HARTFORD, Conn. -- Investors seeking a class action have filed a lawsuit against 26 bankers and a top accounting firm claiming fraud at Security Savings and Loan Association of Waterbury and related banks.
The lawsuit, filed Thursday in U.S. District Court, contends that bank executives lent each other millions of dollars for risky ventures. The improper loans weakened the institutions and contributed to the failures of six, the lawsuit contends, thereby defrauding thousands of investors.
Gary B. O'Connor, an attorney for the investors, said his clients were not rich. "These are not Mercedes- and BMW-driving stockholders," he said. "These are construction workers, factory workers, and small-business men who didn't have a lot."
Security and the six banks formed a network called the Penta Group organized with help from former Security president Richard D. Barbieri Sr. and New Britain attorney Anthony F. DiFabio.
Suit Filed on Behalf of All Investors
Most of the allegations are similar to those filed at the end of June by federal regulators, who charged 17 Penta Group bankers with insider-lending abuses and crisscrossing loan schemes. Many of the same people named in government's charges are defendants in the shareholders' lawsuit.
The lawsuit names only two plaintiffs, but was filed on behalf of all of the investors in the banks and seeks damages in the "tens of millions." It accuses the defendants of causing the banks of fail through negligence and bad loans to insiders.
Among the defendants are Mr. Barbieri and the accounting firm of Ernst & Young, Security's one-time auditor. The lawsuit contends Ernst & Young was an accomplice to the alleged fraud by covering up signs of insider abuses and mismanagement at Security.
Ernst & Young audited the books at Security, signed off on annual reports to investors, and performed work for other Penta Group banks. Ernst & Young spokesman Mort Meyerson said Thursday the he could not comment because the accounting company had not received a copy of the suit.
Two Penta Group banks not included in the federal government's charges last week -- Colony Savings Bank of Wallingford and Community Savings Bank of Bristol -- also took part in the crisscrossing loans schemes, the lawsuit alleges.
The lawsuit lists loans between officials of Colony, Community, and Security and names top managers at Colony and Community as defendants. Colony failed in February; Community is still open. The lawsuit names five Bank of Stamford directors and officers as defendants and lists some of $23 million in loans by Security and Bank of Stamford to each other's officials. Bank of Stamford failed last year.
Mr. O'Connor said Thursday that more defendants will be named in coming weeks.