CALDERWOOD & HARKNESS LLP
INTERNAL MEMORANDUM PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
Classification: Administrative — Matter Close-Out
Date: June 12, 2024
TO: File — Matter No. SC-MAT-2023-4172
FROM: Victoria Chambers, Partner; Howard Quinn, Partner
RE: Matter Close-Out — Belmont Ridge Bank National Association — SEC Division of Enforcement Investigation (File No. HO-14287)
CC: Jasmine Thornton, Lead Associate; Liam Donahue, Working Associate; Calderwood & Harkness Finance Department; Calderwood & Harkness Conflicts Department
I. PURPOSE
This memorandum documents the final administrative close-out of Matter No. SC-MAT-2023-4172 in connection with Calderwood & Harkness LLP's representation of Belmont Ridge Bank National Association ("BRB" or "Belmont Ridge") (Nasdaq: BRDG) in the investigation conducted by the United States Securities and Exchange Commission, Division of Enforcement, Investigation File No. HO-14287.
The engagement arose from a formal investigation by the SEC's Division of Enforcement into BRB's public disclosures concerning its loan-loss provisioning practices and allowance for credit losses ("ACL") methodology as applied to its BridgeFin digital lending platform. The investigation was initiated in September 2023 and progressed through document production, investigative testimonies, and the Wells process. By letter dated May 30, 2024, the SEC Staff notified the undersigned counsel that the Staff had determined not to recommend that the Commission bring an enforcement action against BRB in connection with the matters investigated. The investigation has been terminated, and no enforcement action has been recommended.
In light of the foregoing, the matter status is hereby designated: Closed — Terminated (Favorable).
This memorandum is intended to serve as a comprehensive record for the following internal Calderwood & Harkness purposes: (i) administrative and billing records, including reconciliation of fees, costs, and insurance recoveries; (ii) the firm's conflicts-management system, to ensure that the closed status of the matter and the identities of all parties and participants are properly reflected; and (iii) the firm's institutional knowledge base, to document key facts, procedures, and lessons learned that may inform the handling of future SEC enforcement matters. This memorandum is not intended for distribution outside the firm and is protected by the attorney work-product doctrine.
II. MATTER SUMMARY
A. Client Information
The client in this matter is identified as follows:
• Full Legal Name: Belmont Ridge Bank National Association
• Short Name / Defined Terms: "BRB"; "Belmont Ridge"
• Entity Type: National banking association, chartered by the Office of the Comptroller of the Currency ("OCC"), Charter No. 24891
• Principal Place of Business / Headquarters: 200 Park Avenue South, 38th Floor, New York, New York 10003
• Registered Agent for Service of Process: CT Statutory Agent Services Inc., 28 Liberty Street, New York, New York 10005
• Exchange Listing / Ticker Symbol: Nasdaq Global Select Market; ticker symbol "BRDG"
• Approximate Market Capitalization (as of September 2023, at engagement commencement): Approximately $4.7 billion
• Employer Identification Number (EIN): 13-4827561
The primary client contacts throughout the engagement were as follows:
Derek Sung — General Counsel and Chief Legal Officer. Mr. Sung served as the primary day-to-day contact for all legal matters, supervised BRB's internal legal team's document preservation and collection efforts, and coordinated the institution's litigation hold.
Marcus R. Ellingham — Chief Executive Officer. Mr. Ellingham was briefed periodically throughout the investigation on the status of the SEC's inquiry, the Wells process, and the ultimate termination. He was not called for investigative testimony by the SEC Staff.
Patricia "Trish" Navarrete — Chief Financial Officer. Ms. Navarrete served as a key substantive contact on all financial reporting, ACL methodology, and disclosure questions. She provided investigative testimony before the SEC Staff on January 18, 2024, and executed a declaration that was submitted as part of the Wells Submission (Exhibit E).
B. Engagement Details
Calderwood & Harkness LLP was formally engaged to represent BRB in connection with the SEC investigation pursuant to an engagement letter dated September 20, 2023. The engagement was opened promptly following BRB's receipt of the SEC's initial voluntary request letter on September 18, 2023. The key engagement details are as follows:
• Engagement Letter Date: September 20, 2023
• Matter Number: SC-MAT-2023-4172
• Responsible Partner: Victoria Chambers, White Collar Defense & Investigations Group
• Billing Partner: Howard Quinn, White Collar Defense & Investigations Group
• Lead Associate: Jasmine Thornton
• Working Associate: Liam Donahue
• Calderwood & Harkness LLP Office Address: 425 Lexington Avenue, 30th Floor, New York, New York 10017
• Firm EIN: 13-3291074
The engagement letter provided for hourly billing at the then-current rates of each assigned timekeeper, subject to an annual fee cap of $4,500,000, and contained standard provisions regarding conflicts of interest, the scope of representation, document retention, and termination. The engagement letter further provided that BRB would be responsible for the fees and expenses of any third-party consultants or experts retained by the firm in connection with the matter, subject to prior client approval.
C. Nature of Matter
The SEC Division of Enforcement's investigation focused on BRB's public disclosures regarding its loan-loss provisioning and ACL methodology as applied to its BridgeFin digital lending platform. BridgeFin is a proprietary technology-driven consumer personal lending platform operated by BRB that originates unsecured consumer personal loans through digital channels. As of December 31, 2022, the BridgeFin portfolio had approximately $4.1 billion in outstanding loans.
