Sterling Bancorp Settles Investor Suit on Loan Fraud Controls

Sterling Bancorp Inc. has agreed to settle shareholder claims that its directors failed to stop former employees from issuing fraudulent mortgages that borrowers used for money laundering and tax evasion.

The proposed settlement, filed Friday in the U.S. District Court for the Eastern District of Michigan, requires the bank to implement corporate governance reforms in exchange for releasing current and former board directors from claims they breached their fiduciary duties.

Investor Raymond Cahnman filed a Jan. 20 suit alleging the Southfield, Mich.-based bank did little to stop widespread fraud in its now-defunct “Advantage Loan Program,” which targeted borrowers who lack ...