Three former Utah bankers were prohibited from future service in their former bank, or any other insured depository institution or company, and fined a total of $510,000 for reckless, unsafe, or unsound banking practices involving overdraft manipulations between 2016-19, the federal insurer of bank deposits said Friday.
The action against the trio, who were all officers at Gunnison Valley Bank in Gunnison, Utah, was taken last month, the Federal Deposit Insurance Corp. (FDIC) said. The $68 million Gunnison bank has since been merged into State Bank of Southern Utah in Cedar City.
According to the notice filed by the FDIC, Paul Keith Andersen (president and chairman of the board at the bank and its senior lender), Steven Buchanan (chief financial officer, Bank Secrecy Act officer, compliance officer, security officer, loan officer, and who served as a director), and Paul Scott Andersen (loan officer and secretary of the board at the bank) were all prohibited after examinations and investigations between 2016-19 found that the bank was critically undercapitalized, had loan deficiencies and overdraft manipulations that “concealed the size and status of overdrafts at the Bank from the FDIC.”
According to the FDIC, the trio engaged in schemes to manipulate overdrafts, which the agency said reset the length of time that deposit accounts had been overdrawn and concealed the true overdraft status of the account relationships. “The overdraft manipulation schemes made overdrawn and non-bankable deposit accounts appear to be bankable assets when in fact they were not and were required to be charged-off. The manipulation schemes brought overdrawn accounts out of overdraft status,” the FDIC said.
A common approach, according to the agency, was that the trio participated in transfer of funds to an overdrawn deposit account from another account – also often overdrawn – in the same banking relationship. “The funds transfer brought the account out of overdraft status when in fact the transfer merely shifted the overdraft balance between accounts and did not reduce the relationship’s aggregate overdraft amount,” the FDIC said.
The agency added that the trio then often caused, brought about, participated in, or aided or abetted the transfer of funds back out of the account, making it become overdrawn again and re-setting the number of days the account was in overdraft status.
In addition to the prohibitions, Paul Keith Andersen was assessed a $250,000 civil money penalty (CMP), Steven Buchanan a $225,000 CMP and Paul Scott Andersen a $35,000 CMP.