The core issue under investigation was whether BRB's periodic reports filed with the Commission during fiscal year 2022 and the first two quarters of fiscal year 2023 materially understated the expected credit losses associated with the BridgeFin consumer personal-loan sub-segment. The filings at issue were:
(i) BRB's Annual Report on Form 10-K for fiscal year ended December 31, 2022, filed with the Commission on February 28, 2023;
(ii) BRB's Quarterly Report on Form 10-Q for the first quarter ended March 31, 2023, filed with the Commission on May 10, 2023; and
(iii) BRB's Quarterly Report on Form 10-Q for the second quarter ended June 30, 2023, filed with the Commission on August 9, 2023.
The potential charges considered by the SEC Staff, as communicated during the Wells process, involved alleged violations of Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78m(a), 78m(b)(2)(A)) and Rules 13a-1 and 12b-20 promulgated thereunder (17 C.F.R. §§ 240.13a-1, 240.12b-20). Specifically, the SEC Staff's theory was that BRB's periodic reports contained materially inaccurate financial statements due to the understatement of expected credit losses and that BRB's books and records did not accurately reflect the entity's transactions and dispositions of assets.
The substantive dispute centered on BRB's treatment of approximately 12,847 re-aged or modified BridgeFin consumer personal loans, representing aggregate outstanding principal balances of approximately $236.4 million. These loans had been subject to various forms of borrower accommodation — including short-term payment deferrals, term extensions, and interest rate modifications — that BRB internally classified as "portfolio quality maintenance" actions rather than troubled debt restructurings. The critical accounting question was how these re-aged and modified loans should be classified within vintage delinquency cohorts for purposes of estimating expected lifetime credit losses under the Current Expected Credit Losses ("CECL") methodology (ASC 326, Financial Instruments — Credit Losses).
BRB's approach, as applied in the filings at issue, classified re-aged loans within new vintage cohorts based on the date of modification, effectively resetting the delinquency "clock" for loss-rate estimation purposes. The SEC Staff's preliminary view, based on its own analysis and supported by the Staff Accountant's review, was that these loans should have remained in their original vintage cohorts, which would have resulted in the application of higher historical loss rates to the modified loans and, consequently, a higher aggregate ACL.
The quantitative significance of the dispute was as follows:
• BRB's reported ACL for the BridgeFin portfolio as of December 31, 2022: $143.5 million (representing 3.50% of outstanding BridgeFin loans).
• SEC Staff's preliminary assessed ACL for the BridgeFin portfolio: approximately $180.8 million (representing 4.41% of outstanding BridgeFin loans).
• Alleged understatement: approximately $37.3 million (representing a 91-basis-point differential in loss-rate coverage).
This alleged understatement of $37.3 million was significant relative to BRB's overall financial results. BRB's consolidated pre-tax income for fiscal year 2022 was approximately $612 million. Using BRB's internal materiality threshold of 5% of pre-tax income — a threshold commonly applied in the banking industry and consistent with BRB's auditor's materiality assessment — the dollar-value materiality threshold was $30.6 million. The alleged understatement of $37.3 million exceeded this threshold by approximately $6.7 million, or by roughly 21.9% of the materiality threshold itself. This excess above the materiality threshold was a significant factor in the SEC Staff's decision to issue a Wells notice and was therefore the primary battleground in the Wells Submission.
D. Investigation Timeline — Key Milestones
The following timeline summarizes the key events and milestones in the investigation from commencement through termination:
September 18, 2023 — SEC Voluntary Request Letter Received. BRB, through its prior securities reporting counsel at Caldwell Pratt & Stein LLP, received a voluntary request letter from the SEC Division of Enforcement requesting the production of documents relating to BRB's CECL methodology, its BridgeFin loan portfolio, and certain internal communications regarding ACL estimation. This letter was the first formal indication that the SEC had opened an investigation. Caldwell Pratt & Stein promptly notified BRB's General Counsel, Derek Sung, who in turn contacted Calderwood & Harkness.
September 20, 2023 — Calderwood & Harkness Engaged. Following an introductory meeting with Mr. Sung, Mr. Ellingham, and Ms. Navarrete on September 19, 2023, the firm executed an engagement letter with BRB on September 20, 2023, opening Matter No. SC-MAT-2023-4172. The firm immediately implemented a document preservation protocol and began coordinating with BRB's internal legal and information technology teams to initiate a litigation hold across relevant custodians and systems.
October 5, 2023 — D&O Insurance Tender. The investigation was tendered to BRB's primary D&O insurer, Northcastle Mutual Assurance Company, via written notice delivered through BRB's insurance broker, Ridgeline Governance Advisors LLC (SVP Melinda Tran). The tender letter described the nature of the SEC inquiry, identified defense counsel, and requested coverage confirmation under Policy No. NMA-DO-2023-11847.
October 10, 2023 — Brindoval Analytic Partners Retained. With BRB's approval, the firm retained Brindoval Analytic Partners LLC, a forensic accounting consulting firm, to provide technical analysis of BRB's CECL methodology, BridgeFin loss-rate modeling, vintage cohort classification practices, and the quantitative impact of alternative ACL estimation approaches. The retention was structured under the Kovel doctrine and the work-product privilege to protect the confidentiality of Brindoval's analysis and communications with the firm. Dr. Franklin Osei, CPA, CFF, served as the engagement lead for Brindoval.
