Malvern Bancorp and Former CFO Settle SEC Allegations Involving Accounting Violations

Pennsylvania-based financial institution, Malvern Bancorp, has reached a settlement with the Securities and Exchange Commission (SEC) in relation to allegations of various violations, including antifraud, reporting, books and records, and internal accounting control breaches.

The former chief financial officer of the bank, Joseph Gangemi, is also a party to the settlement. The agreement entails both the bank and Gangemi agreeing to cease and desist from further violations, along with agreeing to pay penalties totaling $350,000 and $40,000 respectively. The SEC, in its administrative proceeding on Tuesday, affirmed that Gangemi was responsible for the violations committed by Malvern.

The SEC's allegations revolve around a period spanning from December 2017 to February 2021. During this time, Malvern is accused of repeatedly failing to promptly recognize and address impairment issues linked to sizable commercial real estate loans. This failure led to significant inaccuracies in the bank's financial statements over multiple quarters, as per the SEC's order. Specifically, Gangemi is said to have inappropriately sanctioned and endorsed accounting practices pertaining to troubled debt restructurings (TDRs), loan impairments, charge-offs, and impairment of other real estate owned.

The SEC revealed that the bank would be required to restate its financials for the last quarter of 2019 and the fiscal year ending September 2020. It was asserted that Gangemi either knew or should have known about the inaccuracies in the bank's accounting practices. However, he failed to maintain precise and up-to-date books and records, and neglected to establish effective internal controls for financial reporting, as stated by the SEC.

A particular instance cited in the order pointed to Gangemi's alleged failure to reclassify a loan restructuring for a client as a TDR in accordance with the Accounting Standards Codification Topic 310. This was despite the fact that the client's sole tenant had declared bankruptcy and terminated its lease agreement. Subsequently, the bank's primary federal banking regulator evaluated the loan and deemed it to be impaired.

Both Malvern Bancorp and Joseph Gangemi have chosen to settle the allegations brought forth by the SEC, without either admitting or denying the findings. In the midst of these developments, it is noteworthy that Malvern merged with First Bank in July. However, as of now, First Bank has refrained from providing any comments on the situation.

By fLEXI tEAM