SEC v. Mercantile Bancorp, Inc. et al., Case No. 3:13-cv-03341-RM-BGC (C.D. Ill.).  On September 24, 2013, the SEC announced charges against Mercantile Bancorp, its former CEO Ted Awerkamp, and its former CFO Michael McGrath for failing to notice in the bank’s financial statements a likely loss in a large troubled loan.  According to the SEC, Awerkamp knew that the borrower in a shared national credit loan for a large residential real estate development was not going to contribute the necessary money to complete the project, which served as collateral for the loan.  He also knew that the collateral had lost value.  The SEC alleges that before the bank’s quarterly report was filed, Awerkamp and McGrath learned that the borrower missed a loan payment and declared bankruptcy.  According to various accounting and other rules, Mercantile should have recognized a $5.28 million loan loss in its statements, but did not do so.  The SEC alleges that the failure to report the loan loss also caused Mercantile to falsely state that a bank subsidiary had met certain capital ratio thresholds required by the Federal Deposit Insurance Corporation.  Mercantile also understated its net loss for the quarter and its subsidiary’s
net income for the same quarter.

The defendants agreed to settle without admitting or denying the charges.  Mercantile agreed to an order enjoining it from violations of Section 17(a)(3) of the Securities Act, and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-11 and 13a-13.  Awerkamp agreed to an order enjoining him from violating Section 17(a)(3) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2, and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13.  McGrath agreed to be enjoined from violating Section 17(a)(3) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13.  Awerkamp and McGrath will each pay a $100,000 civil monetary penalty and will be barred from acting as officers or directors of a public company.