The Securities and Exchange Commission has charged three former bank executives in Nebraska for participating in a scheme to understate “millions of dollars in losses,” misleading investors and federal regulators at the height of the financial crisis.

TierOne had expanded into “riskier types of lending” in Las Vegas, NV, and other high-growth geographic areas in Arizona and Florida, while the bank was experiencing a “significant rise in high-risk problem loans.”

The agency alleges that Gilbert Lundstrom, who was chief executive and chairman of the board at Lincoln-based TierOne Bank - alongside president and chief operating officer James Laphen and chief credit officer Don Langford - were partakers in TierOne understating its loan-related losses, as well as losses on real estate repossessed by the bank. One of the executives and his son were also charged with insider trading.

The firm’s primary banking regulator, the Office of Thrift Supervision, directed it to maintain higher capital ratios as a result of its increase in high-risk problem loans. However, so as to appear to comply with the heightened capital requirements, Lundstrom, Laphen and Langford disregarded information which illustrated that the collateral securing certain loans and real estate repossessed by the bank was overvalued due to its reliance on “stale and inadequately-discounted” appraisals.

According to the complaints filed in US District Court for Nebraska, the truth about TierOne’s losses were not publicly known until late 2009, after OTS required TierOne to obtain new appraisals for its impaired loans. TierOne disclosed more than $130 million in loan losses, but “had these loss provisions been booked in the proper quarters, the bank would have missed its required capital ratios as far back as the fourth quarter of 2008,” the agency said.

Following the announcement of the loss provisions, TierOne's stock price dropped over 70 per cent, and the bank filed for bankruptcy after it was shut down by OTS in June 2010.

With regards to the insider trading charges against the Lundstroms, Gilbert Lundstrom allegedly tipped his son in 2009 with confidential details about a proposed asset sale between TierOne and Great Western Bank. Trevor Lundstrom bought nearly 210,000 TierOne shares between June and September 2009 in anticipation of the asset sale, and after a September 4 public announcement about the transaction, sold his holdings for $225,921 in illicit profits.

In settling the SEC’s charges - without admitting or denying the allegations - Gilbert Lundstrom agreed to pay a $500,921 penalty, while Laphen paid a $225,000 penalty. Meanwhile, Lundstrom and Laphen agreed to settle the SEC’s charges, as did Trevor Lundstrom, who the agency said is charged with illegally trading on non-public information from his father about an anticipated asset sale.

The Lundstroms and Laphen agreed to collectively pay nearly $1.2 million in the settlements, which are subject to court approval. The SEC’s case continues against Langford.