On March 15, the United States Department of Justice (DOJ) reported that Sterling Bancorp, Inc., headquartered in Southfield, Michigan, and the holding company for Sterling Bank and Trust F.S.B., has agreed to plead guilty to securities fraud.1
Sterling Bancorp has branch offices in Southfield, San Francisco, Los Angeles, Seattle and New York. The securities fraud was related to an initial public offering (IPO) which the bank completed in 2017 as well as the Bank’s 2018 and 2019 annual filings. The bank trades on the NASDAQ under the ticker symbol SBT.
The DOJ alleges that investors were defrauded by the bank due to fraudulent residential mortgages which the bank originated starting in 2011 as a way to increase its revenue prior to its IPO filing.
The bank created a mortgage loan program called the Advantage Loan Program (ALP) in 2011 and originated at least $5 billion in ALP loans between 2011 and 2019.2 This program was marketed as having flexible documentation requirements. While most bank loans require payroll records or tax returns to establish the applicant’s income, the ALP did not require this type of documentation which is critical in assessing a borrower’s credit worthiness.
ALP loans required a minimum of 35% down payment and charged higher interest rates and fees than loan programs generally did during that time period. Sterling Bank also marketed this loan program as having fast underwriting and closing capabilities. The ALP program catered to Asian borrowers in San Francisco, Los Angeles, New York and Seattle.3
According to the DOJ, senior bank executives, including the bank founder, were aware that the Bank’s loan officers were falsifying and concealing information from the Bank’s Underwriting Department and Quality Control Department if that information might delay or prevent the bank from originating ALP loans.
This widespread fraudulent behavior resulted in the bank extending credit to borrowers who otherwise would not have qualified for loans based on the Bank’s underwriting guidelines.
When Sterling filed its IPO paperwork in 2017, the SEC Form S-1 “contained materially false and misleading statements that touted the soundness of the ALP loans.”4
The DOJ reported that “as a result of Sterling’s fraud, the total loss to Sterling’s non-insider victim-shareholders was nearly $70 million.”5 The plea agreement has to be accepted by the court and if approved will require that the company accept probation until 2026, submit to enhanced reporting requirements and pay more than $27.2 million in restitution to non-insider victim shareholders.
The restitution amount is the highest amount that was determined the bank could pay and still keep the bank solvent.
Our Securities Law Firm located in the Detroit Metro area works tirelessly to defend investors’ rights and recover losses by holding fraudulent stockbrokers accountable. If you believe that you or a loved one has experienced a disservice by a stockbroker or investment professional, please contact our Michigan Securities Firm today.
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1,2,4,5 Sterling Bancorp, Inc. to Plead Guilty to $69M Securities Fraud. 3/15/2023
Link: https://www.justice.gov/opa/pr/sterling-bancorp-inc-plead-guilty-69m-securities-fraud
3 Southfield-based Sterling Bancorp to Plead Guilty to $69M Securities Fraud, by Mark Hicks, 3/15/2023
Link: https://www.detroitnews.com/story/business/2023/03/15/southfield-based-sterling-bancorp-to-plead-guilty-to-69m-securities-fraud/70014673007/