An investor in Center Bancorp of Union, N.J., is seeing "green" after learning that the commercial bank paid a substantial premium for a large block of its own stock in a private transaction.

In a quarterly report the $534 million-asset bank said that on July 24 it purchased 117,246 shares, or about 3% of its common stock, in a negotiated deal. The price of $2.9 million, or about $25 a share - was nearly 50% above $16.75 the stock was trading at that day.

Dennis Lynch, a retired money manager who owns 3,000 shares of Center Bancorp, responded to the announcement by sending an e-mail Aug. 8 to president and chief executive officer John J. Davis in which he accused management of greenmail - the practice of buying at a high premium the stock of investors who have made a bid to take over a company or have threatened to do so.

"While such activity may preserve management's position, shareholders wind up paying a terrible price," the e-mail said. "We don't need a vested management squandering our assets. You owe an explanation to your shareholders."

In an interview, Mr. Lynch said: "There is no economic justification for what they did. Not only did they pay a 50% premium, but they paid 10% higher" than the stock has ever traded.

Center Bancorp's stock hit its 52-week high of $21.75 at the end of June.

Further details, including the identity of the seller and why a premium was paid, were not revealed.

Mr. Davis refused to comment for this article, and the Securities and Exchange Commission does not require full disclosure for transactions involving less than 5% of a company's stock.

Mr. Lynch says he has not received a response and that he plans to send a letter by registered mail to Mr. Davis and a copy of it to the SEC.

Analysts questioned Center's motives. Mark Fitzgibbon of Sandler O'Neill & Partners in New York said it is common for public companies to make private negotiated purchases of stock but "extremely rare" to pay big premiums.

Scott Valentin of Friedman, Billings, Ramsey & Co. in Arlington, Va., said he was perplexed that the bank would "pay that much above" the stock's market price. "It creates the image that what they're doing is being unfair to shareholders," he said.

Mr. Valentin said it reminded him of another transaction this year, when management at a small Texas thrift paid off an investment group that had offered to buy it. Shareholders of $154 million-asset East Texas Financial Services Inc. in Tyler said management should have negotiated a deal rather than buy back the investor group's 9.5% stake. In that case the thrift paid the current market price of the stock.

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