LaSalle National Bank is suing one of its borrowers, charging it with "grossly misrepresenting" its financial condition to get a $115 million loan.

According to documents filed last week in New York State Supreme Court, the Chicago-based bank, which is owned by ABN Amro Holding NV, discovered "accounting irregularities" last month at its borrower, Kent International Associates Ltd., a Brooklyn, N.Y., electronics distributor.

The bank, which is suing on behalf of its syndicate of banks, is seeking access to Kent's financial records and proceeds from any tangible collateral. The amount LaSalle is seeking is unspecified in the lawsuit.

The syndicate includes European American Bank, Jackson National Life Insurance Co., NationsBank of Texas, Bank of Tokyo-Mitsubishi Ltd., and Sanwa Bank Ltd.

According to the court filing, LaSalle extended a revolving line of credit to Kent in 1994. Until Aug. 28, Kent had been submitting to LaSalle daily borrowing-base certificates, which are considered collateral, worth $120 million to $150 million.

The most recent report filed with LaSalle showed gross accounts receivables at Kent representing $130.4 million.

But LaSalle said that it found "accounting irregularities" after receiving a report from Kent at the end of last month.

Kent's lawyers admitted to the bank that the company had been providing inaccurate borrowing-base information, according to the lawsuit. LaSalle said that on Sept. 15 it discovered that Kent's accounts receivables were worth only $20 million.

The suit, which also names Kent's owners, Dov Engel, Ayala Engel, and David Piller, charges that the collateral has "inexplicably vanished." In view of the disparity between the outstanding loan balance and the actual collateral, LaSalle's suit says, it is likely that the defendants diverted the loan or collateral proceeds.

LaSalle and Kent declined to comment on the matter.

Kent still owes $106.4 million to LaSalle and its syndicate. Some say the syndicate say can turn to LaSalle for restitution.

"How could $110 million in collateral, 80% of the borrowing base, disappear? There is a question about the proper level of due diligence," said one source close to the deal.

"Though all the other lenders make their own credit decisions, they are relying on information provided by the agent in making that decision."

Typically, banks that agent borrowing-base loans submit to the lenders in their syndicate quarterly financial statements and monthly borrowing- base certificates. They must also share with the syndicate quarterly or annual field reports supplied by the borrower.

The source contends that though LaSalle did provide requisite field reports, it did not fulfill its responsibility to review collateral and determine the eligibility of the collateral for the loan.

Another legal expert said that though the responsibility of the agent bank to the syndicate is specific to each contract, typically each bank is responsible for its own due diligence.

"Though the real degree of reliance is specific to each assignment agreement, typically the assignee has acknowledged that it is not relying on credit analyses of the agent bank," said Kenneth Chin, special counsel with Richards & O'Neil LLP.

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