Edwin F. Hale Sr., the leader of a group of dissident stockholders trying to take over Baltimore Bancorp, has sent a letter to the bank holding company's board of directors asking for an investigation of stock purchases by the company's chairman.
Hale's announcement of the request comes as he is trying to convince shareholders to vote to enlarge the company's board to allow his group to take over Baltimore Bancorp, the parent company of the Bank of Baltimore.
Over a period of three years, Robert F. Comstock, the chairman and chief executive officer of Baltimore Bancorp, has increased his stock holdings in the bank holding company from 5,000 shares to 40,500 shares.
In his letter, Hale questioned the timing of some of these purchases.
"Mr. Comstock's pattern of stock purchases just before earnings announcements leaves -- at best -- an impression of improper behavior which must be avoided by any director or executive of this bank under any circumstances," Hale said in the letter, dated Tuesday.
Comstock has been headed the bank holding company since June 27 when he replaced Harry L. Robinson, who was removed by the board of directors.
Hale has been a member of the Baltimore Bancorp board since June after he and five other dissident shareholders were elected to the 18-person board at the company's annual meeting in May.
But Hale's goal of taking over the board was blocked when a federal judge threw out a vote which would have increased from 18 to 28 the number of positions on the board. Another vote on that issue is to be held Aug. 29.
Should the Hale group win that vote, 10 of Hale's allies would join the board and he would control a majority of the board.
Hale stands to lose hundreds of thousands of dollars if he is not successful in his proxy fight. According to his proxy statement issued to shareholders, it is estimated that Hale will spend a total $1.25 million in the proxy fight and he already has spent $280,255.84.
If he wins the fight, Hale will ask the board that he will control to reimburse him for the expenses, according to the proxy statement. The issue will not be put to a vote of the stockholders.
The distribution of the letter to the press prompted a sharp reaction from Baltimore Bancorp management.
"It's strictly a mudslinging ploy in this proxy campaign," said Jerome P. Baroch, senior executive vice president of the Bank of Baltimore.
"It's absolutely ridiculous," Baroch said, adding that the transactions have been reviewed by corporate lawyers and are part of the public filing with the Securities and Exchange Commission. "There is absolutely nothing there," he said.
Baroch said the SEC is looking into the matter, but the agency has not expressed any urgency about it. However, Hale's letter has prompted Baltimore Bancorp's board of directors to schedule a special meeting on the issue for Friday afternoon, he said.
Baroch also criticized Hale for releasing the letter to the press even before the board had a chance to respond. "This is certainly not the thing that a director does to another director," he said.
Comstock has not realized any gains on his stock purchases since he has not sold any stock since he started buying shares in 1988.