A group of First National Community Bancorp's (FNCB) current and former directors have agreed to pay $5 million to settle a shareholder lawsuit claiming that they failed to properly oversee risky practices.
The suit accused the directors of fiduciary breaches, unjust enrichment, abuse of control and corporate waste, according to the Dunmore, Pa., company's regulatory submissions. The suit was filed in Pennsylvania county court last year, and was a derivative claim meaning that some shareholders made the allegations on behalf of the company.
First National did not provide details on the specific allegation, and the company's legal counsel declined to comment further on the settlement.
In addition to paying the plaintiffs $5 million plus legal fees, the $978 million-asset company agreed to make several improvements to its corporate governance, it said in a regulatory filing Wednesday. First National will add two independent directors to its board, create a risk management committee and evaluate its compensation policies with respect to risk management at least once a year, it said.
Eight current board members are among the directors named in the suit. The group also includes former First National Community Chairman Louis DeNaples, who resigned from the board last year after regulators barred him from participating in the company's affairs. DeNaples allegedly failed to take the proper steps to continue on at First National after a Pennsylvania district attorney charged him with perjury over testimony in a separate legal matter that he gave about a casino he owned, according to a 2012 Federal Reserve cease-and-desist order.
The directors did not admit or deny the allegations, and agreed to the settlement in order to "eliminate the potential burden of distracting and costly litigation," according to another filing. The settlement must be approved by the court.
First National's former external auditor, Demetrius & Co., was also a defendant in the shareholder suit, and was not part of the settlement announced Wednesday.
First National and its banking unit are under 2010 regulatory enforcement actions requiring them to maintain adequate capital and forgo paying dividends or taking on debt without regulatory approval. DeNaples, the company's former chairman, is under a 2012 Federal Reserve order requiring him to divest his interest in the company.
First National has several other ongoing legal headaches. In 2011, the SEC subpoenaed documents related to the company's financial statements for several quarters in 2009 and 2010; in its latest annual report, First National said it is cooperating with the agency on the matter. First National is also engaged in a suit with Fidelity and Deposit Co. of Maryland, an insurer, over the directors' insurance policies, it said.
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