EagleBank settles insider lending fees brought by regulators

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EagleBankone of the largest community banks in the Washington, D.C. metro area, has entered into agreements with the Federal Reserve Board and the US Securities and Exchange Commission (SEC) following insider lending allegations made against the bank and its former chief executive, Ronald Paul.

The bank, which operates a mortgage unit, and its holding company, Eagle Bancorp Inc., agreed to pay a total of $22.9 million in penalties, and Paul some $521,000, to settle the actions brought by the two regulators.

The Federal Reserve alleges the bank improperly extended loans of nearly $100 million to family trusts controlled by then-CEO and Chairman Paul without making necessary disclosures to the board or obtaining board approvals. The bank agreed to pay a $9.5 million fine for violating insider lending regulations, according to the Federal Reserve’s announcement of the settlement.

“These internal control deficiencies also extended to the bank’s oversight of loan staff, which allowed Paul to participate in matters in which he had a conflict of interest,” the announcement added. “The [Federal Reserve] The board also cited EagleBank for third-party risk management shortcomings during the same period that resulted in inadequate oversight of contracts between the bank and a local government official.

Additionally, the banking regulator permanently barred Paul, who was employed by EagleBank from 1998 to 2019, from future employment in the banking industry and fined Paul $90,000 for “his pivotal role in violations of the law by the bank and its dangerous and unhealthy practices”. ”

The Federal Reserve Board’s regulatory action says that while all of the insider loans have since been repaid except one, which is still performing, “Paul’s conduct has posed risks to the bank.”

The Federal Reserve Board also notes that it previously barred former EagleBank general counsel Laurence Bensignor from banking for his role in the bank’s dangerous and unsound lending practices.

In a parallel action, the SEC also reached a settlement with EagleBank and Paul regarding accusations that they made false statements through press releases, news articles and in meetings with investors regarding the loans. inappropriate insiders.

“Adequate disclosure of related party transactions is essential to enable investors to assess an issuer’s corporate governance,” Sanjay Wadhwa, deputy director of the SEC’s enforcement division, said in a statement. . “Here, when faced with a report from a short seller alleging undisclosed loans to bank-related parties, Eagle and Paul failed to respond truthfully and accurately.”

As part of the SEC settlement, without admitting or denying the allegations, EagleBank agreed to pay $12.6 million in restitution and civil penalties, plus prejudgment interest of $750,493, and Paul agreed to a restraining order. two years of serving as an officer or director, penalties totaling $409,000, plus prejudgment interest of $22,216. Paul’s settlement is still subject to court approval.

The SEC lawsuit against Paul was filed in the Southern District of New York and accuses him of “violating negligence-based anti-fraud and power of attorney provisions and making false certifications,” according to the SEC.

Headquartered in Bethesda, Maryland, EagleBank, launched in 1998, is a full-service commercial bank with $10.9 billion in assets and some 20 offices in the greater Washington, DC metro area. The lender posted a net profit of $25.2 million in the second quarter, compared to $45.7 million in the first quarter.

The bank’s mortgage arm blocked $92 million in loan commitments for the second quarter, down from $136.7 million in the prior quarter. “As interest rates continued to rise in the second quarter, refinancing activity continued to slow, resulting in fewer blocked loans,” notes the company’s second quarter income statement. bank.

The lender’s residential mortgage portfolio stood at $72.8 million and its home equity loan portfolio at $53.2 million at the end of the second quarter of this year, according to the company’s income statement. bank.

In a press release responding to the Federal Reserve Board (FRB) and SEC charges, and related settlement agreements, EagleBank said the following:

“We are pleased that the SEC and FRB have approved the settlements and we can now put these legacy issues behind us and continue to focus on running one of the most profitable community banks in the Washington, D.C. area.” said Susan Riel, the current CEO of EagleBank.