Insiders Gain Control Of CUs AfterConversion
WASHINGTON - (06/13/05) -- Ownership control of creditunion-converts almost always ends up in the hands of a smallhandful of insiders--directors and officers--after the institutionconverts to a stock-owned savings bank, according to a survey ofcredit unions that have made the charter switch, conducted by TheCredit Union Journal. In all but a few of the 15 credit unionconverts that have sold stock to the public a small cadre ofinsiders has maintained voting control over the institution,according to documents filed with the Securities and ExchangeCommission. They do this first by stock ownership--federalregulations allow top managers and directors to buy up to 14% ofthe equity of the newly public savings bank in an initial publicoffering--and by control over the employee stock ownership plan anda charitable foundation where a chunk of the newly minted stock isparked. So in the case of First PacTrust Bancorp., known untilJanuary 2000 as Pacific Trust FCU, 11 directors and managers nowown 15% of the bank's equity and the ESOP owns 9.9%, totalingapproximately 25% of the publicly traded shares--which isconsidered by the SEC as control of a publicly owned company. Inthe case of Rainer Pacific Savings Bank, known until 2000 asRainier Pacific CU, 17 directors and executives own 12% of theequity, the ESOP owns 9.41% and the charitable Rainier PacificFoundation holds 7.09%--for a controlling 28.5% of the publicfloat. Similar scenarios have occurred in BUCs Federal SavingsBank, formerly BUCs FCU, where insiders own 21.1% of the shares andcontrol the ESOP's 8.9%; Allied First Bank, formerly Allied PilotsFCU, where 10 officers and directors own almost 24% of the stock;Citizens Community Bancorp, once Citizens Community CU, wherealmost a third of the publicly trade stock is controlled bydirectors and officers; and Synergy Financial Savings Bank,formerly Synergy FCU, where 12 insiders own half of the publicfloat.