Attorneys for the Middle Eastern investors seeking control of Financial General Bankshares Inc., last week accused the company of making false statements to stockholders and said an investigation is being undertaken by the Securities and Exchange Commission.
Financial General spokesmen flatly denied the charges and said they know of no SEC investigation.
The SEC would neither confirm nor deny the existance of an investigation.
At issue are conflicting claims for proxies covering several blocks of Financial General shares.
Attorneys for the Arabs involved in the takeover bid contend Financial General President J. William Middendorf has improperly claimed the right to vote the shares.
Without the disputed proxies, the attorneys for the Arabs contend in court documents filed Friday, the company would not have had the required quorum for its annual meeting last spring, making actions taken at the meeting - including the election of directors - illegal.
In a legal memo filed in U.S. District Court, attorney Robert Altman contended claims about Middenforf made about the proxies in the notice of the company's annual meeting conflicted with his earlier statements.
The proxies cover large blocks of Financial General stock that were once owned by shareholders loyal to Middendorf, who gave him the right to vote those shares. Last year several of Middendorf's allies broke with him and sold the stock muchof it to the four Arabs seeking control of the company.
Financial General's annual meeting notice said, Middendorf "does not believe such sales affect the validity of the proxies" and that the shares would be voted for the company's management.
In the latest court filing Altman notes that Middendorf gave a different opinion about the proxies when he was asked about them in June 1977 by the Federal Reserve Board.
Asked, "What happens to the proxies that they gave you if they should dispose of their FG stock?" Middendorf answered: "I think they are worthless?"
Altman cited the conflicting statements in motions in a lawsuit against Middendorf and most members of Financial General's board of directors that was filed by two of the Middle Eastern investors.
In the filing, Altman said, "The Securities and Exchange Commission is now undertakingan investigation to determine, among other things, whether Financial General has violated federal securities laws by the issuance of false and misleading proxy materials to shareholders and whether there was a quorum present at the 1978 annual meeting."
Jack Beddow, Financial General's corporate secretary, denied an investigation was underway. "They haven't asked us about either of those things," he said. Beddow said the SEC has made no inquiries about Financial General's records of the votes at the meeting and said SEC lawyers reviewed the proxy statement before the meeting.
Attorney Martin Thaler accused Altman "of going beyond the normal bounds of advocacy" in raising the charges.
Thaler said Middendorf's original statement on the proxies was made "because he's not a lawyer" and his position changed after attorneys reviewed the documents and decided Middendorf still controlled the stock.
The dispute is the latest round in legal battles that have fille six file packets in the federal courts here.
In one lawsuit, Financial General is suing the Arabs, attempting to block them from making a public tender offer for all of the company's shares. In the other Arabs are suing the company's officers, charging the first lawsuit is contrary to the interest of the shareholders and designed only to protect the officers.