Court Finds Subterfuge in D.C. Bank Battle
Wednesday, July 26, 2006
Independence Federal Savings Bank officials created a front group to influence shareholders and secretly offered to buy out one large investor in exchange for his support in a racially tinged battle last year for control of the historically black D.C. thrift, a federal judge has concluded.
In an opinion issued Friday, U.S. District Judge Rosemary M. Collyer found that Independence's senior management misled shareholders and thrift regulators in a long-running campaign to prevent developer Morton A. Bender from gaining control of the institution.
The fight at one point involved some of the District's leading black clergy in what was dubbed the Committee to Save Independence Federal Savings Bank. Collyer found that the committee, though purportedly independent of the thrift and its management, was largely the creation of a lawyer and public relations consultant who worked for the company -- a subterfuge that the judge said probably violated federal securities and bank regulatory laws.
Bender, who is white, is the thrift's largest shareholder and has said it is being mismanaged.
"The courts are usually loath to get involved in these kinds of corporate contests, but there are rules of engagement that the defendants ignored," Collyer wrote in a preliminary opinion in a lawsuit brought by Bender. The developer sued after shareholders last fall rejected his slate of candidates for the Independence board, an outcome that Bender argued was tainted by violations of the bank's bylaws and other improprieties.
A spokesman for Independence, in an e-mailed statement, said: "It would be premature for Independence Federal Savings Bank to comment on the judge's order at this time. This is a preliminary order and these findings are an interim stage in this proceeding. We look forward to the opportunity to present the facts of this matter in court, at which time the totality of these issues will be addressed."
Independence officials have long argued that Bender wants to merge the thrift with another one he owns in Rockville, thus eliminating one of the region's few black-owned financial institutions, with a long history of serving neighborhoods once ignored by mainstream banks.
After six months of preliminary depositions and hearings, Collyer ruled that Bender will probably succeed when the case goes before a jury and issued an injunction against the bank's board from holding any shareholder meetings until the court says otherwise. A trial date has not been set.
The ruling is the latest difficulty after five years of mishaps at Independence. The thrift has been under intense regulatory scrutiny, and the Office of Thrift Supervision recently urged the board to consider a sale. Its stock price is down 26 percent this year, closing yesterday at $8.95.
Bank officials have been "evasive, nonresponsive, and internally contradictory," Collyer said in her ruling. "It is an understatement to say that the court has a difficult time crediting much of their testimony."
The Committee to Save Independence Federal Savings Bank, for example, purportedly led by the Rev. Walter E. Fauntroy, a former D.C. congressional delegate; Bishop C.L. Long; and the Rev. Douglas Moore, sent a letter to Independence shareholders that was highly critical of Bender's efforts to take over the company.
At the time, Fauntroy and Thomas L. Batties, then Independence's chief executive, told the Post that the thrift had nothing to do with the letter and that the committee was independent.