Most recent scrutiny of CertusBank in Greenville, S.C., has focused on the outsized spending and questionable related-party dealings of the bank's founders.

Those executives, ousted earlier this month, are trying to make the case that deeper problems existed. A lawsuit filed Wednesday by the executives in U.S. District Court in South Carolina shows Certus as a dysfunctional business split by rival factions that undermined each other while pursuing self-serving agendas.

Walter Davis, Angela Webb and Milton Jones — who were fired on April 9 — allege that some of Certus' investors wanted short-term returns at the expense of what was in the bank's long-term interest. The lawsuit makes it clear that management wanted to compete — and spend — on a level worthy of the nation's biggest banks, which created conflict with investors.

The board also rubber-stamped, and even encouraged, managerial excess, the lawsuit claims, before abruptly "turn[ing] like jackals" and firing the bank's founders.

The executives were dismissed less than two weeks after American Banker published a report detailing the bank's recent losses, sky-high expenses and conflicts with investors. The lawsuit seeks unspecified damages from Certus and investor Benjamin Weinger, a fund manager at 3-Sigma Alpha Value, for allegedly defaming the ousted executives in order to wrest control of the bank from them.

The lawsuit also claims that the bank's operational problems, including what Weinger called "personal excess masked as corporate expense," went beyond Certus' four founders. Co-CEO Charles Williams, who resigned shortly after American Banker's first report, is not a plaintiff in the lawsuit.

The lawsuit says that certain directors used their powers "to cause CertusBank to spend money to advance their own interests." Directors allegedly hired friends and family for undemanding jobs and pushed Certus to donate funds to their own causes. The lawsuit claims that the board's compensation committee received one-time grants of $100,000 each without telling the other directors.

The ousted executives also allege that certain directors resisted the closure of underperforming branches located near their own homes. The lawsuit also points to a $1.8 million donation Certus made to the Darla Moore School of Business at the University of South Carolina at a time when director Hildy Teegen was the school's dean.

Certus also backed the "Bob Wright Golf Classic," the namesake of Certus Chairman Robert Wright, the lawsuit claims. The lawsuit does not say how much this sponsorship cost, but Weinger's March shareholder letter claims that the bank paid $10,000 in 2012 to fraternities that hosted the event.

Curiously, the timing of the lawsuit coincides with a trip by interim Chief Executive John Poelker to New York to meet with the bank's investors, at least some of whom are meeting him for the first time.

The meetings could determine not only Poelker's future with the company, but the fate of the entire Certus board. The board's decision to oust management and replace them with Poelker, a veteran Atlanta banker with a reputation as a capable steward of troubled banks, came as a surprise to many investors, who had been moving to name a new slate of directors for election at Certus' June annual meeting.

It is unclear whether shareholders have ceased efforts to oust the board; the lead investors, which include a fund affiliated with billionaire John Paulson and the $20 billion King Street Capital Management, have repeatedly declined to discuss their investment.

In response to the lawsuit, Certus said in an email that "[w]e are very confident in our new leadership and the concrete steps the bank is taking to move forward with discipline and continued focus on our customers and their needs." Certus' representatives declined to make individual directors available, and Weinger could not immediately be reached for comment.

The lawsuit also gives a look — though perhaps not an objective one — into the struggles that preceded the ouster of the four founders.

The lawsuit claims that, shortly before the executives were removed, Certus was in talks to merge with an unnamed Southeastern bank. At first, Certus was set to be the acquirer but, as due diligence progressed, it became the target, the lawsuit claims.

Investors "wanted to see the transaction fail" out of fear of being diluted, the ousted executives claim, suggesting that Weinger's efforts to remove them were an attempt, in part, to sabotage the deal. Davis, then co-CEO, eventually lobbied the board to reject the transaction.

The lawsuit describes backstage wrangling over how to respond to media reports of the financial mismanagement. After the March 28 American Banker report on the conflict between management and investors, the board barred the bank from issuing any public response. Instead, the non-executive directors formed a special committee to investigate the claims, "secretly" hired their own independent counsel, and stripped the executives of their powers, the lawsuit claims.

The former executives also allege that they were twice prevented from conducting an investigation to determine the source of the leak that had led to the publication of internal Certus data.

The lawsuit also claims that the board took no interest in management's last-ditch plan to fix the bank. On March 31, the executives presented the board with a plan to restore Certus' Tier 1 capital level to 10%, the level mandated by its national charter. "The process was also underway," the lawsuit claims, to develop a revised business plan to improve earnings.

The efforts seem to have been too little, too late. It is unclear why the executives waited nearly four months to address the Tier 1 issue, which was clear at least since Certus' Dec. 31 call report.

The move to form a revised business plan seems conspicuously belated. By March 31, the bank had been losing money for at least two years, American Banker had already broken the news of glaring operational problems, and Williams had resigned. Certus recorded combined pretax net losses of $115 million in 2012 and 2013, with unusually high noninterest expense of roughly $144 million each year.

The lawsuit "is somewhat unusual and fact-intensive," says Steven Walt, a law professor at the University of Virginia School of Law who has seen a copy of the complaint.

Walt says the next move for the defendants will involve asking the court for a summary judgment that states that the ousted executives are not entitled to any recovery. "The case for libel really depends on the interpretation of the comments" attributed to Weinger, he says.

The likely outcome is a settlement, since neither party will want to keep airing their dirty laundry through the legal system, Walt adds.

Paul Davis contributed to this report.

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