Zions Bancorporation got hit hard on Thursday after admitting a massive $50 million fraud‑linked loss, dragging its market value down by nearly $1 billion in a single day.
The bank revealed in an SEC filing that $60 million in loans were effectively unrecoverable, sparking a 13% plunge in its stock and triggering a broader selloff across regional banks. The Dow Jones dropped 300 points, and investors immediately started questioning what else could be rotting inside balance sheets across the sector.
The tangled mess started years ago. Between 2016 and 2017, California Bank & Trust (CB&T), a unit under Zions, approved credit facilities to two investment vehicles, Cantor Group II and Cantor Group IV, with the understanding that they would use the cash to buy up distressed mortgage assets.
But what Zions didn’t know at the time was that the borrowers were allegedly cooking up something very different behind closed doors.
Borrowers eliminated collateral and subordinated the bank’s loans
Zions filed a lawsuit on Wednesday in Los Angeles County, taking aim at Andrew Stupin, Gerald Marcil, and Deba Shyam, the people running the Cantor funds.
The complaint accused them of staging a “sweeping betrayal of trust by sophisticated financial borrowers who abused CB&T’s confidence, manipulated loan structures for their own enrichment, and systematically eliminated the collateral protections that were supposed to secure the bank’s loans.”
Zions said it had secured first-priority interest in the collateral when the deal was signed. But at some point, without informing the bank, the loan deeds were demoted, subordinated, and those same assets were either foreclosed, transferred, or simply removed from CB&T’s reach. That move effectively stripped Zions of any meaningful chance to recover its funds.
Even more explosive, the bank said the new senior lenders who stepped in were the same individuals or affiliates tied to the Cantor funds. The suit argued, “In effect, CB&T’s losses became Defendants’ gains,” accusing the trio of using a web of related companies to hide what was happening. For years, CB&T had no clue its security interest had been compromised. It only learned the truth after a related Cantor entity got sued by Western Alliance for fraud.
That’s when Zions started digging. After launching its own internal review, the bank disclosed the situation in an 8-K filing late Wednesday. Zions stated it would set aside $60 million as provision and officially charge off $50 million, noting the loss will show up in its Q3 earnings report on Monday.
Western Alliance also sues Cantor, says its collateral is safe
After Zions’ disclosure, Western Alliance confirmed it had filed a lawsuit too. The bank said Cantor had “failed to provide collateral loans in the first position, among other claims.” But unlike Zions, Western Alliance said it believes its collateral still covers the obligation and reassured markets that its guidance remains unchanged. The bank is expected to report earnings on Tuesday.
Meanwhile, Zions and the attorneys representing Stupin, Marcil, and Shyam did not respond to multiple requests for comment, according to CNBC, which first reported the unfolding lawsuit.
The legal fight centers on how a group of borrowers allegedly restructured loans behind the bank’s back, taking advantage of Zions’ trust while quietly transferring the assets meant to protect the bank.
What was supposed to be a relatively secured play into distressed debt turned into a total wipeout. The collateral is gone, and Zions is left holding the bag.
There are no signs yet that the damage is spreading beyond Zions and Western Alliance. But Thursday’s reaction showed that Wall Street is paying close attention. Investors dumped regional bank stocks fast.
The idea that a group of low-profile fund managers (unknown until now) could blow a $1 billion hole in Zions’ market cap overnight has regulators and shareholders watching carefully.
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Source: https://www.cryptopolitan.com/zions-bank-admits-50m-fraud%E2%80%91linked-loss/
