Aug. 14--After almost two years of litigation, a shareholder lawsuit against the defunct Saddle River Valley Bank and its majority shareholder, board of directors and former chief executive officer is "near a global settlement," according to a note from the judge handling the case in state Superior Court in Bergen County.
The mention of a possible settlement came in a July 31 letter from Judge Robert P. Contillo to Judge Menelaos W. Toskos, asking Toskos to fill in at a hearing last Friday if the proposed settlement was ready by then to be made part of the record.
However, people familiar with the case said this week that settlement talks are still under way and that lawyers for the opposing parties are not expected to submit a settlement agreement until early next month.
Contillo and the bank's minority shareholders would have to approve any deal before it became final. Lawyers for both sides declined to comment Wednesday or could not be reached.
The lawsuit was filed in October 2012 when six minority shareholders led by former Saddle River Mayor Conrad Caruso alleged that the community bank's board members and majority shareholder SRV Holdings Inc. -- an affiliate of the prominent private equity firm J.C. Flowers & Co. -- were "grossly negligent" because they failed to monitor billions of dollars in international wire transfers, mainly from customers in Mexico who present a high risk for money-laundering activity.
Those transfers led to the lender's demise, and shareholders lost most of the money they had invested in the short-lived bank, which operated from 2006 to 2012.
Lawyers for the bank and other defendants had argued in court filings that the allegations were thin on evidence, and they tried to get the case thrown out. But Contillo in May denied most of their motions for dismissal. He granted co-defendant J.C. Flowers & Co.'s motion to dismiss, because the equity firm does not own the bank's shares -- its affiliate, SRV Holdings, does.
Although most of Saddle River Valley Bank's assets are gone, shareholders may get some compensation from individual board member defendants who may be covered by the bank's officers and directors' liability policies.
The bank was started in 2006 to make loans to local businesses in Bergen County, but in the summer of 2009, when business was slow, it started a new venture, handling fee-for-service wire transfers from currency exchange shops in Mexico.
In October 2009, SRV Holdings agreed to buy a majority stake in the bank, to use it as a platform for growth through acquisitions. The following year, it put five representatives on the nine-member board of directors.
Soon afterward, the wire transfer business got the bank into trouble with its main federal regulator. The bank shut the wire business down in early 2011 after the regulator questioned the bank's anti-money-laundering controls and procedures.
A related regulatory enforcement action issued later that year made it unlikely the bank would be able to get the regulator's approvals to acquire other banks anytime soon, squashing SRV Holdings' strategy.
So the board closed the bank and sold its loans, securities and deposits to ConnectOne Bank, then known as Union Center National Bank, for $10.3 million.
The minority shareholders allege that SRV Holdings and J.C. Flowers Managing Director John J. Oros, who was Saddle River Valley Bank's chairman when the bank closed, used their controlling vote and threats of share dilution to coerce them into voting to approve the 2012 sale of the bank's assets and deposits. Saddle River Valley minority shareholders say they recouped only about a third of their investments.
Making matters worse for the shareholders, most of the $10.3 million in proceeds from the sale was used last year to pay $8.2 million in penalties to settle federal charges the bank violated anti-money-laundering laws, although no actual instances of money laundering have been alleged.
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