The Securities and Exchange Commission yesterday forced one of Virginia's largest banking companies to reveal that its executives had used money and resources of a bank subsidiary to make a $266,000 profit in 60-days on a land deal, start a highly successful clothing business, and even pay for an executive's toupee.
Dominion Bankshares Corp. said its chairman, E. H. Ould, and other current and former executives of the corporation and its subsidiaries were involved in the insider transactions. Dominion Bankshares owns Dominion National bank, which has more than 20 offices in the Washington suburbs.
Dominion Bankshares' failure to report the transactions to its stockholders violated SEC disclosure regulations. But the SEC did not question the legality of the transactions themselves.
To end an SEC investigation of the disclosure question, Dominion Bankshares revealed details of three separate matters, which Dominion Bankshares President Byron A. Hicks said had been considered "not material" to stockholders:
Robert A. Fitton, former president of Metropolitan Mortgage Fund, a Dominion Bankshares subsidiary, used Metropolitan's staff members and facilities to start his own chain of clothing stores, called Country Legend, which specialize in blue jeans. Fitton, who was fired after Dominion Bankshares learned of his activities, is now chairman of Country Legend, which also operates Zippers of Tysons Corner, which claims to be the world's largest jeans store.
Fitton and his brother, Marshall, who was then executive vice president of Metropolitan Mortgage, made $266,000 in profit in two months on a land deal financed by Metropolitan at lower rates than usually charged.
The Fitton brothers, Dominion Bankshares Chairman Ould, and two other persons associated with the corporation arranged to purchase from the corporation without an independent appraisal a large tract of undeveloped land in Fairfax County.
Neither Robert nor Marshall Fitton could be reached for comment yesterday. Dominion Bankshares President Hicks said corporation executives knew about all three matters but did not believe they had to be made public. Its customers did not lose money on any of the transactions, according to Hicks.
He said Dominion Bankshares asked for and got Robert Fitton's resignation in 1974 after is was learned he was starting his clothing business on Metropolitan's time and using the mortgage company's staff to work on his clothing business. Robert Fitton repaid $12,000 in personal and unrelated business expenses charged to the company, but has not repaid $7,000 that Dominion Bankshares claims is due for the time of other employes, according to the report to the SEC.
Marshall Fitton who is also a part-owner of Country Legend, repaid more than $1,400 in personal expenses charged to Metropolitan Mortgage, but was allowed to keep his job because he "had not actively been engaged" in starting the clothing chain on Metropolitan Mortgage time.
Among the improper expenses allegedly charged to Metropolitan Mortgage by one of the Fittons was a wig, according to the report to the SEC.
The Fitton brothers, who owned Metropolitan, a mortgage banking firm, sold it to Dominion Bankshares in 1973. At that time, Metropolitan owned a large tract of undeveloped land on Pohick Road in Fairfax County. The Federal Reserve Board, in approving the acquisition, required Dominion to sell the land, because banking companies are generally banned from engaging in unrelated businesses.
The Pohick Road property, the reports to the SEC reveal for the first time, was sold to Ould, the Fitton brothers, two executives of Dominion Bankshares who are not named in the document, and a sixth person, also unnamed.
The banking firm sold the property for $279,000, a price that included its $263,000 purchase price and all additional costs since the purchase, Hicks said. However, no independent appraisal was made to determine the fair market value of the property that was, in effect, sold by the banking firm's officers to themselves.
The report to the SEC discloses that the six investors who bought the land put up only $100 each, borrowing all the other money. Whether the funds were borrowed from Dominion is not revealed.
The third insider transaction made public yesterday involves a piece of real estate in Virginia Beach. On Dec. 27, 1973, the Fitton brothers purchased the land for $1.1 million from an unnamed company. On March 5 they resold the property to the same company for $1,366,000.
The purchaser received a loan for the entire $1,366,000 from Metropolitan Mortgage "at an interest rate which was lower than the rate on (Metropolitan's) other land acquisition loans made during that period," according to the report to the SEC.
The report does not identify the firm involved in the land deal. But it reveals that Robert Fitton was also on the board of directors of that company.
By buying and reselling the land and giving the unnamed firm a favorable mortgage on it, the Fitton brothers made a $266,000 profit in 68 days, according to the report.
Marshall Fitton has agreed to guarantee the loan on the land to the extent of his $133,000 profit, but Robert Fitton has refused to do so, according to the report to the SEC. Hicks said the bank has lost no money on the loan and does not anticipate any future loss.