October 12, 2023 — SEC Formal Order of Investigation Issued. The Commission issued a Formal Order of Investigation, Order No. EN-2023-0947, authorizing the SEC Staff to issue subpoenas, compel testimony, and take other investigative steps. The issuance of the Formal Order marked the escalation of the matter from a preliminary inquiry to a full-scale formal investigation.
October 15, 2023 — SEC Document Subpoena Issued. The SEC Staff issued a document subpoena, Subpoena No. HO-14287-001, to BRB requiring the production of a broad range of documents relating to the BridgeFin lending platform, ACL estimation, CECL methodology, re-aging and modification practices, internal audit findings, board and committee minutes, and communications with external auditors. The subpoena superseded the earlier voluntary request letter and imposed mandatory production obligations.
November 1, 2023 through March 1, 2024 — Document Productions. The firm coordinated and supervised six rolling document productions to the SEC Staff over a period of approximately four months. The total volume of documents produced was 284,617 documents comprising approximately 1.42 million pages. All documents were Bates-stamped with the prefix BRB-SEC, beginning at BRB-SEC-000001 and continuing sequentially through the final production. The productions were organized thematically and chronologically, in general conformity with the categories specified in the subpoena. The production details were as follows:
In connection with these productions, the firm prepared and maintained a cumulative privilege log identifying 1,847 documents that were withheld in whole or redacted in part on the basis of the attorney-client privilege, the work-product doctrine, and/or the bank-examination privilege (as to communications with the OCC and OCC examiners). The privilege log was produced to the SEC Staff concurrently with each rolling production and was updated cumulatively with each successive production. The SEC Staff did not challenge any privilege assertions during the course of the investigation.
January 18, 2024 — Investigative Testimony of Patricia Navarrete. Ms. Navarrete, BRB's Chief Financial Officer, appeared for investigative testimony before the SEC Staff at the SEC's New York Regional Office. The testimony was conducted pursuant to Section 21(a) of the Securities Exchange Act and lasted approximately six hours. Ms. Navarrete was prepared by Ms. Chambers and Ms. Thornton over the course of three preparation sessions. Ms. Navarrete's testimony focused on her role in overseeing BRB's financial reporting process, the establishment of ACL reserves, BRB's disclosure controls and procedures, and her knowledge of the BridgeFin re-aging practices. The testimony proceeded without significant incident, and Ms. Navarrete's responses were consistent with the factual narrative developed in the firm's internal assessment.
January 30, 2024 — Investigative Testimony of Naveen Chakravarti. Mr. Chakravarti, BRB's Senior Vice President and Division Head of BridgeFin, appeared for investigative testimony before the SEC Staff. The testimony lasted approximately five and one-half hours. Mr. Chakravarti was prepared by Ms. Chambers and Mr. Donahue. His testimony focused on the operational mechanics of the BridgeFin platform, the criteria and approval processes for loan modifications and re-aging, the volume and credit characteristics of modified loans, and communications between the BridgeFin division and BRB's credit risk and accounting functions. Mr. Chakravarti's testimony was thorough and consistent with BRB's position.
February 14, 2024 — Investigative Testimony of Raymond Hu. Mr. Hu, BRB's Chief Accounting Officer, appeared for investigative testimony before the SEC Staff. The testimony lasted approximately seven hours and focused heavily on the technical accounting treatment of re-aged loans under CECL (ASC 326), the vintage cohort classification methodology, the specific adjustments applied to the BridgeFin sub-segment within BRB's overall ACL estimation model, and Mr. Hu's interactions with BRB's external auditors at Whitfield Keane LLP regarding the adequacy of the ACL. Mr. Hu was prepared by Ms. Chambers and Ms. Thornton. This testimony was the most technically substantive of the three sessions, and Mr. Hu's clear and detailed explanations of the methodology contributed to the defense narrative.
March 8, 2024 — Wells Call / Wells Notice. The SEC Staff, through Branch Chief Renata Moss and Assistant Director Gregory Bonham, conducted a telephonic Wells call with the undersigned counsel. During the call, the Staff communicated that it intended to recommend that the Commission bring a civil enforcement action against BRB based on alleged violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder. The Staff indicated that the proposed recommendation would include a cease-and-desist order and civil monetary penalties, though the specific penalty amount was not specified. The Staff extended the standard opportunity to submit a Wells Submission.
March 15, 2024 — BRB Audit Committee Emergency Session. The BRB Board of Directors' Audit Committee, chaired by Gwendolyn Prescott, convened an emergency session at which the undersigned counsel provided a comprehensive briefing on the Wells notice, the Staff's stated theories, the potential remedies, and the firm's recommended response strategy. The Audit Committee authorized the preparation and submission of a Wells Submission and approved the continued retention of Brindoval Analytic Partners.
