Contract analysis

I. Executive Summary On March 8, 2024, the Staff of the Division of Enforcement of the United States Securities and Exchange Commission (the "Commission" or "SEC") conducted a telephonic Wells call with Calderwood & Harkness LLP, advising that the Staff is considering recommending that the Commission authorize an enforcement action against our client, Belmont Ridge Bank National Association ("BRB" or the "Bank"), in

II. Background — Investigation to Date A. Investigation Origins and Scope The SEC's investigation of BRB originated with a voluntary request letter issued by the Division of Enforcement on September 18, 2023. The letter, signed by Senior Staff Attorney Andrea Felton, requested that BRB voluntarily produce certain documents relating to the Bank's CECL methodology, its BridgeFin consumer lending platform, and the accou

1. Patricia Navarrete, Chief Financial Officer — Ms. Navarrete testified on January 18, 2024, in a session lasting approximately six hours. The examination was conducted primarily by Senior Staff Attorney Andrea Felton and Staff Accountant Diane Milosevic. The questioning focused on the following areas: (i) Ms. Navarrete's role in the ACL estimation and approval process; (ii) the basis for the reported ACL figure of

2. Naveen Chakravarti, Senior Vice President & BridgeFin Division Head — Mr. Chakravarti testified on January 30, 2024, in a session lasting approximately five hours. The examination was conducted primarily by Senior Staff Attorney Andrea Felton. The questioning focused on: (i) the BridgeFin platform's loan origination and underwriting model governance; (ii) the policies and procedures governing loan modifications an

3. Raymond Hu, Chief Accounting Officer — Mr. Hu testified on February 14, 2024, in a session lasting approximately seven hours. The examination was conducted by Staff Accountant Diane Milosevic and Senior Staff Attorney Andrea Felton, with Assistant Director Gregory Bonham briefly participating during the final hour. The questioning focused on: (i) the technical architecture and inputs of BRB's CECL model for the Br

III. Detailed Analysis of the Wells Call A. Participants and Logistics The Wells call was conducted via teleconference at approximately 2:00 p.m. Eastern Time on Friday, March 8, 2024. The call lasted approximately twenty-two minutes. The participants were as follows: SEC Division of Enforcement Staff: • Renata Moss, Branch Chief, Financial Fraud Unit • Gregory Bonham, Assistant Director, Financial Fraud Unit • Andre

IV. Legal Framework — Statutory Provisions and Rules This section provides a detailed analysis of the statutory provisions and rules that the Staff has identified as the basis for the potential enforcement action, as well as a discussion of the provisions the Staff has chosen not to invoke. Understanding this legal framework is essential to crafting an effective Wells Submission. A. Section 13(a) of the Exchange Act

Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), requires every issuer of a security registered pursuant to Section 12 of the Exchange Act to file with the Commission, in accordance with such rules and regulations as the Commission may prescribe, such annual and quarterly reports as the Commission may require. The implementing rules, including Rules 13a-1 (annual reports) and 13a-13 (quarterly reports), specify

Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A), requires every issuer that has a class of securities registered pursuant to Section 12 or that is required to file reports pursuant to Section 15(d) to "make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." This provision was added by the Fo

Section 10(b) of the Exchange Act and Rule 10b-5 thereunder — the principal anti-fraud provision of the federal securities laws, which makes it unlawful for any person to employ any device, scheme, or artifice to defraud, or to make any untrue statement of material fact or omit to state a material fact necessary to make the statements made not misleading, in connection with the purchase or sale of any security. A vio

Section 17(a) of the Securities Act of 1933 — which prohibits fraudulent conduct in the offer or sale of securities. Section 17(a)(1) requires scienter; Sections 17(a)(2) and 17(a)(3) require only a showing of negligence. See Aaron v. SEC, 446 U.S. 680, 701–02 (1980). The fact that the Staff has not cited even the negligence-based subsections of Section 17(a) further supports the conclusion that the Staff does not vi

V. Materiality Analysis The concept of materiality is central to both the Staff's theory and our defense. Under the governing legal standard, a misstatement or omission is material if there is a "substantial likelihood that a reasonable investor would consider it important in making an investment decision." TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976); Basic Inc. v. Levinson, 485 U.S. 224, 231–32

VI. Potential Penalties and Remedies This section analyzes the penalties and remedies that the Commission could seek or impose if it were to bring an enforcement action against BRB based on the charges identified in the Wells notice. A. Civil Monetary Penalties The Exchange Act authorizes the Commission to seek civil monetary penalties in administrative proceedings and federal court actions. The applicable penalty ti

VII. Defense Strategy and Arguments for Wells Submission This section sets forth the principal arguments we recommend advancing in BRB's Wells Submission. The submission should be a comprehensive, well-documented presentation designed to persuade the Staff that the weight of the evidence does not support an enforcement action. We recommend a submission of approximately forty-two pages, supported by exhibits, includin