Southfield bank founder Scott Seligman fined $400k, barred from industry

Sterling Bancorp Inc. founder Scott Seligman has been hit with a $400,000 fine for allegedly pressuring bank employees to rush underwriting loans in a high-fraud risk residential mortgage program, according to the Office of the Comptroller of the Currency. He is also barred from the banking industry.

According to a consent order released Thursday by the Office of the Comptroller of the Currency, Seligman was considered a "dominant influence" at the Southfield-based bank where he issued directives to bank officers and employees, and “participated in the conduct of the affairs of the bank.”

Seligman and other insiders were accused of operating its residential loan program "without making a reasonable and good faith determination of applicants’ ability to repay the loan and did not ensure that documents used to verify applicants’ employment, income, and assets were obtained from third parties and were reasonably reliable," according to the order.

According to the court document, from 2011 through 2019, the bank offered an Advantage Loan Program, a low-document residential loan program. The program was the bank’s main residential loan product at the time.

The program was considered a high risk for fraud, lending misconduct and money laundering so it required strong monitoring and controls, according to the order.

An investigation found that the bank originated numerous ALP loans that had false or fraudulent loan applications.

“Despite deficiencies within the ALP, the Bank did not take appropriate corrective action and continued to grow the ALP,” the order read. “During the relevant period, respondent participated in the operation of the ALP.  Respondent contributed to a poor compliance culture at the Bank. Respondent also pressured bank employees to quickly underwrite ALP loans. This contributed to the fraud within the ALP.”

The consent order noted that Seligman neither admitted or denied wrongdoing before entering the agreement.

In addition to the fine, Seligman is prohibited from participating in financial entities including any insured depository institution; insured credit union under the Federal Credit Union Act; institution chartered under the Farm Credit Act of 1971; appropriate Federal depository institution regulatory agency, Federal Housing Finance Agency or Federal Home Loan Bank.

Sterling Bancorp Inc., the holding company for its subsidiary, Sterling Bank and Trust F.S.B., has faced repercussions related to the home loan program. In March 2023, the company agreed to plead guilty to securities fraud in filing false securities statements, according to the U.S. Department of Justice.

DOJ officials said the company made false statements relating to its 2017 initial public offering and in its 2018 and 2019 annual filings. The plea was related to the Advantage Loan Program. The bank originated at least $5 billion in loans through the program from 2011-19, according to the government.

"These fraudulent loans directly increased the bank’s revenue through fees and interest associated with the origination of the fraudulent loans," DOJ officials said in March 2023.

The fraud continued after the Sterling IPO resulting in a loss of nearly $70 million to the bank’s non-insider victim-shareholders, according to the DOJ.

cwilliams@detroitnews.com