April 5, 2024 — Wells Submission Filed. The firm filed a 42-page Wells Submission on behalf of BRB with the SEC Staff, accompanied by seven exhibits (Exhibits A through G). The submission presented BRB's defense on multiple grounds, including: (i) the technical accounting argument that BRB's vintage cohort classification of re-aged loans was a reasonable and good-faith interpretation of ASC 326 and was consistent with practices employed by peer institutions (Exhibit A — Brindoval expert report; Exhibit B — peer comparison analysis of 12 digital-lending banks); (ii) the argument that the alleged ACL understatement, when properly measured, did not exceed applicable materiality thresholds (Exhibit C — alternative quantitative materiality analysis); (iii) evidence of BRB's robust disclosure controls and procedures and the absence of scienter (Exhibit D — summary of OCC supervisory findings; Exhibit E — declarations of Navarrete and Hu); (iv) evidence of BRB's voluntary remedial measures, including enhanced disclosures in the Q3 2023 Form 10-Q (Exhibit F — comparison of pre- and post-enhancement disclosures); and (v) a survey of relevant SEC enforcement precedent and no-action history (Exhibit G — legal memorandum and precedent table).
April 22, 2024 — Supplemental Letter to SEC Staff. At the Staff's informal request, the firm submitted a supplemental letter providing updated credit metrics for the BridgeFin portfolio through Q4 2023 (quarter ended December 31, 2023). The Q4 2023 data demonstrated that the BridgeFin portfolio's actual credit performance had been consistent with BRB's loss-rate projections, undermining the Staff's contention that the ACL had been materially understated. Specifically, actual charge-offs in the modified loan cohort for the twelve months ended December 31, 2023 were approximately 4.12%, compared to BRB's projected loss rate of 4.25% — a variance of only 13 basis points and well within the range of estimation uncertainty inherent in CECL modeling.
May 30, 2024 — SEC Staff Termination Letter. The SEC Staff, by letter from Branch Chief Renata Moss, notified the undersigned counsel that the Staff had completed its investigation and had determined not to recommend that the Commission bring an enforcement action against BRB. The termination letter stated, in standard form, that the Staff's decision should not be construed as a finding that no violation of law had occurred, but that the Staff had concluded its review and did not intend to pursue the matter further. The termination letter did not reference any referral to other regulatory agencies.
E. Outcome. The outcome of the investigation was favorable to BRB. The matter was terminated at the Wells stage, with the SEC Staff electing not to recommend enforcement action after review of BRB's Wells Submission and supplemental materials. The key elements of the outcome are as follows:
• No enforcement action recommended. The SEC Staff's termination letter, dated May 30, 2024, confirmed that no enforcement recommendation would be made to the Commission.
• No tolling agreement. At no point during the investigation did BRB enter into a tolling agreement with the SEC. The absence of a tolling agreement is noted for the record, as it is relevant to the running of the applicable statute of limitations.
• Statute of limitations. The applicable statute of limitations for SEC civil enforcement actions is five years under 28 U.S.C. § 2462, measured from the date of the alleged violation. For the filings at issue, the relevant dates are: (a) the FY 2022 Form 10-K filing date of February 28, 2023 (statute expires February 28, 2028); and (b) the latest filing at issue, the Q2 2023 Form 10-Q, filed August 9, 2023 (statute expires August 9, 2028). While the investigation has been terminated, these dates are noted for purposes of the document retention period established in Section VI below.
• No consent order, no disgorgement, no civil monetary penalty, and no cease-and-desist proceeding. BRB was not required to agree to any remedial measures, make any payments, or submit to any ongoing obligations as a result of the investigation.
• No referral to other agencies. The SEC Staff's termination letter did not indicate that the matter had been referred to any other federal or state regulatory agency, including the OCC, the Department of Justice, or any state banking regulator. Of course, the absence of a stated referral does not preclude the possibility that other agencies may have independently become aware of the investigation, but no such independent inquiry has been received by BRB or the firm as of the date of this memorandum.
III. STAFFING AND TIMEKEEPER SUMMARY
The following table sets forth the timekeepers who billed time to Matter No. SC-MAT-2023-4172, their respective roles, hourly rates, total hours, and gross fees. All hours and fees reflect the period from the engagement opening on September 20, 2023 through the close-out date of June 12, 2024.
The distribution of hours across the engagement team reflects the nature of the work performed. Ms. Thornton and Mr. Donahue, as the lead and working associates respectively, bore the primary responsibility for document review and production management, privilege review, witness preparation research, and drafting of the Wells Submission and supporting exhibits. Ms. Chambers, as the responsible partner, directed the overall defense strategy, participated in all substantive communications with the SEC Staff, personally led the three witness preparation sessions and attended all three investigative testimonies, supervised the drafting of the Wells Submission, and maintained ongoing client communications with Mr. Sung and the Audit Committee. Mr. Quinn, as the billing partner, provided strategic oversight, reviewed all major work product, participated in the Wells call, and managed the fee arrangement and billing relationship with the client.
Note: The above hours reflect all billable time recorded during the engagement period. Certain hours recorded by support staff (paralegals, litigation support specialists, and project managers) were absorbed by the firm as part of overhead and are not reflected in the table above, consistent with the terms of the engagement letter.
IV. FINANCIAL SUMMARY — FEES AND COSTS
A. Calderwood & Harkness Fees
The gross fees generated by the matter, as set forth in Section III above, totaled $4,767,850.00. The engagement letter dated September 20, 2023 provided for hourly billing at each timekeeper's then-current rate, subject to an annual fee cap of $4,500,000.00. As the gross fees exceeded the annual cap by $267,850.00, the firm applied a voluntary cap reduction in accordance with the terms of the engagement letter.
