Fifth Third charged with accounting violations on commercial loans

by Ryan Smith05 Dec 2013
The Securities and Exchange Commission on Wednesday charged Fifth Third Bank and its former chief financial officer with improper accounting of commercial real estate loans. Fifth Third agreed to pay $6.5 million to settle the charges, while former CFO Daniel Poston received a $100,000 penalty and was suspended from practicing as an accountant at any publicly traded company or other entity regulated by the SEC, according to a news release.

According to the SEC, Fifth Third saw a substantial increase in “non-performing assets” as the real estate market melted down in 2007 and 2008 and decided to sell large pools of troubled loans to mitigate the loss. Once Fifth Third had decided to sell the loans, U.S. accounting rules required that the company classify them as “held for sale.” Instead, Fifth Third continued to classify the loans as “held for investment.” According to the SEC, proper accounting would have increased Fifth Third’s pretax loss for the quarter by 132%.

“Improper accounting by Fifth Third and Poston misled investors during a time of significant upheaval and financial distress for the company,” said George S. Canellos, co-director of the SEC’s Division of Enforcement. “It is important for investors to know the financial consequences of decisions made by management, so accounting rules that depend on management’s intent must be scrupulously observed.” 

“By failing to classify large pools of loans as required, Fifth Third and Poston kept investors from knowing the full truth behind its commercial real estate loan portfolio,” said Stephen L. Cohen, SEC Enforcement Division associate director.

Fifth Third and Poston did not admit or deny the SEC’s allegations in the settlement. While Poston is suspended from practicing as an accountant before the SEC, he has the right to apply for reinstatement in one year.


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