Many bosses surveil their employees. But few are so brazen as to have a robot that wanders from desk to desk, checking in on workers.
That's part of what's alleged in Sterling Bancorp's lawsuit against its founder and former CEO, Scott Seligman, who deployed what staff referred to as the "Scott Bot" as part of his "near-tyrannical control" over the company, according to the 38-page complaint filed Friday.
The bank, based in Southfield, Michigan, is seeking to claw back upward of $25 million in dividends and other payments from its former CEO, claiming he masterminded a fraudulent loan program that has cost the $2.5 billion-asset company tens of millions of dollars in legal and regulatory expenses the past three years.
In the suit filed in the U.S. District Court for the Eastern District of Michigan, Sterling alleged Seligman, who founded the company's bank subsidiary, Sterling Bank and Trust, in 1984 and served as CEO until 1999, used his influence as controlling shareholder to maintain his grip on Sterling even after relinquishing his management role and stepping down from the board of directors.
In its lawsuit, Sterling claimed Seligman's efforts at control extended to deploying a robot with video and audio capabilities that would "travel throughout the bank's offices and check in on various employees." The filing does not describe the robot further, but the bank owned at least two humanoid robots from Aldebaran Robotics that it used as greeters in branches, according to the
In an email Tuesday, Thomas O'Brien, a well-known banking turnaround specialist who
Seligman's office termed Sterling's allegations "unsupported by facts and the law," saying in a prepared statement that Seligman is "extremely disappointed that Sterling Bank & Trust is pursuing this misguided suit."
"Last month, Sterling paid to settle a federal shareholder lawsuit against Sterling's board alleging that the directors abdicated their responsibility to oversee Sterling's operations and compliance. Mr. Seligman has not been on Sterling's board for over 20 years and was not involved in that shareholder suit. This suit appears to be an effort to deflect attention away from the Board's role in Sterling's problems," Seligman's office added.
Seligman's family has been active in the development, acquisition and management of commercial and residential properties in Michigan, Nevada, California and other Western states since the late 1940s. Seligman serves as chairman of the family company, the Seligman Group.
While accusations of tyrannical behavior and a robot lackey are eye-catching, the heart of Sterling's suit involves Seligman's purported involvement with Sterling's Advantage Loan program, which operated from 2011 to 2019 and originated about $5 billion in residential mortgages to buyers, many of whom were Chinese Americans.
Sterling filed its suit barely a week after
Advantage Loan was launched as a stated-income loan program aimed at serving disadvantaged borrowers who possessed the means to purchase a home but were hamstrung by limited credit histories. In particular, Advantage Loan was marketed to Chinese Americans or Chinese nationals seeking to purchase homes in the United States.
According to Sterling's suit, the program functioned as intended for two years, but began to experience difficulties after the Consumer Financial Protection Bureau implemented its ability-to-repay rule, requiring lenders to verify borrowers' funding, in January 2014. While the bank's management devised a set of rules to comply with the new regulation, the team of lenders Sterling had assembled to market its Advantage Loan product worked continually to undermine those efforts, going so far as to falsify documents and other material information concerning borrowers' qualifications, according to the lawsuit. All this was done with Seligman's knowledge and support, Sterling's lawsuit alleges.
When a new underwriter tried in June 2017 to end the practice of allowing loan officers to choose their own underwriters, she was quickly undercut by Seligman, who ordered management to reverse the change, the Sterling suit claims. In all, Sterling originated about $5 billion in Advantage Loan mortgages.
Sterling entered a formal agreement with the Office of the Comptroller of the Currency in June 2019, agreeing to remedy management and oversight issues within Advantage Loan and to address Bank Secrecy Act and anti-money-laundering violations. The OCC terminated the agreement last month, imposing a $6 million civil money penalty, but Sterling remains the subject of an investigation by the Securities and Exchange Commission. The company is also responding to multiple subpoenas from the U.S. Department of Justice. In addition, three former Advantage Loan lenders have pleaded guilty to bank fraud.
Sterling claims in its suit that Seligman's close oversight of Advantage Loan was intended to guarantee continued robust production numbers which boosted the company's stock price, as well as the dividends paid to shareholders such as Seligman himself. According to Sterling, the company paid Seligman dividends totaling $19.3 million between 2015 and 2020. It's seeking to claw back that capital, $4.5 million in payments to the Sterling Family Foundation and another $1.9 million in payments to other entities Scott Seligman controlled.
Attempts by banks to claw back allegedly illicit compensation are hardly unique to Sterling. In 2016 and 2017, Wells Fargo
Sanjai Bhagat, who teaches finance at the University of Colorado Boulder's Leeds School of Business, said Tuesday that corporate clawback efforts, including Sterling's, face several significant challenges, not the least of which is the fact that the executives on the receiving end of a clawback seldom comply voluntarily.
"That means litigation," Bhagat said.
Seligman appears determined to contest Sterling's suit.
"Mr. Seligman plans to vigorously defend himself against the lawsuit, and he looks forward to the opportunity for the full factual picture to be presented in court," his office said in its statement.
Most importantly, perhaps, Bhagat said clawback efforts often flounder because they seek to recoup funds that have already left a company's coffers — seldom an easy task. Bhagat, who last year co-authored a paper on the clawback issue with University of Delaware finance professor Charles Elson, argued that a better practice would be for companies to limit executives' incentive compensation to restricted equity that cannot be touched for up to a year following their departures to ensure proper corporate governance.
