Dive Brief:

• Bethesda, Maryland-based EagleBank must pay $22.9 million to the Securities and Exchange Commission (SEC) and the Federal Reserve to settle claims the bank’s former CEO engaged in insider lending, the two regulators announced in separate press releases Tuesday.
• Former EagleBank CEO Ron Paul, who founded the bank in 1997, was also permanently banned from working in the banking industry and fined $521,000 to settle the agency actions, the regulators said.
• Tuesday’s settlement marks the conclusion of a three-year probe by the regulators into alleged third-party lending and improper disclosures at EagleBank. The bank first disclosed the investigation to shareholders in an earnings release in 2019, according to the Washington Business Journal. Paul retired earlier that year, citing health concerns.

Dive Insight:

While under Paul’s leadership, EagleBank improperly extended credit to entities owned or controlled by the former CEO, according to the Federal Reserve.

The bank failed to include the loans, “totaling at times nearly $90 million” in the related party loan balances included in its annual reports and proxy statements, the SEC said. 

EagleBank also had deficient internal controls over insider lending practices between 2015 and 2018, which allowed the bank to lend to entities that Paul owned or controlled, including certain family trusts, the Fed said.

The bank’s $22.9 million penalty encompasses a $9.5 million fine from the Fed, along with a $10 million civil penalty from the SEC. EagleBank also agreed to pay disgorgement of $2.6 million and prejudgment interest of $750,493. It did not admit or deny the SEC’s findings but agreed to cease and desist from future violations.

Paul’s $521,000 penalty, meanwhile, breaks down to a $300,000 SEC fine, disgorgement of $109,000 and $22,216 in prejudgment interest. The Fed assessed an additional $90,000 fine.

Paul failed to make appropriate disclosures or obtain required approvals from a majority of EagleBank's board of directors regarding the loans, the Fed said.

EagleBank improperly omitted “tens of millions of dollars of loans to Eagle directors and their family members from these related party loan balances," the SEC said.

“Both SEC regulations and Generally Accepted Accounting Principles (GAAP) required Eagle to disclose these material related party transactions,” the regulator added.

The bank was also cited for third-party risk management deficiencies the Federal Reserve said occurred over the same 2015-2018 span. Those deficiencies resulted in inadequate oversight of contracts between the bank and a local government official, the regulator said.

Paul’s legal counsel told the Washington Business Journal on Tuesday the former CEO was proud of his work at EagleBank.

“In his 20 years of service, Mr. Paul and a team of talented and dedicated colleagues built EagleBank into one of the premier regional banks in the country,” Lance Wade of Williams & Connolly LLP told the publication. “With these settlements, he and the bank can put these legal matters behind them and the bank can move forward with complete focus on serving the banking needs of the businesses and people of the Washington Capital Region.”

Paul is the second former EagleBank executive to be banned from working in the banking sector.

The Federal Reserve in November barred Laurence Bensignor, a former EagleBank executive vice president and general counsel, over claims he engaged in “unsafe and unsound banking practices” relevant to insider lending.

As part of the settlement, Bensignor neither admitted nor denied the Fed’s allegations.