South Florida Business Journal

Friday, October 15, 2010, 5:26pm EDT  |  Modified: Friday, October 15, 2010, 5:38pm

http://southflorida.bizjournals.com/southflorida/stories/2010/10/11/daily58.html?page=2

Gibraltar Private Bank & Trust – the same institution were Ponzi scheme architect Scott Rothstein did millions of dollars in banking – was criticized by federal regulators for weak anti-money laundering compliance.

Regulators told the $1.6 billion-asset bank to stop the “unsafe and unsound” practices of operating with “ineffective Bank Secrecy Act (BSA) and anti-money laundering compliance programs, having an excessive level of problem assets, not addressing its liquidity risk management and not following regulatory guidelines on real estate lending.

The Coral Gables-based bank on Friday released the order to cease and desist to the Business Journal shortly before the Office of Thrift Supervision (OTS) was expected to make it public.

The OTS listed six laws or regulations that it said the bank violated based on its confidential report of examination issued in May.

The enforcement action does not address the bank’s capital levels, which were strong as of June 30. Yet, it was given a restriction on its asset growth.

Gibraltar Chairman and CEO Steven Hayworth said the bank has been working with regulators on these issues for many months and it has already addressed many of their concerns.

“I feel like we’ve made great progress in raising our game in BSA compliance,” Hayworth said.

Miami-based banking analyst and economist Kenneth H. Thomas said he’s very surprised that a bank like Gibraltar, which caters to wealthy professionals and manages large sums of investment money, was criticized so harshly by regulators.

“These things don’t happen to private banks,” Thomas said. “They deal with a small number of wealthy clients and are usually very careful with clients.”

Several victims of Rothstein’s massive Ponzi scheme are suing Gibraltar, along with TD Bank, in Broward County Circuit Court. The complaint alleges that the bank reaped $200,000 in overdraft fees by approving and helping to cover sizable overdrafts totaling in excess of $64 million. The plaintiffs produced e-mails from Rothstein to Gibraltar officials threatening to make large clients leave the bank if they questioned his sloppy banking habits.

The investors’ lawsuit claimed that Gibraltar’s BSA compliance officer wanted more information in 2009 about certain transactions in Rothstein Rosenfeldt Adler’s account, but Hayworth scuttled the inquiry.

Gibraltar said the information in the complaint is inaccurate and it is contesting the lawsuit.

Rothstein had a 5 percent ownership stake in Gibraltar, but those shares were turned over to the government.

Hayworth declined to comment on whether the Rothstein’s accounts had anything to do with the OTS’ enforcement action.

“Like so many other companies and individuals who were touched by that firm, we were a victim,” Hayworth said.

The OTS gave Gibraltar 60 days to review its BSA and anti-money laundering compliance and make corrections. That includes hiring a full-time person with daily responsibility in that area and annual training for all relevant bank personnel and the board.

Hayworth said the bank hired Danny Rodriguez as senior VP and BSA officer and Lee Duff as general counsel, with a specialization in BSA compliance. It already started the staff training in that area.

Regulators also told Gibraltar to implement a system for the proper filing of currency transaction reports and for adequately identifying customers, especially non-U.S. residents, commercial and business accounts and customers that use a lot of wire transfers. It must set up a system to monitor high-risk customers.

Gibraltar must make sure that it reports suspicious transactions to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).

Gibraltar is required to hire a third-party consultant to review all customer relationships established after Jan. 1, 2009 and identify the ones that were not in compliance with BSA and anti-money laundering regulations. The bank will have 30 days to correct those problems.

In other areas of concern, the OTS told Gibraltar to reduce its level of problem assets and develop a workout strategy for troubled loans in excess of $1 million.

The bank reported 6.26 percent of its loans as noncurrent as of June 30. Hayworth said that ratio would be below 5 percent in its third quarter report.

“The good news is in the third quarter our nonperforming loans dropped 28 percent from the second quarter,” Hayworth said. “That’s a result of working hard on some of these relationships. … I feel very bullish that the bank’s core earnings will continue to grow.”

The bank may not be able to grow its assets as much as it has in the past. That’s because regulators restricted its quarterly asset growth to no more than the net interest credited on its deposits. Hayworth said that’s about $3 million a quarter, but regulators can grant the bank permission to exceed that level.

In the first six months of this year, Gibraltar’s assets increased by $108 million.

Other provisions of the enforcement action require the bank to reduce its levels of deposits from brokers, not pay dividends without regulatory approval and not change executive compensation levels without regulators signing off.