Regulators said Seattle-based HomeStreet used improper accounting practices and took measures to impede whistle-blowers. In its settlement the company didn’t acknowledge any wrongdoing.

Share story

Seattle-based HomeStreet, the parent of HomeStreet Bank, has agreed to pay a $500,000 penalty to settle charges it used improper accounting practices and subsequently sought to deter potential whistle-blowers from speaking with federal regulators.

In addition, Darrell van Amen, the company’s chief investment officer and treasurer, agreed to pay a $20,000 penalty to settle charges that he caused the accounting violations, the Securities and Exchange Commission said Thursday.

HomeStreet and van Amen consented to the SEC’s order without admitting or denying wrongdoing, a typical practice in the regulator’s handling of settlements with banks.

“Companies that focus on finding a whistle-blower rather than determining whether illegal conduct occurred are severely missing the point,” Jina Choi, director of the SEC’s San Francisco office, said in a statement announcing the settlement.

In a news release several hours after the SEC’s announcement, HomeStreet Chairman and CEO Mark Mason said he was pleased the investigation has concluded, adding that “the SEC did not allege that the company or any of its officers acted with an intention to defraud or deceive.”

The violations were related to about 20 fixed-rate commerical loans HomeStreet made between 2006 and 2008, the firm said.

After making the loans, company entered into interest-rate swaps, transactions designed to guard against a change in interest rates that would make those loans more costly for HomeStreet.

Such hedges are also designed to smooth out the volatility of a bank’s financial results from quarter to quarter.

But some of the interest-rate swaps didn’t prove to be an effective hedge according to accounting standards, the SEC says. Van Amen saw to it that the company changed its hedging-testing standards at various points from 2011 to 2014 to ensure HomeStreet could continue to use favorable accounting treatment for its swaps, the regulator said.

“HomeStreet disregarded its internal accounting policies and procedures to come up with different testing results to enable its use of hedge accounting,” said Erin Schneider, associate director of the SEC’s San Francisco office. “Companies must follow the rules rather than create their own.”

HomeStreet says it disclosed what it called the accounting errors in 2014 after an internal investigation.

When the SEC contacted HomeStreet in April 2015 seeking documents related to its hedge accounting, the firm assumed the inquiry was in response to a whistle-blower complaint and began trying to find a whistle-blower, the SEC said.

One individual the company considered a whistle-blower was told HomeStreet could refuse to pay for any legal costs during an SEC investigation into the individual. The company also required former employees to sign severance agreements waiving potential whistle-blower awards or risk losing severance payments or other benefits.

Federal law prohibits companies from retaliating against employees who seek to report wrongdoing to regulators.

HomeStreet’s statement said it had since revised the language in its severance agreements.

HomeStreet, primarily a mortgage and commercial lender, narrowly avoided insolvency during the financial crisis. The company went public in 2012, and trades under the symbol HMST on Nasdaq.

The bank held $6.2 billion in assets and reported net income of $27 million in the three months ended Sept. 30.

HomeStreet warned last week that rising interest rates late in 2016 had cut into its mortgage business.