WASHINGTON — The Office of Thrift Supervision and several trade groups are supporting a New Jersey thrift's attempt to sue a depositor to prevent him from seizing control of the institution and forcing it to go public.
The OTS filed a letter Tuesday that said mutual institutions should not be forced to convert to stock ownership. "OTS believes that mutual institutions should serve their communities and not be used as a vehicle either by management or individual depositors for personal financial gain," wrote John Bowman, the agency's deputy director and chief counsel.
The agency did not address specific issues raised in the case, including whether Spencer Savings Bank of Elmwood Park can sue Lawrence B. Seidman, a well-known activist investor. But the American Bankers Association, America's Community Bankers, and the Independent Community Bankers of America said the thrift was justified in its legal action.
The suit, filed March 22 in the U.S. District Court for New Jersey, accused Mr. Seidman of scheming with colleagues to seize control of Spencer by influencing directors and trying to obtain board seats so he could force it to go public.
Spencer argued that under the Savings and Loan Holding Company Act, a mutual savings institution is a special legal entity that exists to benefit the community and cannot be taken over by outside interests. The suit is believed to be the first of its kind by a mutual thrift against a depositor.
Mr. Seidman has said that he worked to get board nominations for others by trying to collect depositor signatures on a petition, but that he does not believe he did anything illegal.
ACB argued that such tactics are a growing threat to mutuals, which make up about 55% of its membership.
Mutuals must give depositors first dibs on stock offerings, and some that want to remain mutuals "are finding themselves under attack by individuals who see financial gain by having a mutual institution convert to a stock institution," Patricia Milon, the group's chief legal officer, said in an interview. "ACB has always believed institutions should decide what charter they should be, and if mutuals want to stay mutuals, they should not have to face outside pressure. We're hoping the court finds mutuals have the right to defend themselves."
Though the suit faces an obstacle — there is no precedent allowing an institution to sue an activist depositor — ACB argued the Savings and Loan Holding Company Act made it clear that mutuals are entitled to preserve themselves.
"In light of this clear Congressional intent to protect these institutions in a specific manner, there exists an implication that a private right of action in the courts is necessary to achieve the result intended when Congress bestowed the right, even though it did not expressly address the remedial process," Ms. Milon wrote in a letter dated May 15.
Spencer has been sparring with Mr. Seidman for years. Last month a New Jersey Superior Court judge ruled in Mr. Seidman's favor in a suit he filed against Spencer in 2004. The judge agreed that it breached its fiduciary duty to depositors by doubling the percentage of depositors whose signatures are required to nominate a director, to 20%.
Mr. Seidman, who is trying to get the latest suit dismissed, says the act gives mutuals no private right of action. But the ABA's letter said Spencer has no choice, since any later regulatory or legal action would be "too little too late."
Because mutuals do not have shareholders, they do not have to file disclosures with the Securities and Exchange Commission. Therefore, the ABA said, it is difficult for the OTS or a mutual's members to know what activities a depositor is pursuing until the intentions are acted upon.
"The insensitivity of federal privacy laws toward mutuals being able to provide information to federal regulators, coupled with denying a mutual a private cause of action to defend itself, effectively places the mutual in the hands of a hostile acquiror, notwithstanding such acquisition is in direct violation of federal law," the ABA wrote in a letter sent May 15. "Congress expressly gave mutual savings associations the right to retain their independence. To deny a mutual this right is to prevent Congress' intent, yet more importantly, to let stand a 'wrong' without a remedy."
