A Baltimore County investor has filed a lawsuit against Baltimore Bancorp, its directors and Alex. Brown Inc., charging them with violation of federal securities law stemming from the bank holding company's rejection of a $17-a-share takeover offer from First Maryland Bancorp.
The suit was filed Thursday in U.S. District Court in Baltimore on behalf of plaintiff Frank Tischler, who purchased 500 shares of Baltimore Bancorp common stock Aug. 31, about four months after First Maryland made its initial bid to acquire the parent of the Bank of Baltimore.
It alleges that Baltimore Bancorp, its directors and Alex. Brown Inc., the banking company's investment adviser, participated in a conspiracy to conceal adverse information regarding the financial health of Baltimore Bancorp while they were rejecting First Maryland's offer.
Several weeks after the first offer was made, Baltimore Bancorp announced it had been unanimously rejected by the board of directors.
The company said the board had acted in part on the advice of its financial adviser, Alex. Brown, which had termed the offer inadequate.
Baltimore Bancorp stock, which was trading at $10.25 a share before the initial offer, immediately jumped to $15.
"The Alex. Brown opinion was represented to the public as an arm's-length, independent investment banker's opinion" of Baltimore Bancorp's value, according to the court papers, "when, in fact, it was a slipshod presentation"based on conjecture without rigorous valuation of the bank's loan portfolio, real estate assets and other factors that would have resulted in a per share value "far less than $17 per share."
After six months of rejection, First Maryland announced Nov. 1 that it was dropping its takeover offer, ending one of the most rancorous battles ever waged between local banks.
"With shocking irony," the suit claims, "an Alex. Brown research report [issued just before First Maryland withdrew its bid] placed Baltimore Bancorp among its list of banks that it believed was most likely to encounter financial problems in the future."
The suit alleges that financial statements filed with the federal Securities and Exchange Commission in mid-August were "false and misleading" because they did not reflect the deterioration of Baltimore Bancorp's loan portfolio, including real estate loans.
The court papers also claim that Baltimore Bancorp's loan-loss reserves had become inadequate, that its financial prospects had greatly diminished, and that those facts were not reflected in its filings with the SEC.
The papers also allege that Baltimore Bancorp's actions resulted in an artificially inflated value for its common stock.
The suit seeks court costs, attorney fees and whatever other relief the court deems just.
Gerald B. Kracke Sr., a senior vice president at Baltimore Bancorp, and Gar Richlin, corporate secretary at Alex. Brown, declined to comment on the lawsuit.
Mr. Richlin said his company had not seen the suit.
Baltimore Bancorp stock, which has been declining in recent weeks, closed yesterday at $4.75, down 12.5 cents.