Broadway Financial in California pressed to sell by Sugarman-led group
Steven Sugarman has taken on the role of activist investor.
Capital Corps, an Irvine, Calif., company founded in 2017 by Sugarman, said it wants Broadway Financial in Los Angeles to do more for low- and moderate-income communities or consider finding a buyer.
Capital Corps, in a Feb. 10 letter to Wayne-Kent Bradshaw, Broadway's CEO, and Virgil Roberts, its chairman, commended management and the board for steering the $438 million-asset bank away from the brink of failure during the financial crisis.
"However, Broadway is once again at a crossroads and shareholders are at risk," the letter added.
Capital Corps, which bought shares in Broadway from the Treasury Department as part of the unwinding of the Troubled Asset Relief Program, said in the letter that Broadway could fetch a 20% premium to its current stock price.
The investor, which owns about 9.7% of Broadway's stock, outlined several grievances, including a claim that the company had drifted away from its mission of focusing on underserved communities around Los Angeles.
Capital Corps pointed to comments Bradshaw made to a Los Angeles-area radio station in September, when he said Broadway’s average borrower had a net worth of $7 million. Bradshaw told the station that the loans go to real estate investors, who then rent to low- and moderate-income residents.
“To maximize shareholder value, Broadway should recommit itself to serving all Angelinos in need of its banking services,” Capital Corps said.
Capital Corps also expressed frustration that a shareholder rights plan adopted in September is making it harder to buy more stock. The investor claimed that the poison pill was adopted to benefit Gapstow Capital Partners, Broadway’s biggest shareholder, by allowing the investor to block certain stock purchases.
A call to Bradshaw was not immediately returned. Efforts to reach Gapstow were unsuccessful.
Capital Corps said in its letter that it wants a buyer that will keep the bank’s designations as a CDFI and a minority depository institution. The investor also wants Broadway to expand its CDFI certification to include black, Latino/Hispanic and low-income borrowers.
Sugarman, a well-known proponent of lending to low- and moderate-income communities, led the 2010 recapitalization of First PacTrust Bancorp, which later rebranded as Banc of California. He eventually became the company’s chairman and CEO.
Banc of California faced criticism in 2016 when an anonymous blog post raised questions about related-party transactions at the company. In early 2017, it was disclosed that the Securities and Exchange Commission was conducting a probe into Banc of California’s response to those claims.
Sugarman abruptly resigned as Banc of California’s leader in January 2017, shortly after the SEC began its investigation. Later that year, Jeffrey Seabold, a former Banc of California vice chairman, filed a lawsuit alleging that certain directors made him and Sugarman scapegoats to hide their own conflicts of interest.
The SEC notified Banc of California in December that it had concluded its probe and would not take any action.
Sugarman, in addition to forming Capital Corps, is senior adviser and general counsel for the National Diversity Coalition.