PNC Settlement May Be Near
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PNC inflated its 2001 earnings by transferring some $762 million in bad corporate loans to three partnerships that it created with the insurance company AIG. In removing these loans from their balance sheet, the bank did not need to book the depreciation on these loans for the second, third, and fourth quarters of 2001 allowing the bank to misrepresent its results.
Shareholder overvalue was realized when the Federal Reserve forced the bank to restate its 2001 annual results to the tune of $155 million under the initial numbers. Shareholders who bought stock between July 19, 2001 and July 18, 2002 are members of the class for which the class-action suit was by Pittsburgh attorney Alfred Yates Jr. in July 2002. The suit contends the bank misrepresented itself to investors.
PNC paid $25 million to the U.S. Department of Justice to settle conspiracy to commit securities fraud charges in June 2003. They also required PNC to set up the $90 million restitution fund as a term of its criminal settlement of the charges. $27 million of that amount was covered by insurance. Earnings will not be affected by the payment.
There is a shareholder suit pending for Ernst & Young, PNC’s former auditing firm according to court filings. The Big Four accounting firm reviewed the 2001 loan transactions and did not put up any red flags.
Buchanan Ingersoll, a Pittsburgh law firm advised PNC on the 2001 loan transactions. Shareholders are planning to sue the company. The restitution fund will receive $1.9 million from the firm.
AIG will pay $4 million into the restitution fund. AIG will also pay over $40 million into the fund. AIG earned these fees in the 2001 loan transactions from PNC.