BankAtlantic Jury Finds Lender, CEO Lied About Loans

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The company formerly known as BankAtlantic Bancorp Inc. and its chief executive officer were found by a jury to have deceived investors about problems with its real estate loans ahead of the 2008 collapse in the market.

BBX Capital Corp. and CEO Alan B. Levan were accused by the U.S. Securities and Exchange Commission of failing to fully disclose weaknesses in the portfolio and engaging in improper accounting treatment of some loans. BBX Capital, as the firm is now called, fell 7.3 percent after the verdict was announced today.

After a six-week trial in Miami, jurors found that Levan fraudulently misled investors about the financial health of the bank and that Levan and BBX “engaged in a course of business that operated as a fraud throughout 2007,” according to the SEC. BBX’s 2007 annual report fraudulently understated its loss for that year by about $53 million, the SEC said.

Based on the verdict, the judge will be asked to decide on relief requested by the SEC, including whether to bar Levan from leading a public company.

Jurors, who began deliberating Dec. 12, didn’t agree with all of the claims of misrepresentation alleged by the SEC. Levan’s attorney, Eugene Stearns, had argued that the executive did disclose that the loans were problematic but didn’t realize how much worse the market would get.

Performing ‘Well’

“We could not win,” Stearns said today after the verdict, noting that the judge had instructed jurors to consider some statements made by Levan during a conference call to be false, including that the portfolio “continues to perform extremely well.”

“The statements were true,” Stearns said today. “He said the loans were performing well. That was not a false statement.”

The company and Levan said they plan to challenge the verdict. They said the jury found in their favor except for three sentences uttered by Levan in the conference call.

“BBX was one of the first companies to recognize the severity of the housing market crash and accept the losses most others ignored for many months,” Levan said today in a statement. “If this part of the verdict is allowed to stand, no officer of any public company could ever again safely participate in earnings conference calls.”

The SEC is “pleased” with the jury’s findings that the firm and Levan “committed securities fraud in connection with BBX’s public disclosures and financial statements,” Andrew Ceresney, the agency’s director of enforcement, said in a statement.

SEC Actions

“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,” he said.

The SEC sought to show that Levan falsely downplayed loan problems in SEC filings and shareholder conference calls in 2007, in spite of knowing that many real estate loans were in danger of default.

SEC also argued that the bank underestimated losses on a group of loans that it tried to sell in 2007. The bank argued that it was only conducting a market test and actually didn’t intend to sell the loan portfolio.

“This case is still about lies,” SEC attorney Jim Carlson said during closing arguments on Dec. 12. “It is about covering up the information which investors and shareholders had the right to know. They had a reason not to tell the truth -- to make the bank look financially stronger than it was.”

Levan has been chairman and CEO of the bank’s former holding company since 1994.

‘Soft Landing’

In his arguments, Stearns pointed to public statements made by former Federal Reserve Chairman Ben Bernanke in 2007 to allege that the experts Levan trusted were still saying there would be a “soft landing.”

“What hurt the value of the stock wasn’t a lie,” Stearns told jurors during closing arguments Dec. 12. “It was the truth.”

The case resembles a shareholder class action against Levan and BankAtlantic that went to trial in 2010. While shareholders won a jury verdict, a judge in the case later ruled there wasn’t sufficient evidence against Levan or the bank and threw out the verdict.

The SEC said in its complaint that Levan knew 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. In the first two quarters of 2007, BankAtlantic made only general warnings about risks related to Florida’s real estate market and failed to disclose the downward trend already occurring in its portfolio, the SEC said.

The bank acknowledged the problem in the third quarter of 2007 by announcing a large loss, which caused its stock to plunge 37 percent, the SEC said.

The case is SEC v. BankAtlantic Bancorp Inc., 12-cv-60082, U.S. District Court, Southern District of Florida (Miami)