Cincinnati-based Fifth Third Bank has been accused of using improper accounting on commercial real estate loans during the depths of the financial crisis.
In 2007 and 2008, the bank experienced significant rise in non-performing assets as borrowers failed to make payments as required.
So Fifth Third made a decision in the third-quarter 2008 to unload large pools of the distressed loans.
But even though accounting rules require that such assets be classified as held-for-sale and marked down to fair value, Fifth Third continued to classify the loans as held-for-investment.
The misclassification incorrectly suggested that no decision had been made to sell the loans and enabled the company to avoid increasing pre-tax losses by 132 percent.
The Securities and Exchange Commission announced Wednesday that it charged parent Fifth Third Bancorp and former chief financial officer Daniel Poston with improper accounting of CRE loans.
The bank has agreed to pay $6.5 billion to settle the SEC’s charges.
Without admitting or denying the findings, Fifth Third and Poston consented to the entry of a cease-and-desist order finding that they violated or caused violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 as well as the reporting, books and records, and internal controls provisions of the federal securities laws.
Poston, who will pay a $100,000 penalty, has been suspended from appearing or practicing before the SEC as an accountant pursuant to Rule 102(e) of the commission’s rules of practice. However, he has the right to apply for reinstatement after one year.
“Poston was familiar with the company’s loan sale efforts, which included entering into agreements with brokers during the third quarter of 2008 to market and sell loans,” the securities regulator stated. “Despite understanding the relevant accounting rules, Poston failed to direct Fifth Third to classify and value the loans as required. Poston also made inaccurate statements to Fifth Third’s auditors about the company’s loan classifications, and certified the company’s inaccurate results for the third quarter of 2008.”
