Thursday, September 25, 2014


Compliance defects, when exposed in a very public way by regulators, can result in real financial damage to a bank, especially when its securities are publicly traded. The Consent Order imposed earlier this year, on The Bancorp, Inc., the holding company for the Bancorp Bank, for multiple BSA violations, involving deficiencies in its compliance program, and which caused a major decline in the price of the bank's securities, continues to cause financial pain. In addition, the filing of a major shareholder class action against the bank, represents a new and potentially dangerous threat.

The bank's common stock, which was trading at around twenty dollars a share last Spring, has dropped to $8.85 as of the date of this article, which is close to its low for the past year. The stock took a 25% hit immediately after news of the Consent Order was released, and it has never recovered since. Senior bank officers, who usually hold stock in their company, have here suffered financial losses, as the direct and proximate result of the bank's compliance failures.

To add to the bank's compliance-related troubles, earlier this month, Pomerantz LP, a prominent New York-based law firm known for securities litigation, filed a class action suit against The Bancorp, Inc., for violations of the 1934 Act. There are two additional parties defendant: The bank holding company's CEO/Chairman, and its CFO.

The complaint alleges that the defendant made materially false and misleading statements, regarding the company's business, operational and compliance policies, and there are other issues. This is not the appropriate forum to discuss misrepresentations made to regulators, but when they become public knowledge, in the course of the litigation, the bank could suffer major reputation damage. While the filing of criminal charges against a bank are extremely rare, because they can trigger an inquiry into whether a bank's charter should be revoked, do not rule it out in this case.

The takeaway here: compliance deficiencies can, and will, hurt the very bankers who fail to maintain banking best practices, when it comes to maintaining an effective AML/CFT program.

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