Tennessee Commerce Bancorp Inc. in Franklin is being sued by its former chief financial officer, who claims he was fired for alerting regulators to possible misconduct by company executives.
George Fort, Tennessee Commerce's CFO from September 2005 until he was fired on May 6, is seeking unspecified compensation for the firing, as well as $500,000 for libel, according to his July 9 complaint in U.S. District Court, Middle District of Tennessee, in Nashville.
Mr. Fort accused Tennessee Commerce of retaliating after he questioned the company's internal controls. Among his allegations, Mr. Fort says that Lamar Cox, the company's chief administrative officer, made up minutes for the board's asset-liability committee though it had never met during Mr. Fort's tenure as CFO. Mr. Cox was named acting CFO for the $1 billion-asset company after Mr. Fort was placed on leave in March.
"Basically, the asset-liability committee of the board never met, but minutes were ginned up as if we were meeting quarterly," Mr. Fort said in an interview last week. "And of course all those same minutes are reviewed by regulators, and they're very concerned that those meetings take place. And if you're not carrying out those meetings you're not managing the bank."
Before being fired, Mr. Fort filed complaints about the bank's practices with both the Federal Deposit Insurance Corp. and the Occupational Safety and Health Administration.
The day after Mr. Fort met with the FDIC on March 6, he was put on administrative leave by Tennessee Commerce. (It had hired him on Feb. 1, 2004, as vice president of finance and promoted him in September 2005.)
Mr. Fort's complaint alleges that the bank's internal auditors identified policy violations by five of 17 bank officers and called activity by one bank officer "somewhat suspicious." These activities are not specified in the suit.
The complaint also alleges that Mr. Cox had employees "circumvent" written policies and procedures but does not specify them. The bank is also alleged to have done an internal investigation on insider trading and check kiting, but no details are included in the suit.
Tennessee Commerce, in a statement, said Mr. Fort's claims are "without merit."
"The company denies the allegations in the lawsuit and believes that it and its officers and directors acted with appropriate care and diligence at all times," the statement said.
The company declined to explain its firing of Mr. Fort.
In his complaint, Mr. Fort alleges that his firing was a breach of contract and a violation of both the Tennessee Public Protection Act and the FDIC Improvement Act, which protect whistle-blowers. It also alleges that the company libeled Mr. Fort "by associating his removal with the possibility of the company being 'delisted' by the Nasdaq and its lack of timely filing with the Securities and Exchange Commission."
In a March 7 press release announcing that Mr. Fort had been suspended, Tennessee Commerce said it would be filing its 10K annual report to the SEC late because its independent auditor had found "material weaknesses" in the company's internal controls. A March 21 release said the late filing might cause it to be delisted by Nasdaq.
Tennessee Commerce is not a traditional community bank. Though its main market is the Nashville area, where it has a single branch, it operates loan production offices in Birmingham, Ala.; Atlanta; and Minneapolis.
It offers traditional banking products but specializes in lending money for equipment leases. It employs brokers in cities nationwide who sell lease financing.
Last year Tennessee Commerce earned $6.9 million, a 45% increase from 2006. First-quarter earnings slipped about 2% from the year earlier, to $1.4 million, which the company attributed partially to additional costs for Sarbanes-Oxley Act compliance.
It has yet to report second-quarter results but said in a preannouncement that it expects earnings per share of 38 cents, a four-cent increase from the year earlier.
Still, the company's stock has dropped about 33% since early March. Analysts said that the bank's core business is sound but cited the late filing of its annual report and Mr. Fort's lawsuit as reasons for the stock-price decline, along with the poor banking environment.
Matt Olney, an analyst at Stephens Inc., recently downgraded Tennessee Commerce one notch, to "equal weight," because of "macro-issues," particularly the company's need to raise capital when "the availability of capital is very limited out there." Tennessee Commerce had a total risk-based capital ratio of 10.17% in the first quarter — enough to be considered well capitalized — but Mr. Olney said its continued rapid growth would require more capital.
"From a purely operating standpoint the company has had outstanding, good profitability," said Jeff K. Davis, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp.
But the lawsuit is a distraction, he said. "An investor's concern would be: Does it lead to something else? Could it? Sure."