Sterling Bancorp in Southfield, Michigan is under investigation by the Department of Justice for issues related to its mortgage business.
The $ 3.3 billion asset company revealed in a regulatory filing last Friday that it had received jury quotes from the agency seeking documents and information associated with its residential lending practices and related matters. Sterling said he was cooperating in the investigation.
Sterling has also revealed that it is collaborating with the Currency Controller Office, which is reviewing the bank’s credit administration and its compliance with the Bank Secrecy Act and anti-money laundering laws. The company has been operating under a formal agreement with OCC since June linked to the compliance of BSA and AML.
The company also decided to permanently discontinue its beneficial loan program, an initiative suspended late last year. The company verified the documentation for previous origins and implemented systems and controls to ensure that policies and procedures are followed.
Tom Lopp took over from Gary Judd as Sterling’s president and CEO on November 30th.
The company also launched an internal audit led by a special committee of independent directors and external consultants.
The ongoing review established that some employees “committed misconduct related to the origin of these loans, including verification of income and requirements, dependence on third parties and related documentation,” said the filing.
As a result, Sterling said that a “significant number of employees” had been sacked, including the senior vice president who is overseeing the subsidized loan program in California, or that they have resigned.
While Sterling is working on initiatives to diversify loan production and review new mortgage products, the company said that “the implementation of any new loan product takes time and could be subject to” regulatory review.
Due to these problems, Sterling said it had no longer paid dividends in the short term, had suspended dividends from its bank to the holding company and delayed the presentation of the annual report.
Finally, Sterling revealed that a shareholder lawsuit was filed with the United States District Court for the Eastern District of Michigan against the company and some of its officers and directors. The lawsuit alleges that there have been violations of federal securities laws, primarily related to the information that led to Sterling’s initial public offering, subsequent presentation and during earnings calls.
“While the company intends to vigorously defend this action, it is too early to determine the potential outcome,” said the filing.