It was reported incorrectly in Thursday's editions that shareholders of Financial General Bankshares Inc. are entitled to cumulative voting of stock, which guarantees minority shareholders representation on the board of directors. Cumulative voting is required by federal law for national banks, but not for bank holding companies such as Financial General.
Lawyers for Middle Eastern investors who own more than 20 percent of the stock of Financial General Bankshares Inc. made their first overt attempt yesterday to use that stock to exert control over the Washington bank holding company.
They asked to speed up action on a lawsuit pending in federal court here so that questions about voting power of some of the stock can be settled before Financial General's annual meeting.
The meeting is scheduled April 25 in Richmond.
The court papers filed yesterday the long-running legal battle for control of Financial General did not disclose whether the Middle Eastern group plans to nominate its own choices for seats on Financial General's board. Robert Altman, the attorney representing the group, declined to speculate on what action might be taken.
Raising another new issue in the complicated legal battle for control of Financial General, lawyers for the Middle Eastern group yesterday also accused FG President J. William Middendorf III of violating New York state banking laws.
Court documents charge that Middendorf failed to obtain prior approval from the New York banking department before he formed a group to take control of Financial General in 1977. Two of the company's 12 banks are in New York, making the holding company subject to state regulation.
Financial General President B. Francis Saul II already has admitted that he violated the New York law by not getting prior approval for his purchases of large blocks of FG stock. Saul last month belatedly filed an application with New York that was due more than a year ago.
Middendorf should have filed a similiar application, and failure to so so is "a flagrant violation of New York banking law," it was charged yesterday.
Raising the possibility that Middendorf's control over large amounts of Financial General stock might violate New York state law appeared to open the way for a legal challenge over his right to vote the shares.
The issue was raised in court papers challenging Middendorf's right to vote another block of stock that is now owned by Sheik Kamal Adham, one of the three Middle Eastern investors seeking to buy control of Financial General.
Middendorf claims the persons who sold the stock to Adham gave him "irrevocable proxies" to vote the stock, even after it was sold.
Adham's attorney asked Judge Oliver T. Gasch to decide the question of control of the stock before the annual meeting.
Counting the Adham shares, the Middle Eastern Group controls about 20 percent of the stock of Financial General.
Under the cumulative voting required by federal law for bank boards of directors, owners of 20 percent of the stock can elect 20 percent of the board by voting all the shares for a few candidates.
The takeover group might be able to get more seats on the board if it were able to prevent Middenford from voting proxies for other stock he now controls.