According to the firm’s 10-K filing with the Securities and Exchange Commission (SEC), the $3 million settlement must be approved by a court and the Department of Labor (DOL). In addition to a lawsuit filed by participants in its 401(k) plan and Employee Stock Ownership Plan (ESOP) in 2010, Sterling announced that on September 26, 2012, it received a letter from the DOL containing similar allegations to those set forth in the lawsuit, demanding that the violations alleged in the letter be corrected and notifying Sterling that the DOL may take legal action in connection with such allegations, including assessing a civil money penalty.
The lawsuit alleges that the company and certain of its current and former officers and directors breached their fiduciary duties under Sections 404 and 405 of ERISA, with respect to the Sterling Savings Bank Employee Savings and Investment Plan and the FirstBank Northwest Employee Stock Ownership Plan (see “Stock Drop Suit Dropped”). Specifically, the complaint alleges that the defendants breached their duties by investing assets of the plans in Sterling’s securities when it was imprudent to do so and by investing such assets in Sterling securities when defendants knew or should have known that the price of those securities was inflated due to misrepresentations and omissions about Sterling’s business practices.
The business practices at issue include alleged over-reliance on risky construction loans; alleged inadequate loan reserves; alleged spiking increases in nonperforming assets, nonperforming loans, classified assets and over 90-day delinquent loans; alleged inadequate accounting for rising loan payment shortfalls; alleged unsafe and unsound banking practices; and a capital base that was allegedly inadequate to withstand the significant deterioration in the real estate markets. The putative class periods are October 22, 2007, to the present for the 401(k) plan class, and October 22, 2007, to November 14, 2008, for the ESOP class.Sterling’s SEC filing is here.