The cap reduction was calculated as follows: the gross fees of $4,767,850.00 were reduced by 19.3%, yielding net fees of $3,847,617.05. For billing and invoicing purposes, this amount was rounded to $3,847,622.00 as reflected on the final invoice to BRB.
Gross fees: $4,767,850.00
Voluntary cap reduction (19.3%): ($920,228.00)
Net C&H fees billed and collected: $3,847,622.00
All invoices issued during the engagement have been paid in full by BRB. There are no outstanding receivables, no disputed amounts, and no unresolved billing issues as of the date of this memorandum. The final invoice was issued on June 3, 2024, and payment was received via wire transfer on June 10, 2024.
B. Consulting and Expert Fees
In addition to the firm's own fees, BRB incurred the following third-party consulting and expert fees in connection with the matter:
Brindoval Analytic Partners LLC Forensic accounting consultant Engagement Lead: Dr. Franklin Osei, CPA, CFF
Address: 350 South Grand Avenue, Suite 2100, Los Angeles, California 90071
Total fees: $618,400.00
Brindoval was engaged on October 10, 2023, under the Kovel doctrine and work-product privilege framework, to provide forensic accounting and quantitative analysis services. Brindoval's scope of work included: (i) forensic analysis of BRB's CECL methodology as applied to the BridgeFin portfolio; (ii) independent reconstruction and validation of BRB's vintage cohort loss-rate models; (iii) analysis of the impact of alternative cohort classification treatments for re-aged and modified loans; (iv) benchmarking of BRB's ACL coverage ratios against peer institutions; and (v) preparation of an expert report setting forth Brindoval's conclusions, which was submitted as Exhibit A to the Wells Submission. All Brindoval fees were billed directly to BRB upon the firm's approval and have been paid in full.
C. Total Defense Costs
The aggregate defense costs incurred in connection with the investigation are summarized as follows:
Calderwood & Harkness LLP fees (net): $3,847,622.00
Brindoval Analytic Partners LLC fees: $618,400.00
Total defense costs: $4,466,022.00
No other significant out-of-pocket costs (e.g., travel, copying, court reporting fees for investigative testimony transcripts) were billed separately; such costs were absorbed within the firm's standard hourly billing or were de minimis and included in general overhead.
D. D&O Insurance Recovery
BRB maintained directors' and officers' liability insurance coverage during the relevant period through the following policies:
Primary Carrier: Northcastle Mutual Assurance Company Policy No.: NMA-DO-2023-11847 Policy Period: July 1, 2023 – July 1, 2024 Primary Limit: $15,000,000.00 Entity Retention (self-insured retention / deductible): $2,500,000.00
First Excess Carrier: Cascade Omnivrel Insurance Group Policy No.: CFIG-XS1-2023-5598 Limit: $10,000,000.00 excess of $15,000,000.00 (attaches at $15 million)
The investigation was tendered to Northcastle Mutual on October 5, 2023, through BRB's D&O insurance broker, Ridgeline Governance Advisors LLC (SVP Melinda Tran). Northcastle acknowledged the tender and accepted coverage for defense costs, subject to the entity retention and the terms and conditions of the policy, including the carrier's reservation of the right to audit defense costs. Northcastle designated Thornfield & Rowe LLP (contact: Brenda Alvaro, 227 West Monroe Street, Suite 4400, Chicago, Illinois 60606) as its claims counsel for purposes of monitoring defense costs and coverage issues.
The recovery calculation is as follows:
Total defense costs submitted to carrier: $4,466,022.00
Less entity retention: ($2,500,000.00)
Costs reimbursed by Northcastle Mutual Assurance Company: $1,966,022.00
The first excess layer provided by Cascade Omnivrel Insurance Group was not implicated, as total defense costs of $4,466,022.00 were well within the $15,000,000.00 primary policy limit after application of the entity retention. No claim was submitted to Cascade Fidelity, and no excess coverage was triggered.
All carrier reimbursement payments have been received by BRB and fully reconciled as of the date of this memorandum. Payments were made in three installments over the course of the engagement, with the final reimbursement payment received on June 7, 2024.
Northcastle Mutual reserved its right under the policy to conduct an audit of defense costs. As of the close-out date of this memorandum, no such audit has been initiated. The firm's billing records and time entries have been maintained in a manner consistent with the carrier's billing guidelines and are available for audit should one be requested.
V. THIRD-PARTY ADVISORS AND KEY PARTICIPANTS
This section identifies all third-party advisors, related counsel, and key participants involved in the matter. This information is recorded for conflicts, institutional knowledge, and administrative purposes.
A. Retained Advisors
The following advisors were retained by Calderwood & Harkness (on behalf of BRB) or directly by BRB in connection with the investigation:
B. Related Counsel (Not Retained by Calderwood & Harkness)
The following law firms participated in or were relevant to the investigation but were not retained by Calderwood & Harkness or engaged under the firm's direction:
C. Independent Auditor
BRB's independent auditor during the relevant period was:
Whitfield Keane LLP PCAOB Registration No. 2847 Audit Engagement Partner: Lorraine Dupont
Address: 600 Third Avenue, 22nd Floor, New York, New York 10016
Whitfield Keane audited BRB's consolidated financial statements for fiscal years 2021 and 2022 and issued unqualified audit opinions for both years. The SEC Staff made inquiries to Whitfield Keane during the investigation, including requests for the auditor's work papers relating to the ACL and BridgeFin-related audit procedures. Communications with Whitfield Keane were coordinated through its counsel, Hargrove & Millstein LLP. The firm maintained appropriate privilege protocols throughout the investigation to preserve the confidentiality of BRB's communications with its auditors to the extent permissible.
