Nebraska: So Much Financial Fraud…1st NELNET, then NU/NU Foundation, then TierOne, & Gallup; Now, TierOne’s Paying the Federal Piper Just Like NELNET did in 2010; What Will Gallup’s “Settlement” Be?

September 25, 2012

Uncategorized

WASHINGTON, D.C. by Ivy Harper (exclusive)

One day in the Spring of 2011 at a Bethesda, Maryland, Starbucks, I sat down at the genius bar next to a late twenty-something young man who was a whiz on his Mac computer.

I had a problem on mine so I asked him for help and we ended up chatting for quite a while. Early on, I learned that he worked in Chevy Chase and that he was a native. He then politely asked where I was from and when I said, “Lincoln, Nebraska,” he let out a sigh and said with a shake of his head, “Oh man, I’ve been to Lincoln.”

Naturally, I responded with surprise because Marylanders invariably say that they’ve never been.

Curious of course, I asked him why he’d traveled to Lincoln. “On business,” he said almost as if he didn’t want me to pursue this line of conversation. But the tone in which he spoke – reserved, dour almost – made me ultra interested.

“Well, what kind of business are you in?” I asked.

“The company I worked for was going to purchase TierOne,” he said flatly.

By then, I knew TierOne’s fate so I pressed on. “And…what happened?”

“It was a mess. Their books were a mess,” he said, “an absolute, unmitigated mess. We passed.”

And there you have it: today, the SEC announced that it has “settled” with yet another Nebraska company accused of financial fraud. What’s up with that.

Below is this afternoon’s Lincoln Journal Star (LJS) article on TierOne’s troubles but the LJS is not “allowing” Comments. Why?

SEC charges former TierOne executives

The Securities and Exchange Commission on Tuesday announced charges against three former TierOne Corp. executives, saying the trio participated in a scheme to understate millions of dollars in losses at TierOne Bank and mislead investors and federal regulators.

The SEC lodged complaints against former CEO Gilbert Lundstrom, President and Chief Operating Officer James Laphen and Chief Credit Officer Don Langford.

Also Tuesday, the SEC said Lundstrom and Laphen reached an agreement to pay penalties to settle complaints against them.

The charges include violations of the anti-fraud, deceit of auditors, reporting, record-keeping and internal controls provisions of federal securities laws.

The SEC also charged Lundstrom’s son, Trevor Lundstrom, with insider trading.

The Lundstroms and Laphen agreed to settle the complaints against them for more than $1.2 million. The complaint against Langford is ongoing, the SEC said in a news release.

The charges stem from huge losses the Lincoln-based bank incurred from real estate loans made in Nevada, Arizona, Florida and other areas hit hard by the housing bust.

Those losses eventually led to the bank’s failure and sale of its assets to Great Western Bank in June 2010.

According to the complaint against Lundstrom and Laphen, filed Tuesday in U.S. District Court in Omaha, the two “participated in a scheme to mislead TierOne’s bank regulator and investors about TierOne’s true financial condition.”

“They did so by materially understating TierOne’s loan losses and losses on real estate repossessed by the bank … so that the bank would appear to meet its mandated regulatory capital requirements,” the SEC said.

The complaint against Langford alleges he and other senior executives “began a scheme to manipulate and materially understate TierOne’s loan and other real estate owned losses.”

“As a key part of the scheme, Langford disregarded information showing that the collateral securing certain of TierOne’s loans and TierOne’s (other real estate) was substantially over-valued due to the bank’s reliance on stale and inadequately discounted appraisals.”

The actions of Lundstrom, Laphen and Langford led the company to make material misstatements in its public securities filings on at least three occasions, the SEC said.

Because of this, the SEC said, the extent of TierOne’s losses did not become publicly known until late 2009, after the bank’s regulator, the Office of Thrift Supervision, required it to get new appraisals for its impaired loans.

At that point, TierOne declared more than $130 million in loan losses. Had those losses been revealed when they should have been, the SEC said, the bank would have run afoul of regulatory requirements regarding required capital levels as early as the fourth quarter of 2008.

“A fundamental test of management integrity is whether executives make full and honest disclosure in times of company stress, the exact point when shareholders have the greatest need for accurate information,” Robert Khuzami, director of the SEC’s Division of Enforcement, said in a news release. “The SEC’s complaints allege that as TierOne’s financial condition worsened, these executives utterly failed that test by understating losses on the bank’s troubled loans and concealing the bank’s deterioration from shareholders and regulators alike.”

In the insider trading case, the SEC alleges that Gilbert Lundstrom gave his son confidential details about a proposed asset sale between TierOne and Great Western in 2009.

TierOne had agreed to sell 32 branches in Nebraska and Iowa to Great Western for $39 million. However, regulators never approved the sale, and it did not go through.

The SEC says that, using the non-public information from his father, Trevor Lundstrom bought nearly 210,000 TierOne shares between June and September 2009 and then sold his holdings after a public announcement of the proposed sale on Sept. 4 of that year.

As part of his settlement with the SEC, Gilbert Lundstrom agreed to pay a fine of $500,921. Laphen agreed to pay a $225,000 fine.

Both men also are permanently barred from serving as an officer or director of any bank.

Trevor Lundstrom agreed to pay back the $225,921 in profits he gained from his alleged insider trading, plus interest, as well as a $225,921 penalty.

An attorney for Laphen said in a statement that he neither admitted to nor denied the SEC charges but was “pleased to have resolved this issue with the SEC.”

Gilbert Lundstrom’s attorney, Greg Scaglione of Omaha, said the settlement means his client and the SEC have “resolved all their differences.”

“Mr. Lundstrom retired from TierOne Bank almost three years ago and has cooperated with various investigations regarding the failure of the bank,” Scaglione said. “Mr. Lundstrom is pleased to have made arrangements with the SEC to complete its investigation and to end this matter.”

Scaglione said terms of the settlement prohibit Lundstrom from commenting on the specific SEC claims, but he noted that the settlement does not include an admission of guilt.

Attorneys for Trevor Lundstrom and Langford could not be reached for comment.

Reach Matt Olberding at 402-473-2647 or molberding@journalstar.com

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