Risk & Compliance

Ex-CFO, Others Charged in Superior Bank Fraud

Superior’s senior-most officers and certain directors concealed significant losses from loan impairments during the mortgage meltdown, alleges the ...
Matthew HellerJanuary 14, 2016

Eleven former executives and board members at Superior Bank and its holding company have been charged with engaging in a “massive series of accounting frauds” to hide loan losses as the Alabama-based bank spiraled toward collapse.

In a civil complaint the U.S. Securities and Exchange Commission alleged that, when faced with bad loans amid the mortgage meltdown, the defendants used straw borrowers, bogus appraisals, and insider deals to avoid properly classifying the loans as impaired and increasing the allowance for loan and lease losses.

As a result, the SEC said, Superior Bank, which collapsed in April 2011, overstated its net income in public filings by approximately 99% for 2009 and 50% for 2010.

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Former Superior Bancorp CFO James White agreed to pay a $200,000 penalty to settle the charges against him while eight other defendants including ex-Superior Bancorp CEO Charles Bailey also agreed to settlements. Only Kenneth Pomeroy, who was president of Superior Bank’s central Florida region, and William McKinnon, who was a senior vice president and commercial loan officer, are contesting the complaint.

“Accurate and fair reporting of loan impairment is of paramount importance for financial institutions during periods of severe financial stress,” Andrew J. Ceresney, director of the SEC’s Enforcement Division, said in a news release. “Superior’s senior-most officers and certain directors allegedly engaged in a widespread and egregious accounting fraud by concealing significant losses from loan impairments.”

According to the SEC, the fraud involved many of the largest loans in Superior Bank’s portfolio and, among other things, the defendants concealed the loan problems by replacing the borrowers of record for a severely delinquent loan with alternative borrowers who typically were in default on multiple other loans from the bank.

Additionally, the SEC alleged, bank officials used out-of-date appraisals that routinely overstated the value of the loan properties and identified wholly inaccurate or unviable projected future uses of the properties.

Bailey, CFO White, and two former Superior Bank executives — CEO Charles Scott and President George Hall — were also charged with orchestrating a separate accounting fraud by failing to appropriately impair more than $250 million in substandard loans being actively marketed for sale to third parties at less than 50 cents on the dollar.

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