WASHINGTON Capital One Financial (COF) is paying $3.5 million to settle federal civil charges of underreporting as much as $123 million in losses on auto loans in the months preceding the financial crisis.
The Securities and Exchange Commission said Wednesday that Capital One understated its auto loan losses in financial reports for the second and third quarters of 2007 when they came in higher than the bank expected.
"Accurate financial reporting is a fundamental obligation for any public company, particularly a bank's accounting for its provision for loan losses during a time of severe financial distress," said George Canellos, co-director of the SEC's enforcement division, in a statement Wednesday. "Capital One failed in this responsibility by underreporting expenses relating to its loan losses even as its own internal forecasting tool had signaled an increase in incurred losses due to the impending financial crisis."
Two former Capital One executives agreed to pay a total $135,000 in fines to settle the SEC charges. The bank and the executives neither admitted nor denied wrongdoing.
Capital One, based in McLean, Va., is the sixth-largest U.S. bank based on deposits. Most of the profits in its auto finance business came from loans to consumers with weak credit histories, the SEC said.