A long-troubled Los Angeles bank is seeking fresh capital, but a San Diego bankruptcy lawyer is trying to trip it up.
Marathon Bancorp is preparing to raise $4.5 million through a public offering to clean up its balance sheet and comply with regulatory mandates. The $80 million-asset bank has been bleeding since 1991, and has lost $5.4 million in the last four years.
It broke even in April after its new president wrote off nonperforming loans and raised $767,000 in a private placement.
"The bank's coming along fine," said Craig D. Collette, who took over in January after more than 17 years leading Landmark Bank.
"He's going to have absolutely no trouble raising this money," said Scott Burford, principal of GBS Financial in Sherman Oaks, Calif., which is participating in the offering.
But the bankruptcy lawyer, Bruce Douthit, is trying to derail the celebrations. In June letters to regulators, a Nevada congressman, and House Speaker Newt Gingrich, Mr. Douthit said the bank is financially unsound and called its proposed offering circular "inherently fraudulent."
He said bank officials have used deceit and political connections to hide more serious financial problems and stave off a regulatory seizure. The bank's founder and chairman, Nikolas Patsaouras, is a former Los Angeles mayoral candidate.
In fact, Mr. Douthit said in a letter to American Banker, the bank should already have failed. "We believe the bank's days are numbered," he wrote.
Mr. Collette and the bank's attorneys have denied Mr. Douthit's claims. In a telephone interview Wednesday, Mr. Collette declined to discuss the matter in detail, saying he could not do so because the offering was pending. But he did did say that regulators had looked into Mr. Douthit's claims but found no substantiation.
The bank's leverage capital level has never dipped below 5%, according to Sheshunoff Information Services and Mr. Collette, and rose to 5.2% after the oversubscribed March private placement. Regulators are not required to seize a bank unless the ratio drops below 2%.
Mr. Douthit "sounds like he knows little about banking law and regulation," said Jonathan Joseph, a banking lawyer with Pillsbury, Madison & Sutro in San Francisco. "His allegations sound pretty ludicrous."
Mr. Douthit represents Patrick McMurray, a Las Vegas manufacturer Marathon sued in 1993 for defaulting on a loan. Mr. McMurray was forced into bankruptcy and may have to liquidate, Mr. Douthit said.
In a particularly audacious move, Mr. Douthit and Mr. McMurray took out an advertisement in the Santa Monica Outlook raising the specter of an imminent seizure of Marathon by the Federal Deposit Insurance Corp. The ad ran once, but the newspaper, told by the bank that the allegations were false, declined to run it again. Mr. Douthit said he is modifying the ad to run it the Santa Monica paper and the Los Angeles Times.
The bank says it has asked the U.S. Attorney's Office in Los Angeles to investigate Mr. Douthit but has received no response. Bank officials point out that it is a misdemeanor under state law to cause a run on the bank by spreading false information about its viability.
But damage has already been done, bank officials said. At least $1 million of deposits has been withdrawn because of the allegations, they said, but they expect the two customers involved to restore them within days.
"This is purely a sour-grapes situation," said Gary Findley, an Anaheim lawyer who also represents the bank. "We're not opposed to suing people. We will have our day in court with Mr. Douthit."