Goldman Scarlato & Karon, P.C. Announces Investigation Of Smithtown Bancorp, Inc.

Goldman Scarlato & Karon, P.C. announces that it is investigating potential violations of federal securities laws against Smithtown Bancorp, Inc. (“SBI” or the “Company”) (NASDAQ: SMTB), relating to the Company’s alleged scheme to fraudulently inflate its financial results by materially understating its loan loss reserves.

An action has been filed on behalf of investors who purchased SBI common stock between March 13, 2008 and February 1, 2010 (the “Class Period”), for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The action alleges that SBI failed to value certain assets at their true fair value by improperly delaying the recognition of asset impairments in order to inflate its reported income and asset quality. The Company’s internal and disclosure controls were also materially deficient - SBI failed to manage its asset quality, credit administration, and loan and appraisal review processes. In addition, the action alleges that the Company maintained a commercial real estate loan concentration that was not commensurate with its business strategy.

On February 1, 2010, the Company reported a loss of $19.8 million for its fourth quarter. Operating earnings were more than offset by a $38 million loan loss provision and a $7 million write-down of real estate owned. SBI also announced that it entered into a Consent Agreement with the Federal Deposit Insurance Corporation and a parallel Consent Order with the New York State Banking Department, which require SBI to improve credit administration, loan underwriting, loan underwriting, and internal loan review processes, and maintain an adequate allowance for loan losses.

In response to this news, the Company’s shares declined $0.81 per share, or 15%, to $4.60 per share. As a result of SBI’s undisclosed misconduct and the fallout when the truth was revealed through a series of partial disclosures throughout the Class Period, SBI’s shares lost 77.9% of their value during the Class Period.