D. SEC Staff
The following members of the SEC Staff were involved in the investigation:
Ms. Felton and Mr. Yuen served as the primary day-to-day SEC contacts for document production and scheduling matters. Ms. Milosevic provided accounting expertise to the Staff and was principally responsible for the Staff's quantitative analysis of BRB's ACL methodology. Mr. Bonham and Ms. Moss were the senior Staff officials responsible for the investigation and were the primary participants in the Wells call and the ultimate termination decision.
E. BRB Officers and Directors Involved
The following BRB officers and directors were directly involved in or relevant to the investigation:
None of the above individuals were named as individual respondents in the investigation, and no individual Wells notices were issued to any officer or director of BRB. All three testifying witnesses were represented by BRB's counsel (Calderwood & Harkness) during their investigative testimonies, and no conflicts of interest arose requiring separate individual representation.
VI. DOCUMENT RETENTION INSTRUCTIONS
A. Retention Period
All work product, attorney-client privileged communications, internal memoranda, research materials, draft documents, and final documents associated with Matter No. SC-MAT-2023-4172 shall be retained for a minimum of seven (7) years from the date of this memorandum — that is, through June 12, 2031, at the earliest.
This retention period has been established to account for the following considerations: (i) the five-year statute of limitations for SEC civil enforcement actions under 28 U.S.C. § 2462, measured from the latest filing at issue (August 9, 2023, yielding a limitations expiration of August 9, 2028); (ii) a two-year buffer beyond the limitations period to allow for any potential collateral proceedings, including private securities litigation, shareholder derivative actions, or follow-on inquiries by other regulatory bodies (e.g., the OCC, state banking regulators, or the Department of Justice); and (iii) the firm's general document retention policies, which require retention of closed-matter files for a minimum of seven years absent specific client instructions to the contrary.
B. Materials Subject to Hold
The following categories of materials are subject to the retention hold and must be preserved for the full retention period:
1. All six rolling document productions to the SEC (284,617 documents comprising approximately 1.42 million pages; Bates-stamped BRB-SEC-000001 through the final document in Production 6), including all cover letters, production indices, and transmittal correspondence.
2. The cumulative privilege log (1,847 entries), including all iterations and updates produced concurrently with each rolling production.
3. All internal Calderwood & Harkness memoranda generated during the engagement, including but not limited to:
(a) the initial assessment memorandum;
(b) the formal order analysis memorandum;
(c) the CECL methodology analysis memorandum;
(d) witness preparation memoranda for Patricia Navarrete, Naveen Chakravarti, and Raymond Hu;
(e) post-testimony debrief memoranda for all three witnesses;
(f) the Wells notice analysis memorandum;
(g) all Audit Committee briefing materials (presentations, memoranda, and talking points);
(h) client notification letters and status reports; and
(i) this matter close-out memorandum.
4. The Wells Submission (42 pages) and all exhibits thereto (Exhibits A through G), including the Brindoval Analytic Partners expert report (Exhibit A), the peer comparison analysis (Exhibit B), the alternative quantitative materiality analysis (Exhibit C), the OCC supervisory findings summary (Exhibit D), the declarations of Navarrete and Hu (Exhibit E), the disclosure comparison (Exhibit F), and the legal memorandum and precedent table (Exhibit G).
5. The supplemental letter to SEC Staff dated April 22, 2024, and all supporting materials.
6. The SEC Staff termination letter dated May 30, 2024.
7. The engagement letter dated September 20, 2023, and all amendments, addenda, or modifications thereto (if any), together with all fee and billing records, invoices, payment records, and billing adjustment documentation.
8. All correspondence with SEC Staff, including letters, emails, and notes of telephone calls with Senior Staff Attorney Andrea Felton, Staff Attorney Christopher Yuen, Staff Accountant Diane Milosevic, Assistant Director Gregory Bonham, and Branch Chief Renata Moss.
9. All D&O insurance tender correspondence and carrier communications, including the tender letter to Northcastle Mutual Assurance Company, the coverage acknowledgment, all communications with Ridgeline Governance Advisors LLC, and all communications with Thornfield & Rowe LLP (insurer's claims counsel), including billing submissions and reimbursement records.
10. The Brindoval Analytic Partners LLC engagement letter, all invoices, and all deliverables, including work papers, analyses, draft and final expert reports, and internal communications subject to the Kovel privilege.
C. Storage. All electronic files associated with Matter No. SC-MAT-2023-4172 shall be maintained on the firm's secure document management system (currently Stonefield Systems) under the assigned matter number. Access to the matter workspace shall be restricted to members of the matter team (Victoria Chambers, Howard Quinn, Jasmine Thornton, and Liam Donahue) and authorized firm administrative personnel, including designated representatives of the Finance Department and the Conflicts Department, as necessary to perform their respective functions.
Any physical files, including original signed documents, hard-copy correspondence, and printed materials that were maintained in the offices of matter team members during the engagement, shall be collected, boxed, labeled with the matter number and description, and transferred to the firm's designated offsite storage facility in accordance with the firm's standard records management policy. A storage inventory shall be prepared and maintained in the document management system.
