A customer says a $340 million-asset North Dakota bank tricked him into buying rickety companies whose owners were close to default on $1 million of loans.
Bismarck-based BNC National Bank, a subsidiary of BNCCorp, violated federal racketeering laws, the customer claimed in a suit filed last Friday in U.S. District Court in North Dakota.
Also named in the suit - but not as a defendant-is Debra Gronlie, a loan officer the bank fired two years ago and then accused of fraud in a different deal. BNCCorp's suit against her is pending.
Terry Bunk, the customer in the new lawsuit, claims Ms. Gronlie "went to extraordinary and unusual lengths to push the proposal" for Mr. Bunk to buy two millwork and window companies from Bruce and Karla Wickstrom of Minneapolis.
Ms. Gronlie encouraged a local accountant-who worked for a firm owned by BNCCorp's chief financial officer-to present the companies' financial statements in a "rosy" light so Mr. Bunk would go through with the purchase, the suit alleges.
BNC and Ms. Gronlie wanted the Wickstroms to sell the struggling businesses before they defaulted on their loans, according to court filings. "A Wickstrom failure had all the markings of a complete disaster for BNC and its parent, as well as large stockholders," because the bank's loan-loss reserves would not cover the Wickstroms' $1 million-plus of debt, the suit says.
In addition, BNCCorp was in the midst of its initial public offering, the suit points out.
Mr. Bunk believed that the Wickstroms' businesses were profitable, it says. He bought the companies in 1995 and learned soon afterward that about 80% of the pending work orders represented in their financial statements were fictitious, the suit says.
"The fraudulent and tortuous misconduct of the defendants" ultimately forced Mr. Bunk to declare bankruptcy, the suit says.
Mr. Bunk is seeking "millions" in damages, according to his attorneys. Defendants in the suit also include the Wickstroms and the BNCCorp's CFO and his accounting firm.
BNC Bank vowed to fight. It said in a statement that Mr. Bunk's lawsuit "is an attempt to take advantage" of Ms. Gronlie's lending activities and "coerce money from BNC."
BNCCorp's 1997 suit against Ms. Gronlie involves $1.5 million in allegedly fraudulent loans made to a now-bankrupt arcade game manufacturer. BNCCorp has since charged off a portion of those loans and has recovered $900,000 from its bonding agent.
The lending scandal has dogged BNCCorp, which fielded questions about its overall loan quality at a presentation for investors in Chicago earlier last week.
At that time the chief financial officer, Gregory K. Cleveland, said the bad loans to the game manufacturer "were an isolated case."