Ex-Franklin bosses accused of misleading investors in SEC complaint

Two former Franklin Bank executives misled investors by not revealing a rise in delinquent loans and inflating earnings, according to the Securities and Exchange Commission.

In a complaint, federal regulators allege that delinquent loans at the now-defunct bank shot up 24 per cent, or $30 million, from June to August 2007, during the national housing crisis. However, according to the lawsuit, former CEO Anthony Nocella and chief financial officer Russell McCann set up a loan-modification scheme to mask the bad debt and made it look as if Franklin's loans were performing better than those of other banks.

Banking regulators seized Franklin Bank in 2008, and many of locations of the bank reopened later as branches of Houston-based Prosperity Bank.

Attorneys for the former Houston-based executives, disputed the SEC allegations. According to James Munisteri, who represented Nocella, many important facts that the SEC would not be able to ignore during a court proceeding were conspicuously absent from the SEC's mischaracterisation of events.

Barrett Reasoner, attorney for McCann, said he and McCann strongly believed that claims did not have any merit. He added, they would prove the facts of the case were not as were portrayed by the SEC.

According to the complaint over 70 per cent of the bank's loans were related to the housing market by late 2007.