D. Destruction. No materials associated with Matter No. SC-MAT-2023-4172 shall be destroyed or deleted prior to the expiration of the seven-year retention period (June 12, 2031) without the express prior written approval of Victoria Chambers (Responsible Partner) or her designee. Requests for early destruction must be documented in writing and must include the reason for the request and a certification that the materials are not subject to any pending or reasonably anticipated legal hold, litigation, regulatory inquiry, or other proceeding.
Upon expiration of the retention period, the firm's standard document-destruction protocols shall apply. Prior to destruction, BRB shall be notified in writing and given a reasonable opportunity (not less than sixty (60) days) to request that some or all of the materials be transferred to the client rather than destroyed. If the client requests transfer, the firm shall arrange for secure transfer of the requested materials at the client's expense.
VII. CONFLICTS CLEARANCE UPDATE
Matter No. SC-MAT-2023-4172 has been updated in the firm's conflicts-management database (currently Ridgeway Health IT) to reflect the following closed/terminated status as of June 12, 2024:
Matter Status: Closed — Terminated (Favorable)
Close-Out Date: June 12, 2024
Client: Belmont Ridge Bank National Association (EIN 13-4827561)
Adverse Party: United States Securities and Exchange Commission, Division of Enforcement (government entity — standard conflicts treatment per firm policy; no general prohibition on adverse representations in unrelated matters)
The following related parties have been flagged in the conflicts system in connection with this matter. Each party's relationship to the matter and its status as adverse or non-adverse is identified below:
• Caldwell Pratt & Stein LLP — Prior securities reporting counsel to BRB; prepared and reviewed the periodic filings at issue; not adverse to BRB in this matter.
• Whitfield Keane LLP — Independent auditor of BRB; audited the financial statements at issue; not adverse to BRB in this matter. Communications with Whitfield Keane were subject to privilege protocols.
• Hargrove & Millstein LLP — Counsel to Whitfield Keane LLP in connection with the investigation; not adverse to BRB in this matter.
• Northcastle Mutual Assurance Company — Primary D&O insurer of BRB; provided defense-cost coverage; not adverse to BRB in this matter. Carrier reserved right to audit defense costs; no audit initiated.
• Cascade Omnivrel Insurance Group — First excess D&O insurer of BRB; coverage not triggered; not adverse to BRB in this matter.
• Thornfield & Rowe LLP — Claims counsel designated by Northcastle Mutual to monitor defense costs; not adverse to BRB in this matter.
• Brindoval Analytic Partners LLC — Forensic accounting consultant retained by Calderwood & Harkness on behalf of BRB under the Kovel doctrine; not adverse to BRB in this matter.
No new conflicts have been identified at close-out. The conflicts system entry for this matter includes cross-references to all of the parties listed above. Any future engagement by the firm involving BRB, the SEC Division of Enforcement (in a related context), or any of the listed related parties will require a standard conflicts check with reference to this closed matter, in accordance with the firm's conflicts-clearance procedures.
VIII. LESSONS LEARNED / INSTITUTIONAL NOTES
The following observations are recorded for the firm's institutional knowledge base. These notes reflect the professional judgment of the responsible and billing partners and are intended to inform the handling of future SEC enforcement investigations involving financial institution clients, CECL-related accounting issues, and similar matters.
1. Early Retention of Forensic Accounting Consultant. The early retention of Brindoval Analytic Partners LLC — engaged on October 10, 2023, less than three weeks after the firm's engagement and before the Formal Order of Investigation was issued — proved to be one of the most consequential strategic decisions in the matter. Brindoval's forensic analysis provided the technical foundation for BRB's defense that the re-aging treatment of modified BridgeFin loans was within the range of acceptable methodologies under ASC 326 (CECL). Dr. Osei's expert report, submitted as Exhibit A to the Wells Submission, demonstrated that BRB's vintage cohort classification approach was a reasonable application of the standard and was consistent with practices employed by peer institutions. Had Brindoval been engaged later in the process — for example, after the Wells notice — the compressed timeline would likely have resulted in a less thorough and less persuasive expert analysis. In future matters involving complex accounting methodologies, the firm should prioritize the early retention of qualified forensic accounting consultants.
2. Cooperation Posture and Voluntary Disclosure Enhancements. BRB adopted a cooperative posture with the SEC Staff throughout the investigation, while vigorously defending its accounting positions. A key element of this cooperative approach was BRB's voluntary decision to enhance its BridgeFin-related disclosures in the Q3 2023 Form 10-Q (filed November 9, 2023). The enhanced disclosures included the addition of vintage-level delinquency tables for the BridgeFin portfolio, the presentation of credit quality indicators disaggregated by loan modification type, and a more detailed narrative discussion of the CECL methodology as applied to re-aged loans. These voluntary enhancements, which were undertaken at the firm's recommendation and with the concurrence of BRB's Audit Committee, served to demonstrate BRB's good faith and commitment to transparent disclosure. The enhanced disclosures were cited by the firm in the Wells Submission (Exhibit F) as evidence that BRB's prior disclosures, while less granular, were not materially misleading. The Staff appeared to view the voluntary enhancements favorably and referenced them in informal communications preceding the termination decision.
