Sterling Bank to Pay $27M to Settle Fraud Charges

Michigan-based Sterling Bancorp has agreed to pay $27 million and plead guilty to fraud charges linked to false statements made during its 2017 IPO.

The bank’s senior management encouraged loan officers to falsify documents and conceal information from its underwriting and quality control departments to increase residential mortgage volumes and revenue ahead of the listing, according to the Department of Justice (DoJ).

The fraud, which related to Sterling’s Advantage Loan Program, continued post-IPO and affected information in the bank’s 2018 and 2019 annual reports, the DoJ said. In total, it cost affected shareholders almost $70 million.

“For years, Sterling originated residential mortgages that were rife with fraud to pad its bottom line and then lied about these loans in its IPO and subsequent public filings, defrauding unwitting investors,” said Kenneth Polite, assistant attorney general at the DoJ’s Criminal Division.

“This proposed guilty plea reflects the nature and seriousness of the wrongdoing and demonstrates the Department of Justice’s commitment to protecting the integrity of our public markets, holding corporations accountable for their criminal misconduct, and compensating victims for their losses.”

In a statement, Sterling Bancorp said it had pleaded guilty to one charge of securities fraud relating to its Advantage Loan Program. It also agreed to pay $27.2 million in restitution to shareholders and to “further enhance its compliance program and internal controls related to securities law compliance”.

Thomas O’Brien, Sterling Bancorp’s chairman, president and CEO — who joined the company in 2020 to lead its remediation efforts — said the settlement was “crucial to the long-term benefit of the company and its shareholders”.

He added: “We accept this outcome as a fair settlement of the damage done to non-insider victim-shareholders. We trust that accountability for certain individuals should be forthcoming, and we certainly hope that such accountability will recognize the significant damage they did to Sterling and its shareholders during their tenure.”

Alongside the DoJ, the investigation also involved the Federal Bureau of Investigation, the Federal Reserve, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, and the US Postal Inspection Service.