multimillion-dollar fraud has been sued by a shareholder who claims its management fell asleep at the wheel.
Belmont National Bank in Bridgeport had said this summer that a three-year-old scheme perpetrated by a bank officer and a borrower had cost it $15 million. The parent Belmont Bancorp. posted a third-quarter net loss of $3.9 million, and its stock has fallen roughly 70% since January. It was trading at $7 at midday Tuesday.
The $376 million-asset company has sued to recover some of the claimed loss. But in a suit filed late last month, shareholder James John Fleagane demanded unspecified punitive damages from the company's management, directors, and accounting firm.
Mr. Fleagane claims they breached their fiduciary duty by failing to obtain proper collateral and properly monitor loans made to Steven D. Schwartz, who was president of the now-defunct Schwartz Homes Inc. of New Philadelphia, Ohio. The bank's accounting firm, S.R. Snodgrass of Wheeling, W.Va., is particularly accused of "carelessly failing" to uncover the fraud during audits.
Belmont Bancorp. claims that Mr. Schwartz and William Wallace, a former executive vice president at Belmont National, misled the bank's board on the stability of Schwartz Homes and funneled money into bogus accounts.
Class-action status has been sought for the shareholder suit, which was filed in Ohio County Circuit Court in Wheeling, W.Va. The plaintiff, could not be reached for comment. His attorney in the suit, Robert P. Fitzsimmons of Wheeling, said he could not discuss pending litigation.
James F. Bauerle, Belmont's senior vice president and counsel, referred all questions about the suit to a statement released by W. Quay Mull 2d, the bank's chairman and acting chief executive. In his statement, Mr. Mull said the bank "welcomes this further opportunity to present the facts of the case" and is working with law enforcement authorities in hopes of recovering some of the lost funds.
The 153-year-old bank added $5.8 million to its loan-loss provision in the third quarter. Mr. Bauerle said it now has $10 million of reserves against potential loan problems.