3. Upjohn Protocols. Upjohn warnings were administered to all three testifying witnesses — Patricia Navarrete, Naveen Chakravarti, and Raymond Hu — prior to each witness preparation session, in accordance with the firm's standard protocols for corporate internal investigations and regulatory proceedings. Each witness was advised that Calderwood & Harkness represented BRB and not the individual witness, that the communications during preparation sessions were protected by BRB's attorney-client privilege and not the individual's, and that BRB could waive the privilege at its discretion. All three witnesses acknowledged and accepted these terms without objection. No individual representation requests arose during the engagement, and no conflicts of interest emerged that would have required the firm to recommend that any witness retain separate counsel. The smooth administration of the Upjohn protocols in this matter may be attributed in part to the advance coordination with Mr. Sung (General Counsel), who prepared each witness for the process before the firm's preparation sessions commenced.
4. Peer Comparison Analysis. The peer comparison analysis prepared for the Wells Submission (Exhibit B) — which surveyed the CECL methodologies, vintage cohort classification practices, and ACL coverage ratios of twelve peer digital-lending banks — was cited favorably by the SEC Staff in informal communications preceding the termination decision. The analysis demonstrated that BRB's vintage cohort classification approach was consistent with the practices of a majority of its peer group and that BRB's ACL coverage ratio, even as reported, was within the range of peer coverage ratios. This type of industry benchmarking analysis should be considered a standard component of the firm's Wells Submission toolkit in future financial institution enforcement matters.
5. Bank-Examination Privilege. The bank-examination privilege (protecting confidential supervisory information shared between BRB and the OCC) was successfully preserved throughout the document production process. The firm withheld or redacted OCC supervisory communications from the SEC productions, asserting the bank-examination privilege on the privilege log. The SEC Staff did not challenge these assertions. Separately, the OCC's concurrent review of BRB's ACL methodology — which concluded that no material deficiency existed — provided important corroborative evidence for BRB's defense. The challenge was to present the substance of the OCC's favorable findings to the SEC Staff (in the Wells Submission, Exhibit D) without waiving the bank-examination privilege. The firm accomplished this by summarizing the OCC's conclusions in a manner that did not disclose the content of specific supervisory communications or examination reports. This approach was consistent with the OCC's regulations at 12 C.F.R. Part 4 and was not challenged by the SEC Staff. In future matters, the firm should continue to exercise careful attention to the preservation of bank-examination privilege while seeking appropriate avenues to leverage favorable supervisory findings.
6. D&O Insurance Process. The D&O insurance tender was processed promptly (October 5, 2023, less than three weeks after engagement), and Northcastle Mutual's cooperation throughout the claims process was constructive. Thornfield & Rowe LLP, the carrier's claims counsel, did not impose unreasonable billing guidelines or challenge the reasonableness of the firm's fees. The $2.5 million entity retention was absorbed by BRB without dispute. The efficient handling of the insurance process ensured that defense costs were reimbursed on a timely basis, which facilitated the client relationship and allowed the firm to focus on the substantive defense without billing-related friction.
7. Recommendation Regarding Future BRB Disclosures. Based on the firm's experience in this matter, we recommend that BRB consider engaging Caldwell Pratt & Stein LLP (its prior securities reporting counsel) or another qualified securities reporting counsel to conduct a proactive, forward-looking review of BRB's CECL disclosures in future periodic filings, particularly as the BridgeFin portfolio continues to grow and as the proportion of re-aged and modified loans within the portfolio evolves. Such a review would serve as a prophylactic measure to identify potential disclosure issues before filings are made and would demonstrate BRB's ongoing commitment to accurate and transparent reporting. This recommendation has been communicated to Mr. Sung informally but should be formalized in a separate client advisory letter if BRB requests further guidance on disclosure practices.
IX. CERTIFICATION AND CLOSING
The undersigned, Victoria Chambers and Howard Quinn, in their capacities as Responsible Partner and Billing Partner, respectively, for Matter No. SC-MAT-2023-4172, hereby certify the following:
1. All client obligations under the engagement letter dated September 20, 2023 have been fulfilled. The scope of representation — defense of BRB in connection with SEC Division of Enforcement Investigation File No. HO-14287 — has been completed with the SEC Staff's issuance of the termination letter dated May 30, 2024.
2. All fees due to Calderwood & Harkness LLP in connection with this matter have been billed in full and collected in full. Net fees billed and collected total $3,847,622.00. There are no outstanding receivables, unbilled time, or unresolved fee disputes.
3. All D&O insurance recoveries from Northcastle Mutual Assurance Company have been received by BRB. Total defense costs reimbursed by the carrier amount to $1,966,022.00 (total defense costs of $4,466,022.00 less the $2,500,000.00 entity retention). All carrier payments have been reconciled.
4. The matter is ready for formal closure in the firm's administrative, billing, and conflicts-management systems.
5. There are no outstanding receivables of any nature associated with this matter.
6. There are no pending or anticipated claims against Calderwood & Harkness LLP arising from this engagement, and no circumstances known to the undersigned that would give rise to such a claim.
7. All document retention, conflicts-clearance, and administrative close-out procedures described in this memorandum have been completed or initiated as of the date hereof.
Matter No. SC-MAT-2023-4172 is hereby closed effective June 12, 2024.
CALDERWOOD & HARKNESS LLP
By: ________
Name: Victoria Chambers
Title: Partner — White Collar Defense & Investigations
Date: June 12, 2024
CALDERWOOD & HARKNESS LLP
By: ________