SCRANTON ‚?? A Scranton law firm has announced it intends to file a lawsuit against First National Community Bank in Dunmore, alleging a loss of more than $50 million in shareholder value over the past four years.
Joseph Solfanelli, an attorney with O‚??Malley & Langan, said Tuesday the lawsuit will be based on allegations the bank, which was once controlled by local business magnate Louis DeNaples, engaged in unsound and unsafe banking practices that led to significant losses in 2009 and 2010.
According to Solfanelli, federal regulators forced FNCB to restate its earnings in 2009 from an $11.3 million loss to a $44.3 million loss.
It was also forced to restate earnings from the first two quarters of 2010, which the bank initially said showed a $2 million profit. In reality it lost $6 million, Solfanelli said.
Neither DeNaples nor bank officials could be reached for comment Tuesday.
Solfanelli said the lawsuit, which will be filed in Lackawanna County Court, is based in part on information obtained from a 2009 stipulation FNCB reached with the Office of the Comptroller of the Currency, a federal agency that regulates banks.
Solfanelli said that stipulation revealed the bank engaged in unsound practices and had failed to file suspicious-activity reports. More information regarding those issues will be released at a press conference scheduled for noon today at his firm, located at 201 Franklin St., Scranton.
The lawsuit is being filed to allow Solfanelli to obtain records that are needed to determine the full extent of the loss to his client and other shareholders, he said.
‚??The suit is to request the court to direct the bank to release records,‚?Ě Solfanelli said.
‚??Shareholders have a right to records if they have data to demonstrate mismanagement. I think there is overwhelming evidence to support that.‚?Ě
The Dunmore-based bank has 10 of its 21 banking facilities and a training center in Luzerne County.
The bank‚??s stock price has declined from $18.99 per share on Jan. 2, 2008, to a closing price of $3.85 per share on Monday. It had reached a low of $2.10 per share on Jan. 10.
DeNaples, former owner of the Mount Airy Casino in Paradise Township, Monroe County, had served on the board of FNCB for decades and was chairman for a decade before he was forced to step down in 2008 after being charged with perjury in Dauphin County Court.
Those charges alleged DeNaples lied to state gaming officials who were investigating his suitability to obtain a license to operate a casino at Mount Airy.
The charges were withdrawn in April 2009 after DeNaples agreed to transfer ownership of Mount Airy to a trust in the name of his daughter.
Federal banking officials sought to bar him from resuming his position with FNCB based on a section of banking law that prevents any person convicted of a crime of dishonesty from serving on a financial institution‚??s‚?? board.
DeNaples has been battling to regain his seat for several years, but has lost several court challenges and remains off the board.
First National Community Bancorp, the parent company of First National Community Bank, said in December the increase in its 2009 losses reflected accounting charges and allowances that had been recorded in 2010 but which were more properly recorded in 2009.
The $33 million adjustment included a $10.1 million addition to the provision for loan and lease losses, $14.5 million in the securities investment portfolio, $8.1 million of goodwill impairment and $300,000 in other adjustments.
One large non-performing loan was $4.1 million owed by W-Cat Inc., developer of The Sanctuary housing development in Wright Township. Stakeholders in the project included former Luzerne County judges and corruption-probe targets Mark Ciavarella and Michael Conahan, as well as their wives and attorney Robert Powell.
W-Cat defaulted on the loan in November 2008, after only a handful of the 84 homes planned for the development were sold.
Conahan was a member of FNCB‚??s board of directors before stepping down in 2010, after he was charged with participating in a more than $2.6 million kickback scheme connected to the construction of two private, for-profit juvenile detention centers and the placement of youths in the facilities in Pittston Township and Butler County.