The Social Development Commission plans to end its relationship with BMO and open accounts elsewhere after the bank froze the agency’s bank accounts for months, SDC’s attorney said last week.
The Milwaukee Journal Sentinel reported that SDC’s attorney William Sulton said that BMO Bank froze the agency’s bank accounts in May and that its information technology services provider, Caspian Technologies, cut off the agency’s access to its website, emails or electronic data.
These actions are preventing SDC from receiving deposits, making withdrawals to pay employees and fulfilling records requests to state and federal agencies, according to Sulton.
Scott Doll, a media relations representative for BMO, said the bank cannot comment on customer matters but that it welcomes “opportunities to communicate with the customer on this matter.”
Here are some of the questions that remain about the situation.
Why are SDC’s bank accounts frozen or on hold?
Sulton provided a May 10 email from a BMO senior manager that indicates BMO placed a “hold” on SDC’s accounts after information on SDC’s sudden suspension in operations was made public the previous week.
Kent Belasco, director of the commercial banking program and associate professor of finance at Marquette University, said that there is not enough information disclosed on the contracts and loan agreements to determine why BMO would freeze SDC’s accounts.
However, Bill Miller, a certified public accountant and an accounting professor at the University of Wisconsin-Eau Claire, said there are a number of reasons why a bank would freeze an account.
In general, a freeze could be related to anti-fraud banking regulations that were triggered by deposits greater than $10,000, Belasco said.
The bank may also have been prompted to freeze accounts by SDC reporting a misallocation of funds, which it did in March, or missed loan payments, or both, Belasco said.
SDC has not received notice about any legal or government regulations impacting its bank accounts, Sulton said.
He said that BMO initially said it froze SDC’s accounts because there were no longer any authorized parties or signers on the accounts after SDC’s turmoil in April.
Once SDC met with BMO to add board members as authorized parties and completed that step, BMO told board members it had to re-evaluate its position on two loans to SDC, Sulton said.
“SDC remains current on its loan obligations and has not breached or been in default, and BMO Harris simply won’t unfreeze the accounts,” Sulton said.
Sulton said he reviewed SDC’s contracts with BMO and believes the bank does not have a legal basis to freeze the accounts on the chance that SDC could default on its loans in the future.
“It is very typical for banks to have language in their loan agreements that allow them to call a loan in technical default, even if you have not missed a payment, and so that could cause a freeze,” Miller said.
For example, loan agreements may require a business to meet certain financial metrics each month, and a bank could place a loan in technical default if they are not met, Miller said.
If the bank is concerned about the loans, BMO could turn to other options, such as freezing the amount of the loans, instead of freezing all accounts, Sulton said.
SDC’s board worked to contact vendors that owed the agency money and then discovered that payments were not going through, according to Sulton.
Is BMO authorizing payments to employees?
The email from a BMO manager states that BMO would “honor all legitimate payroll checks” to SDC employees as long as SDC’s accounts had enough money for the payments and SDC provided a list of checks for BMO to verify.
Sulton said BMO has not followed through on this pledge, even though SDC has provided the information BMO requested.
Now, the bank has asked the SDC board for information about SDC’s future plans and how it will make loan payments, Sulton said.
He said the board had hoped to work with BMO instead of going through a time-intensive process of opening new accounts and reauthorizing contracts. But after months, the board members have lost faith that BMO will resolve the situation.
“Every time we reach an agreement, every time they say they’re going to do something, they come back and say essentially they don’t want to do it,” Sulton said.
Here’s more on the SDC
SDC sends out second round of paychecks to former employees
SDC board appoints commissioner Vincent Bobot as interim CEO
SDC puts main office and warehouse up for sale
How the Social Development Commission failed its Milwaukee residents
Why did the Social Development Commission fail? Here are takeaways from our investigation
Addie Costello, a reporter with Wisconsin Watch and WPR, contributed reporting.
Meredith Melland is the neighborhoods reporter for the Milwaukee Neighborhood News Service and a corps member of Report for America, a national service program that places journalists in local newsrooms to report on under-covered issues and communities. Report for America plays no role in editorial decisions in the NNS newsroom.Addie Costello, a reporter with Wisconsin Watch and WPR, contributed reporting.
Republish our articles for free, online or in print, under a Creative Commons license.
