On September 23, 2021, the Honorable Judith E. Levy of the Eastern District of Michigan granted final approval to a $12.5 million settlement of a securities fraud class action brought by Berman Tabacco on behalf of its client against Sterling Bancorp, Inc. (“Sterling”). Berman Tabacco is sole Lead Counsel representing Oklahoma Police Pension and Retirement System in the class action suit against Sterling, certain of its current and former officers and directors, and the underwriters for the company’s initial public offering (“IPO”). The $12.5 million settlement represents over 20% of the maximum damages had plaintiffs prevailed on all claims.
Sterling, headquartered in Southfield, Michigan, is the unitary thrift holding company of Sterling Bank and Trust. The company specializes in residential mortgages. This case focused on the rapid rise and dramatic fall of Sterling’s core loan program, the Advantage Loan Program or ALP, which represented more than 70% of the Company’s revenue and assets. As alleged, Sterling and the ALP operated in a highly regulated environment and were subject to residential lending regulations and strict Bank Secrecy Act and Anti-Money Laundering laws (“BSA/AML”). These laws required that Sterling maintain robust, sophisticated, and effective underwriting, internal controls, and due diligence systems as well as documentation and procedures to verify borrowers’ identity, income, ability to repay, and sources of funds. In this heightened regulatory environment, Defendants repeatedly touted its “disciplined” and “conservative” underwriting, risk management, and internal controls.
As alleged in the complaint, however, underwriting, internal controls, and risk management for the ALP were practically non-existent; Sterling was not in compliance with BSA/AML and residential lending laws, there was almost no documentation required to verify ALP borrowers’ identity, employment, or sources of cash they used to obtain the mortgages, and the ALP loans were riddled with red flags of money laundering. Ultimately, Sterling was forced to shut down the ALP due to widespread issues with its loan origination process; numerous employees were terminated or abruptly resigned, including all three Officer Defendants and other top management; and Sterling and the ALP’s lending practices were subject to an internal review and are currently under a criminal DOJ investigation and a formal OCC investigation.
The settlement will provide relief to a class of investors that purchased Sterling common stock from November 17, 2017 through March 17, 2020.
“Balancing the strength of our allegations, with ongoing civil and criminal investigations into the company, we are pleased with both the timing and results of this settlement—for our client and the class,” commented Berman Tabacco partner Kristin J. Moody.
The case is Oklahoma Police Pension & Retirement System v. Sterling Bancorp, Inc, et al., No. 5:20-cv-10490-JEL-EAS (E.D. Mich.). The litigation team includes partners Kristin J. Moody from Berman Tabacco’s San Francisco office and Patrick T. Egan from Berman Tabacco’s Boston office.