WASHINGTON -- Flushing Savings Bank has abandoned its bid to sell $71.5 million in stock as federal regulators investigate charges that the thrift manipulated depositor votes, according to individuals familiar with the deal.
The $598 million-asset mutual announced today that it had postponed its initial public offering indefinitely. Flushing Savings also disclosed that the Office of Thrift Supervision is reviewing "alleged irregularities in connection with proxies voted" on the deal.
A contract employee who worked on the deal told regulators she was fired after overhearing a Flushing executive boast that he forged depositors' proxies in an effort to get enough votes for the conversion, a lawyer who worked on the deal, and another source familiar with the deal said.
Flushing senior vice president Frederick L. Pesce was heard "bragging over some drinks that he had personally forged proxies," the lawyer said.
Mr. Pesce did not return phone calls seeking comment. A Flushing spokeswoman, Anna Piacentini, refused to discuss "specific allegations or specific individuals,"
The contact employee, Page Tyler, worked for Flushing's Hartford, Conn.-based underwriter, Advest Inc. She could not be reached for comment. An Advest spokeswoman insisted Ms. Tyler was not fired, but resigned. She had been an associate in Advest's corporate finance area, providing support to the firms' investment bankers.
The OTS would not comment on its investigation.
Flushing Savings had difficulty winning enough votes for its conversion from mutual to stock ownership. To proceed, it needed 51% of eligible depositors to vote in favor of the deal. The institution delayed its depositors' meeting to Sept. 8 from late August in order to win enough votes, according to Philip C. Colaco, a senior research analyst at SNL Securities in Charlottesville, Va.
The bank's spokeswoman said Flushing had hired a special counsel to conduct "an extensive investigation" of the allegations of vote fraud. Ms. Piacentini said the board was convinced it had properly received the 51% vote it needed from depositors, but refused to address whether the company found that some of the proxies above that level had been forged.
She said, "The OTS advised the board that they would take no action" against the bank if it went forward with the conversion. But the source familiar with the deal said going ahead could have left Flushing vulnerable to a number of lawsuits, especially if the stock price dropped in value.
The deal is dead for now, but could be revived if the thrift resolicited subscriptions for its stock.
In a statement, Flushing said the OTS would have required it to resolicit subscribers' orders to buy stock -- an expensive process that would delay the deal. Because of that, as well as uncertainty about what value regulators would place on the company and general market conditions, the company delayed the offering.