Capital and its chairman, Alan Levan.
Matthew HellerDecember 17, 2014

The U.S. Securities and Exchange Commission has prevailed on most of the claims in a lawsuit alleging real estate investment firm BBX Capital and its CEO misled investors about the health of residential development loans during the 2007 financial meltdown.

A federal jury found BBX, formerly known as BankAtlantic Bancorp, and Alan Levan, who remains chairman and CEO, committed securities fraud in connection with BBX’s public disclosures, including a July 2007 investor conference call in which Levan said the company’s loan portfolio “continues to perform extremely well.”

According to the SEC, Levan knew that a large portion of the portfolio, which consisted mainly of loans on land intended for development into single-family housing and condominiums, was worsening in early 2007 as borrowers struggled to make payments.

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After BBX announced in October 2007 that it would suffer a loss of $29.6 million from continuing operations for the third quarter ended Sept. 30, 2007, the bank’s share price plunged 37%.

“We will continue to hold CEOs and other senior executives of public companies accountable, including through trials, if they engage in financial fraud and other violations of the federal securities laws,” Andrew Ceresney, director of the SEC’s Division of Enforcement, said in a news release after the jury reached its verdict.

The panel did not find that BBX’s alleged conduct rise to the level of a “scheme or device” to defraud, but the finding of liability means the SEC can now seek civil penalties and a bar against Levan serving as an officer or director of public companies.

Levan plans to appeal, telling the South Florida Sun Sentinel that it was a “very complicated securities and accounting case” and the SEC presented “smoke and mirrors in front of a jury that’s not familiar with the elements.”

The SEC sued BBX and Levan in January 2012, alleging they publicly minimized the risks in the bank’s commercial residential loan portfolio when in reality, they had significant concerns about borrowers’ ability to pay.

The jury also found the defendants committed accounting fraud by not classifying $253 million in deteriorating loans that it tried to sell in 2007 as “held for sale,” as required by GAAP.

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