Seized Fla. Institution Asks $500M Damages
By JOHN RACINE
Lawyers for failed Southeast Banking Corp. charge that First Union Corp. misused confidential information to push federal regulators to seize the institution and sell it to First Union.
A 42-page lawsuit in state court alleges that First Union violated a confidentiality agreement with Miami-based Southeast by using internal information to persuade the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency to seize the bank in September 1991.
In interviews, lawyers for the bankrupt Southeast said First Union decided it was cheaper to buy the bank from the FDIC than to pay a market rate for the troubled institution.
Pressure on Regulators at Issue
"They determined it would be much less expensive to them if they were able to put pressure to bear on federal regulators to intervene as quickly as possible," charged Hilarie Bass of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, the Miami law firm that filed the suit on behalf of Southeast and its bankruptcy trustee, William A. Brandt.
At Charlotte, N.C.-based First Union, officials declined to answer specific allegations. "We believe the lawsuit is unfounded and without merit," said spokesman Jeep Bryant.
He pointed out that the sale of Southeast's assets was not exclusive. "Let's not forget that this was a public auction," he said.
The 11-count suit seeks a jury trial in Dade County, Fla., and asks damages in excess of $500 million. The claim was filed June 22 and made public late Tuesday.
The lawsuit is believed to be the first of its kind, but it is the latest in a growing web of litigation that resulted from the failure and bankruptcy of Southeast. The bankruptcy trustee, Mr. Brandt, is also suing regulators, alleging that they acted prematurely in seizing the company. Former directors have also been named in pending multimillion-dollar claims.
At the heart of the claim is the accusation that First Union misused information gained in March 1991, while it was considering a possible acquisition of Southeast Bank. The lawsuit claims that barely a month later, First Union began intensive, weekly meetings with federal regulators to press them to intervene at Southeast.
Lawyers say internal documents show that First Union chairman Edward Crutchfield and other executives met with regulators, including then-FDIC Chairman L. William Seidman, to discuss an assisted takeover.
Bailout Discussions Common
In a published interview, Mr. Seidman, who could not be reached for comment Wednesday, defended the seizure of Southeast Bank. "All we were trying to do was minimize losses to the insurance fund," he said.
Banking lawyers said it was common for regulators to meet with acquirers of failing institutions to discuss an assisted bailout. Indeed, lawyers for Southeast declined to say what kind of influence or information First Union had that regulators did not know or could not obtain independently.
"Let's have a Dade County jury decide whether it was appropriate for them to be meeting with federal regulators over a five-month period discussing different proposals for how the federal government could intervene in this bank and allow First Union to bid on it," said Ms. Bass.
According to the lawsuit, First Union officials were already exploring a sale through federal intervention even as they signed a standard confidentiality agreement on March 25, 1991.
Lawyers say Southeast was damaged by public statements