PNC to Pay $115-Million Settlement in Fraud Case
PNC Financial Services Group Inc. agreed to pay $115 million to settle fraud charges that a unit of the bank inflated 2001 earnings 52% by removing $762 million in bad loans from financial statements, the Justice Department said Monday.
PNC’s ICLC Corp. fraudulently transferred the loans and venture capital investments to off-balance-sheet entities, the Justice Department said. Pittsburgh-based PNC agreed to pay $90 million to satisfy shareholder claims and $25 million in penalties, the department and the company said.
The agreement “brings an important closure to PNC’s involvement” in the case, said George Davidson, a PNC director and chairman of a company oversight committee. “We have made substantial progress in implementing improved governance and risk management practices.”
In July, the company reached a settlement with the Securities and Exchange Commission over the bad loans. PNC said Mon- day that it would take a pretax charge to earnings of $120 million in the second quarter to cover the agreement with the Justice Department and related legal expenses.
The department will file a complaint against the company that will be dismissed in a year if the company complies with the agreement.
PNC shares fell 3 cents to $49.22 on the New York Stock Exchange before the settlement was announced.
Since a July 18 agreement between PNC and the Federal Reserve, the Office of the Comptroller of the Currency and the Securities and Exchange Commission, the bank had to make changes in top management, increase the independence of its board and correct problems with its internal operations. The agreement with the Fed and OCC remains in effect for an unspecified period. In December, the bank said it satisfied regulatory requirements.
PNC said it spent $29 million in the first quarter to liquidate three special-purpose entities, or partnerships, it created with American International Group Inc. in 2001. Regulators said the units were improperly used to keep bad loans off PNC’s books.
