Two Baltimore-area investors have sued sagging MNC Financial Inc. and former chairman Alan P. Hoblitzell Jr. for allegedly misrepresenting the company's financial health and causing shareholders to lose large amounts of money as the company's stock price plummeted in recent months.
The suit, seeking unspecified damages, was filed in U.S. District Court here this week by Robert B. Kelm of Towson and Christopher Trikeriotis of Baltimore.
It charges MNC and Hoblitzell, who recently retired with a $1.1 million severance payment and at least $400,000 a year in retirement benefits, with violating federal securities laws, negligence and misrepresenting the quality of the company's rapidly-deteriorating loan portfolio.
Charles J. Piven, a Baltimore lawyer who, along with a New York law firm, is co-counsel for the investors, requested certification of the suit as a class-action proceeding that would cover all shareholders who bought MNC stock between July 24 and Oct. 25.
The suit is similar to another class-action suit filed in April by two Maryland shareholders and three in New York. That suit, which covers people who bought MNC stock between Jan. 1, 1989 and July 24, 1990, is scheduled for a hearing Dec. 21 before Judge J. Frederick Motz on MNC Financial's motion to dismiss it.
The latest suit was filed in the wake of MNC Financial's announcement last week that it lost $173.4 million, or $2.05 per share, in the third quarter which ended Sept. 30.
MNC, the parent of Maryland National Bank and American Security Bank in Washington, is the largest bank holding company in Maryland.
Kelm and Trikeriotis claim the defendants "misrepresented and concealed the continuing deterioration of the quality of MNC's loan portfolio, continued to fail to set appropriate loan loss reserves, and unreasonably failed to charge off assets on which substantial losses were virtually certain . . ."
At the same time, Hoblitzell and MNC allegedly used annual reports and press releases to overstate the institution's net income and assets, which falsely inflated the market price of MNC stock during the period covered by the suit, the suit alleges.
The defendants, the suit claims, "led the market to believe they had disclosed all previously undisclosed material adverse information, had taken all necessary and prudent reserves and charge-offs, and had obtained sufficient new capital to operate the company," when in fact they had not.
Kelm, who bought blocks of MNC common stock at $9.875 and $9.375 per share in August, lost $2,150 on paper based on Monday's closing price of $4.125.
Trikeriotis lost $1,275 on paper on purchases of MNC common stock for $7.50, $7.375 and $5 per share in September and early October, the suit alleges.
MNC stock sold for an all-time high of $29.25 per share on Oct. 5, 1989, the day after it split. It closed yesterday at $4.25 per share.