A wrongful-termination lawsuit against Banc of California is providing an alternative view of the chaos that engulfed the Irvine company earlier this year.
Jeffrey Seabold, a former Banc of California vice chairman, filed a lawsuit Tuesday in Superior Court in California, alleging that the $10.4 billion-asset company breached his employment agreement, among other things. The lawsuit also leaves open the potential to add up to 10 individual defendants.
The lawsuit claims certain directors made Seabold and Steven Sugarman, who resigned in January as Banc of California’s chairman and CEO, scapegoats to hide their own conflicts of interest. Seabold also alleges that the company manipulated its first-quarter earnings by improperly reassessing bonus accruals.
The allegations come at a time when Banc of California had seemingly emerged from a tumultuous period where it had replaced Sugarman, addressed accusations about insider dealings and implemented a series of corporate reforms.
Seabold, who seeks more than $5 million to cover unpaid bonuses and severance, became the company’s vice chairman in July 2016. He alleges that, over time, his role was diminished in a way that violated an employment agreement that expires in April 2019.
Sugarman, meanwhile, resigned around the time the company disclosed that the Securities and Exchange Commission was investigating whether it made false statements the prior fall. His departure came months after accusations were levied by an anonymous blogger that executives and directors had questionable insider dealings.
Several corporate governance changes took place after Sugarman's departure, including the separation of the chairman and CEO roles and appointments of directors to represent the interest of several key investors. In February, an independent probe by the board absolved the company and its independent directors of improper dealings.
Seabold’s lawsuit casts many of those developments in a different light. It claims four directors — Robert Sznewajs, Halle Benett, Jeff Karish and Jonah Schnel — targeted Seabold and Sugarman “to avoid the consequences of their misconduct and conflicts of interest, solidify their leadership positions on the … board and eliminate all Banc employees who could interfere with their illicit plans.”
Specifically, Seabold claims Benett, while working for Keefe, Bruyette & Woods, did not disclose that he had been “inappropriately” advising Banc of California mortgage clients on M&A deals. The suit alleges that Karish failed to disclose that he oversaw the biggest investment in a firm owned by another director.
Seabold also alleges that Sznewajs, while serving as chairman of the audit committee, was involved in approving the hiring of his son’s firm to underwrite a Banc of California offering. The suit claims that Sznewajs did not disclose the relationship.
Seabold’s version of events claims Sugarman resigned after realizing that other directors “lacked integrity” and were trying to force him out. The suit alleges that the board would not let Sugarman implement an appropriate control environment for Sarbanes-Oxley compliance.
The suit claims the statement investigated by the SEC — an October release disclosing that directors had launched an independent probe of claims over third-party dealings — was approved by the board’s executive committee and vetted by general counsel. The board disclosed around the time of Sugarman's departure that the release had inaccurate statements, notably that management had authorized the investigation.
To be sure, Seabold has a complicated history at Banc of California.
The company drew scrutiny for a 2012 arrangement where it paid CS Financial, a Seabold-owned firm, $100,000 a month for consulting and training services. Seabold was a Banc of California director at the time, and Sugarman relatives were among CS Financial’s investors.
Banc of California agreed to buy CS Financial in August 2013 for $10 million in cash and stock, though Sugarman recused himself from the vote.
Seabold would later serve in several executive posts, including chief lending officer, chief banking officer and managing director of residential lending. He claims in his lawsuit that his July 2016 appointment as vice chairman came with a mandate to expand across California and increase the size of the company to as much as $25 billion in assets.
The lawsuit claims certain directors spent much of this year looking for ways to fire Seabold for cause. They eventually decided to marginalize Seabold by removing his direct reports, stripping him of responsibilities and turning him into a “glorified relationship manager,” the suit alleges.
Seabold claims the company is concerned that he “intends to provide information to the SEC that could expose the board members’ conflicts and financial misconduct.”
Regarding the lawsuit’s other major assertion — that management distorted first-quarter results rather than cut guidance — claims that those in power at the time “knew, or should have known, that this reassessment possibly constituted wrongful financial manipulation.”
Seabold does not tie specific executives to the earnings claim, though he alleges that three people — Sznewajs, Hugh Boyle and Francisco Turner — were responsible for a material weakness in financial controls that the company disclosed in its annual report earlier this year. Each had elevated roles after Sugarman resigned. Sznewajs became chairman. Boyle was interim CEO and Turner was interim president before Bowers was hired.
Turner left the company in June.
Still, Seabold asserts in his lawsuit that Banc of California, absent the directors’ interference, had a bright future, claiming that profitability was set to accelerate and the company was on a pace to reach $20 billion in assets within two to three years.
“Employee morale was high, client and community perception was positive, and business was robust and healthy,” the lawsuit claims. “In short, by the fall of 2016, [the company] was positioned to become one of the most highly respected and valued banking franchises in the country.”
A spokesman for Banc of California, which disclosed Seabold’s departure and the lawsuit in a Wednesday regulatory filing, did not immediately comment. Calls to Benett and Schnel were not returned; efforts to reach Karish, Sznewajs and Turner were unsuccessful. Steven Goldberg, a representative for Sugarman's lawyers, declined to comment.