Banking, finance, and taxes

SEC Announces Fraud Charges Against Superior Bank Executives

Chris Lange

Published: January 14, 2016 1:35 pm

Last Updated: January 13, 2020 3:01 pm

The U.S. Securities and Exchange Commission (SEC) announced fraud charges against 11 former executives and board members at Superior Bank, as well as its holding company. These executives were involved in various schemes to conceal the extent of loan losses as the bank was faltering in the wake of the financial crisis. This bank would fail in 2011.

The SEC alleged in its complaint that high-ranking officers and directors schemed to mislead investors and bank regulators by propping up Superior Bank’s financial condition through straw borrowers, bogus appraisals and insider deals.

Specifically, they improperly extended, renewed and rolled over bad loans to avoid impairment and the need to report ever-increasing allowances for loan and lease losses in its financial accounting. As a result, Superior Bank overstated its net income in public filings by roughly 99% for 2009 and 50% for 2010.

Nine of the 11 bank officers and directors have agreed to settle the SEC’s charges without admitting or denying the charges. Contesting the SEC’s complaint filed in federal district court in Tallahassee are Kenneth D. Pomeroy, who was president of Superior Bank’s central Florida region, and William C. McKinnon, who was a senior vice president and commercial loan officer.

The settlements for the nine officers are as follows. In addition, none are allowed to serve as officers or directors of a public company.

• Charles S. Bailey, former CEO and chairman of the bank’s holding company Superior Bancorp, must pay a $250,000 penalty.
• James A. White, former chief financial officer of Superior Bancorp, must pay a $200,000 penalty.
• Dewayne S. Maddox, former market executive at Superior Bank, must pay a $200,000 penalty.
• William H. Caughran, former general counsel of Superior Bank and Superior Bancorp, must pay a $150,000 penalty.
• Charles W. Roberts III and Robert R. Parrish Jr., who served as outside directors at Superior Bancorp, must each pay $100,000 penalties.
• Superior Bank’s former president and CEO Charles M. Scott Jr., former chief credit officer John E. Figlewski and former president George J. Hall have each agreed to bifurcated settlements in which the court will determine financial penalties at a later date.

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Andrew J. Ceresney, director of the SEC’s Enforcement Division, commented:

Accurate and fair reporting of loan impairment is of paramount importance for financial institutions during periods of severe financial stress. Superior’s senior-most officers and certain directors allegedly engaged in a widespread and egregious accounting fraud by concealing significant losses from loan impairments.

Walter E. Jospin, director of the SEC’s Atlanta Regional Office, added:

We allege that pervasive fraudulent behavior rippled through the executive offices at Superior Bank in a calculated effort to mislead investors on the amount of loan losses and disguise the bank’s flailing financial condition.