Sterling Bancorp Inc. pleads guilty to security fraud and pays $27.2 Million in restitution

Sterling Bancorp Inc. agreed to plead guilty to one count of securities fraud and to pay US$27.2 million in restitution to shareholders. The Government says the bank covered up misconduct in its lending business ahead of its initial public offering and in subsequent financial statements.

The bank will pay US$27.2 million in restitution to shareholders.

The allegations relate to the bank’s residential mortgage loan program, established in 2011, which didn’t require typical loan documentation such as tax returns or payroll records, but charged higher rates and fees. According to the DoJ, to boost mortgage originations under the program in the lead-up to Sterling Bancorp’s IPO, loan officers — with the knowledge of the bank’s senior management — falsified or hid information from the underwriting department that they believed could have prevented mortgages from being approved. That resulted in loans to borrowers who wouldn’t have otherwise qualified being approved, boosting the bank’s revenues.

As part of the plea agreement, the bank agreed to fully cooperate with U.S. authorities, and the DoJ said the bank received credit for cooperation and for its remediation efforts, which included terminating more than 100 employees and officers involved with the misconduct; overhauling senior management, residential lending, compliance and audit functions; and creating a new risk-management function.

In 2022, the bank also agreed to pay a US$ 6 million penalty to the Office of the Comptroller of the Currency (OCC) to resolve allegations that it engaged in unsafe practices and violated various statutes. It also paid US$12.5 million to settle a shareholder class action.

Additionally, the DoJ agreed not to seek a criminal fine to maximize shareholder restitution in the case.

The allegations relate to the bank’s residential mortgage loan program, established in 2011, which didn’t require typical loan documentation such as tax returns or payroll records, but charged higher rates and fees.

According to the DoJ, in order to boost mortgage originations under the program in the lead-up to Sterling Bancorp’s IPO, loan officers — with the knowledge of the bank’s senior management — falsified or hid information from the underwriting department that they believed could have prevented mortgages from being approved.

That misconduct led to loans to borrowers who wouldn’t have otherwise qualified being approved, boosting the bank’s revenues. As part of the plea agreement, the bank agreed to cooperate with U.S. authorities fully, and the DoJ said the bank received credit for cooperation and for its remediation efforts, which included terminating more than 100 employees and officers involved with the misconduct, overhauling senior management, residential lending, compliance and audit functions; and creating a new risk-management function.

In 2022, the bank also agreed to pay a US$6-million penalty to the Office of the Comptroller of the Currency (OCC) to resolve allegations that it engaged in unsafe practices and violated various statutes. It also paid US$12.5 million to settle a shareholder class action.

Jeffrey Newman is a whistleblower lawyer who handles SEC whistleblower cases and False Claims Act cases. He can be reached at 617-823-3217 or JeffNewman@JeffNewmanLaw.com. His website is www.Jeffnewmanlaw.com