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SEC Charges Fifth Third Bancorp For Improper Accounting Of Loan Losses During Financial Crisis

Eliane Chavagnon

6 December 2013

Cincinnati, OH-based has agreed to pay $6.5 million to settle charges brought about by the Securities and Exchange Commission that its holding company and former chief financial officer improperly accounted commercial real estate loans during the financial crisis.

Daniel Poston, former CFO, has agreed to pay a $100,000 penalty and be suspended from practicing as an accountant for any publicly-traded company or other entity regulated by the SEC.

According to the US authority, Fifth Third experienced a “substantial increase” in non-performing assets as the real estate market declined in 2007 and 2008 and borrowers failed to repay their loans. When the bank sold a hefty proportion of the “troubled loans” in Q3 2008, it should have classified them as “held for sale” and valued them fairly.

While “proper accounting” would have lifted the bank’s pre-tax loss for the quarter by 132 per cent, it continued to classify the loans as “held for investment.” This incorrectly suggested that the company had not made the decision to sell the loans, the SEC said.

“Despite understanding the relevant accounting rules, Poston failed to direct Fifth Third to classify and value the loans as required.  Poston also made inaccurate statements to Fifth Third’s auditors about the company’s loan classifications, and certified the company’s inaccurate results for the third quarter of 2008.”

Fifth Third and Poston consented to the entry of the order finding that they violated or caused violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as well as the reporting, books and records, and internal controls provisions of the federal securities laws.