Financial General Bankshares and most of its officers and directors were sued for $3 million damages yesterday by two of the Arab investors involved in the attempt to gain control of the company.
The lawsuit accuses the Financial General officials of violating federal securities laws and making false statements to shareholders in order to maintain their positions with the company.
The lawsuit was filed by Faisal Saud Al-Fulaij, former president of Kuwait Airlines and Sheikh Kamal Adham, former director of Saudi Arabia's intelligence service.
Each of the plaintiffs owns about 4.6 percent of the stock of Financial General, the $2.2 billion Washington holding company that owns 13 banks.
Al Fulaij and Adham are two of the four Arab investors who along with former budget director Bert Lance, earlier this year acquired almost 25 percent of the stock in Financial General.
After the Securities and Exchange Commission and Financial General sued the members of the Lance group, they filed public reports on their purchases and agreed to make a public tender offer for the remainder of the shares.
Plans for that tender offer are moving ahead, said attorney Robert Altman, who filed the new lawsuit yesterday in U.S. District Court for the District of Columbia.
Lance is not involved in the latest legal action, which amounts to a new counterattack on the company by the Arabs.
A Financial General lawsuit against the Arabs attempting to block them from making the tender offer and taking over the company, is pending in federal court here. In the past month Financial General lawyers have forced Al Fulaij to come to his country to give sworn statements in the case.
The latest legal action is unusual in that it is filed not only on behalf of the two Arab investors, but also on behalf of Financial General. Because the company is also named a defendant in the suit, it is, in effect, suing itself.
The shareholders' suit alleges that the company has been damaged by the actions of its own officers and directors, accusing the Financial General executives of breaching their "fiduciary responsibility" to act in the best interest of the company.
[TEXT OMITTED FROM SOURCE] man B. F. Saul, president J. William
Named as defendants are FG Chair-Middendorf and directors Arthur M. Becker, Arch N. Booth, Justin Bowersock, William H.G. Fitzgerald, Mason O. Klinck, Garland P. Moore Jr., George O'Neill, John N. Safer, William J. Schuiling, and John R. Whitmore.
In the complicated 29-page petition and two lengthy supporting documents, the lawsuit charges the Financial General officials acted illegally, improperly or against the best interest of the company in four different ways.
The petition accuses Saul, Middendorf and others of "directing, causing and or approving the waste of substantial assets of Financial General for the purpose of advancing their various personal, financial and professional interests."
The main complaint is that the Financial General executives were not acting in the best interest of the company or its shareholders when they filed a lawsuit against the Arabs to attempt to block them from making a tender offer for the stock of the company.
U.S. District Court Judge Oliver T. Gasch refused to halt the offer, noting in a ruling quoted in the lawsuit, that shareholders "probably would welcome the opportunity to consider a tender offer at above market prices."
The lawsuit filed yesterday asks that Saul, Middendorf and the others be required to repay the company for the cost of the lawsuits against the Arabs, and to pay the plaintiffs - including the company - $3 million damages.
In a separate claim, the lawsuit accuses Middendorf of falsely claiming control of proxies over stock which has been sold to Adham by Eugene Metzger, an attorney involved in the take-over fight.Metzger's proxy expired when the stock was sold, the lawsuit contends, but Middendorf voted the shares at the annual meeting. The lawsuit claims Middendorf improperly voted other proxies at the meeting.
Financial General's proxy statement for the annual meeting contained "numerous false and misleading statements" the lawsuit contends, asking the judge to declare the meeting null and void, set aside the election of officers and order a new meeting.