Mutual fund giant T. Rowe Price has sued Oppenheimer & Co. for its role in underwriting Guardian Bancorp's unsuccessful rights offering last year.
Guardian Bancorp, which failed in January after it did not meet federal capital requirements, raised $19.7 million through the offering in late 1993 and early 1994.
But T. Rowe Price alleged in a lawsuit filed on March 23 in U.S. District Court for the Southern District of New York that Oppenheimer falsified the proxy and hid important facts from Guardian's investors.
The Baltimore-based fund company, which owned 3.6% of the Los Angeles bank, is seeking $1.01 million plus interest for the 450,000 shares and 450,000 warrants it bought from Oppenheimer last year.
"The registration statement (said) that Guardian had 'taken a number of steps aimed at reducing nonperforming assets, returning the company to profitability'. . . and that those steps had resulted from discussions with regulatory authorities," the complaint said. It was filed by the New York law firm of Pollack & Kaminsky.
"In actuality, Guardian had engaged in a series of duplicitous steps to circumvent the directives and demands of the regulatory authorities and to continue to operate through its prior management and to maintain many of its prior operations, policies, and procedure," the complaint added.
Like many California banks, Guardian, which was founded in 1981 and had roughly $500 million in assets when it failed, fell victim to the state's deep recession and real estate bust.
In a last-ditch attempt to salvage the bank's troubled operations, Oppenheimer conducted what Charlotte A. Chamberlain, an analyst with Wedbush Morgan Securities, termed a "Hail-Mary rights offering."
Within two quarters of the offering, the capital was spent and the bank's stock had plummeted 53%. As a result, California investment bankers called the suit unsurprising.
"By definition, you would expect an institution you underwrite securities for to survive a minimum of six to nine months," said Charles Wood of C.E. Peterson & Co. of Pasadena, Calif.
T. Rowe Price obviously agreed.
The company, which made the investment through its $441.4 million-asset Small Cap Value Fund, alleged that, contrary to regulatory agreement, Guardian actually kept its chief credit officer and treated his replacement as a figurehead.
The complaint also blasted Guardian's efforts to clean up its balance sheet as ill-prepared, and said Oppenheimer was incompetent.
"Oppenheimer had only done perfunctory investigation and otherwise failed to adequately investigate the steps which Guardian supposedly has taken," the filing said. The complaint pointed out that Oppenheimer earned $775,000 from the offering.
Oppenheimer, which began an aggressive investment banking push in California in the late '80s, would not comment on the lawsuit.
The investment bankers cited in the complaint were Andrew Kaufman, Mark Biderman, and Michael Abrahams.
