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April 25, 2013

Capital One Settles Accusations It Understated Loan Losses

Federal regulators on Wednesday accused Capital One and two of its executives of understating millions of dollars in auto loan losses suffered during the financial crisis.

The case, which the Securities and Exchange Commission agreed to settle with Capital One and the executives, illustrated a common financial misdeed during the crisis. As losses mounted in 2007 and 2008, some Wall Street firms covered up the woes from the public, prompting a wave of federal actions against Countrywide Financial and other lending giants.

In the case of Capital One’s auto-lending business, according to the S.E.C., the bank ‘materially understated’ its loan loss expenses and ‘failed to maintain effective internal controls.’ The S.E.C. contended that Peter A. Schnall, who was Capital One’s chief risk officer at the time, and David A. LaGassa, a lower-level executive, failed to prevent the improper statements.

“’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,’ George Canellos, the co-chief of the S.E.C.’s enforcement unit, said in a statement. ‘Capital One failed in this responsibility.'”

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Read full New York Times article here

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