Risk & Compliance

N.M. Bank Settles Fraud Charges for $1.5M

Trinity Capital and some of its executives 'grossly misreported its income to shareholders and regulators,' says the SEC.
Matthew HellerSeptember 29, 2015

Trinity Capital has agreed to pay $1.5 million to settle charges that its Los Alamos National Bank subsidiary understated loan losses by nearly $36 million to hide the bank’s “dire” financial condition from investors and regulators.

Five current or former Los Alamos executives including former CFO Daniel Bartholomew were also charged with accounting fraud in court papers filed Monday by the U.S. Securities and Exchange Commission.

According to the SEC, the alleged fraud was motivated at least in part by the New Mexico bank’s desire to be released from a formal supervisory agreement with the Office of the Comptroller of the Currency, its primary regulator.

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“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 J. Ceresney, director of the SEC’s Division of Enforcement, said in a news release. “We will hold senior executives liable when they misstate the company’s performance and fail to come clean with shareholders.”

Trinity, former Los Alamos CEO William Enloe, Bartholomew, and Vice President of Internal Audit Karl Hjelvik agreed to settle the SEC’s charges, while litigation continues against former Chief Credit Officer Jill Cook and former Senior Lending Officer Mark Pierce.

Los Alamos experienced an increase in problem loans as the New Mexico economy declined during the financial crisis. In response, the SEC said, management “caused the bank to engage in false and misleading accounting and reporting” to conceal its loan delinquencies, declining collateral values, and the true nature of its loan portfolio.

Among other things, Enloe, Cook, and Pierce allegedly directed Trinity’s loan department not to downgrade loans that were delinquent, to make delinquent loans appear to be paying on time, and not to identify loans for which the bank was not going to be paid in full.

The SEC said ex-CFO Bartholomew knew or should have known that some appraisal valuations were significantly overstated and failed to implement adequate internal accounting controls. As part of the settlement of the charges against him, he has agreed to assist the SEC with its case against Cook and Pierce.