SEC Charges Former Eagle Bancorp CEO with Failing to Disclose Related Party Loans
Litigation Release No. 25471 / August 17, 2022
Accounting and Auditing Enforcement No. 4322 / August 17, 2022
Securities and Exchange Commission v. Ronald D. Paul, No. 1:22-cv-06985 (S.D.N.Y. filed August 16, 2022)
The Securities and Exchange Commission charged Eagle Bancorp, Inc., based in Bethesda, Maryland, and its former Chief Executive Officer and Chairman of the Board, Ronald D. Paul, with negligently making false and misleading statements about related party loans extended by the bank to Paul's family trusts. Eagle and Paul have agreed to settle the SEC's charges.
The SEC's complaint against Paul, which was filed in the United States District Court for the Southern District of New York, alleges that from March 2015 through April 2018, Eagle failed to include loans to Paul's family trusts totaling at times nearly $90 million in the related party loan balances included in its annual reports and proxy statements. Both SEC regulations and Generally Accepted Accounting Principles (GAAP) required Eagle to disclose these material related party transactions. The SEC's complaint also alleges that, following a December 2017 short seller's report asserting Eagle had made significant undisclosed loans to Paul's family trusts, Eagle falsely stated in press releases and meetings with investors that the trust loans were not related party loans and that Eagle was in compliance with all related party loan requirements, and Eagle again failed to disclose the trust loans as related party loans in its 2017 annual report.
The SEC's complaint charges Paul with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Section 14(a) of the Securities Exchange Act of 1934, and Rule 13a-14 and 14a-9 thereunder. Without admitting or denying the SEC's allegations, Paul has agreed to a permanent injunction, to a two-year officer and director bar, and to pay disgorgement of $109,000, prejudgment interest of $22,216, and a penalty of $300,000. The settlement is subject to court approval.
The SEC's settled order as to Eagle finds that the company violated the negligence-based anti-fraud, proxy, reporting, books and records, and internal accounting controls provisions of the federal securities laws. Without admitting or denying the SEC's findings, Eagle agreed to cease and desist from future violations and to pay disgorgement of $2.6 million, prejudgment interest of $750,493, and a civil penalty of $10 million.
In a parallel action, the Federal Reserve Board today announced settled enforcement actions against EagleBank and Paul.
The SEC's investigation was led by Emily Shea, with assistance from Avron Elbaum, Peter Rosario, James Carlson, and Fred Block. It was supervised by Kevin Guerrero. The SEC appreciates the assistance of the Federal Reserve Board and the Federal Reserve Bank of Richmond.