A Michigan savings bank has agreed to pay $12 million in cash and warrants to shareholders who claimed directors and officers had cashed in on inside information.
The management of Mutual Savings Bank, Bay City, also misled investors and engaged in "high-risk investment practices," the shareholders claimed in court documents.
Under the proposed settlement, the stockholders would receive $6 million in cash and $6 million in common stock warrants, which are to be distributed this year.
Chief executive Roger N. Shuster said the bank agreed to settle the three-year-old lawsuit to "resolve this and move forward.
"We think the proposed settlement does that," said Mr. Shuster, who was not named in the suit.
The plaintiffs were represented by Elwood S. Simon & Associates, a Birmingham, Mich., law firm that specializes in shareholder litigation suits. Mr. Simon refused to comment.
The out-of-court settlement, announced Monday, has forced $644 million- asset Mutual Savings to restate its 1997 earnings.
Mutual savings had previously reported net income of $495,000, or 12 cents per share. It is now reporting a loss of $9.2 million, $2.17 per share.
Insurance is expected to cover about $2.5 million of the settlement cost.
Despite the earnings hit, Mutual Savings' stock has held its ground. It rose 12.5 cents in light Nasdaq trading Tuesday, to $13, and was trading at $13.75 midday Thursday.
The dispute began with three lawsuits filed in April 1995. In the suits- later consolidated into one class action-shareholders accused management of violating federal securities laws in drawing up plans for a 1992 public offering.
The plaintiffs alleged that when new management took over Mutual Savings in 1990, it promised to halt the risky lending practices that had led to huge losses in the 1980s. But by 1993, the shareholders charged in complaints filed in a Michigan federal court, president Charles E. McCuistion and three other officers had "abandoned their stated business plan" and engaged in "high-risk investment practices."
The shareholders accused directors and officers of reaping huge profits by selling the stock on the basis of inside information. The price plunged from $18.25 to $4.25 between November 1993 and November 1994. Mutual Savings has recovered since Mr. Shuster joined the bank in November 1994. Until earnings were restated this week, the thrift had posted seven consecutive profitable quarters.
Michael M. Moran, an analyst at Detroit's Roney & Co., predicted a rise in Mutual Savings' stock price now that the case has been settled. Don't be surprised, he added, if other thrifts begin courting Mutual Savings, with likely suitors including D&N Financial Corp. in Troy, Mich., and Flagstar Bank in Bloomfield Hills, Mich.
"Clearly a significant black cloud that's been hanging over the organization has been eliminated," said Mr. Moran. With the settlement, he added, "Mutual Savings becomes front and center a logical acquisition candidate."