A feud between the managers of a small Texas thrift and investors in its stock could lead to a proxy fight or even a lawsuit.

Shareholders of $154 million-asset East Texas Financial Services Inc. in Tyler are angry that the thrift's management paid off an investment group that offered to buy it last year. Some shareholders say that management, led by president and chief executive officer Gerald W. Free, should have negotiated a deal rather than buying back the investor group's 9.5% stake.

"We want to get fair value for our investment," said John DeVita, an analyst for New York-based First Eagle SoGen Funds, which owns 11% of East Texas' outstanding shares. "Our hope still is that management will be able to strike a deal and sell this company. That's the easiest way out."

It's also a direction that shareholders fear Mr. Free is unwilling to take. He did not return calls seeking comment.

The shareholder dissent has bubbled to the surface in a series of letters that the New York investment firm of Oppenheimer & Close Inc. has exchanged with Mr. Free since Jan. 26.

In the letters, business partners Philip V. Oppenheimer and Mark H. Close accused the thrift of paying "greenmail" to fend off the would-be buyers, who were led by longtime Texas banker William D. Vaughan. The Internal Revenue Service defines greenmail as buying back stock held for a short time by investors who make a bid for or threaten to take over a public company.

Mr. Vaughan's group offered last August to pay $16 a share, or about $20 million, for all outstanding shares of East Texas. Rather than negotiate a deal, the thrift responded in November by paying the current market price of $14.13 a share to buy back the stock held by Mr. Vaughan's group, which agreed to stop trying for a takeover.

The company's stock, which had risen on speculation that it would be bought, subsequently dropped. It was trading at $9.50 a share last week.

In an interview, Mr. Close called this an "egregious case" of management's shirking its "responsibility to shareholders." He and Mr. Oppenheimer have requested a shareholder list from Mr. Free - a request East Texas rejected in a letter dated Feb. 8.

Mr. Close said his firm, which owns 2.2% of East Texas' outstanding shares, wants the list in order to discuss the situation with other investors. He said his firm does not want to tackle a proxy or legal fight by itself, but "that's not to say we won't ultimately have to pursue some action." Though still weighing options that could include a lawsuit, Mr. Close said it is clear that Mr. Free and other managers had refused to meet with the Vaughan group, which could be a breach of fiduciary responsibility.

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