An upstate New York thrift, under fire from investors, lost its bid to block a dissident proposal from a shareholder vote.

The Securities and Exchange Commission ruled Feb. 20 that Goshen, N.Y.- based MSB Bancorp must allow shareholders to vote on a recommendation that the thrift hire an investment banker.

The proposal, submitted by shareholder Thomas Kahn, president of Kahn Bros. & Co. brokerage, urges MSB to explore its strategic options, including a sale of the company, which Mr. Kahn supports.

MSB had objected to including the proposal in its mailing to stockholders, claiming that it was improperly phrased and was therefore not appropriate for shareholders to vote on under state law. Allowing the proposal to be voted on, the company claimed, would have constituted an illegal delegation of duties by the board to stockholders.

The $461 million-asset company also accused Mr. Kahn of making false and misleading statements in support of the proposal, and argued that it merely involved the ordinary course of business and therefore did not need a shareholder vote.

Finally, MSB officials said the proposal was moot because the company had already hired Bear, Stearns two years ago as part of its investment strategy.

"The sole purpose of the proposal is to pressure the board of directors to put MSB up for sale," said a letter from MSB attorney Omer S.J. Williams, of Thacher Proffitt & Wood.

But the SEC rejected MSB's arguments. The agency did agree, however, that the language of Mr. Kahn's proposal, which accused officials of "secretly" rebuffing two merger offers from New Jersey-based Hubco Inc., was misleading. SEC officials decided that problem could be remedied by deleting "secretly".

Mr. Kahn's proposal will now be included in the company's proxy statement, to be mailed out in mid-March. The annual meeting has not been scheduled, but is likely to be held in early May, company officials said.

"I don't think we consider it a big defeat," said William C. Myers, MSB chairman and chief executive. "The SEC has decided to include it in our proxy statement. Our responses will definitely be in there."

The battle over the MSB shareholder proposal is the latest in a war of words between the thrift and Mr. Kahn, who owns 6.05% of the company.

Mr. Kahn is currently suing MSB's officers and directors, accusing them of breaching their fiduciary duty by rejecting the two Hubco offers, plus a third offer from Buffalo-based First Empire Corp., without consulting shareholders or thoroughly examining the offers.

And he and several analysts have denounced the company's planned acquisition of seven branches of San Francisco-based First Nationwide Bank, and a supporting offering, as highly dilutive and damaging to shareholders.

"I think these guys have not been fair to the stockholders because I don't think they properly evaluated the acquisition of the branches of First Nationwide," Mr. Kahn said. "If they had done that, they would have come to a conclusion that this was not really in the interest of shareholders."

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