Glen Burnie bankers sued Two shareholders want management out, receiver appointed

Banking

March 03, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

In a rare move, two Bank of Glen Burnie shareholders have filed a lawsuit seeking to remove management so a receiver can be appointed to run the embattled bank.

The lawsuit, known as a "shareholder derivative suit," also seeks $12.5 million in compensatory and punitive damages from Bank of Glen Burnie and its top two executives, F. William Kuethe Jr. and John E. Demyan.

The lawsuit alleges that the executives concealed information from shareholders about a string of fraudulent loans made to a borrower that resulted in millions of dollars in write-offs.

In addition, the shareholders allege that Kuethe, the bank's president and chief executive, and Demyan, its chairman, never notified shareholders of two bids to buy the bank, and have taken steps to entrench themselves in their positions.

"The defendants' conduct has had a devastating effect upon the financial performance of the bank and [Glen Burnie] Bancorp, resulting in a drastic decline in shareholder value," according to the lawsuit filed in the Circuit Court for Baltimore County.

The lawsuit was filed by shareholders Neil C. Williams and Michael Demyan on behalf of all stockholders. Michael Demyan is the uncle of John E. Demyan, the bank's chairman.

Kuethe said he was not aware of the lawsuit.

"There was no conspiracy, and, as far as entrenching ourselves, that is not our intention at all," he said. "I wish I could tell you something, but this is news to me."

In addition to the lawsuit, Susan Demyan, a shareholder of the bank, is trying to oust the current management in a proxy fight.

Susan Demyan, who is the cousin of John E. Demyan, is mailing proxy cards to stockholders in the hopes of winning support for a new group of directors that includes former Maryland Gov. William Donald Schaefer.

Schaefer is a director emeritus of First Mariner Bancorp, which last month offered to buy Bank of Glen Burnie for about $26 million in cash, or $23.80 a share. The offer, its second, was rejected, and Bank of Glen Burnie directors last month voted to install a "poison pill" designed to block a hostile takeover attempt.

"The current directors have taken the bank built by my family, and many of yours, and made it a shambles," Susan Demyan said in a letter to shareholders. "Our bank's reputation has been destroyed because of the criminal activities associated with it."

The sides expect to meet March 12 when Bank of Glen Burnie is scheduled to hold its annual meeting. Last year, Susan Demyan and other shareholders tried to unseat the current board, but lost the fight.

This year, however, she has the support of First Mariner, which currently owns 0.5 percent of Bank of Glen Burnie. First Mariner is waiting for approval from the Federal Reserve Board to buy another 170,883 shares, and will hold a total of 19.5 percent of the bank when the deal is completed.

Edwin F. Hale Sr., the Baltimore shipping executive and First Mariner's chairman, said he will vote for the new slate of directors.

"We fully endorse what Susan Demyan and the rest of the people are doing," Hale said. "Management there has not done a good job, and should be removed."

The lawsuit filed by Williams and Michael Demyan alleges that Kuethe and John E. Demyan covered up illegal loans to borrower Brian Davis, a Baltimore trucking operator. Davis is serving a 63-month prison sentence for bank fraud and tax evasion.

It also alleges that the executives spent hundreds of thousands of dollars in a proxy fight to oust the previous president and chairman after they launched an investigation into problem loans at the bank.

Pub Date: 3/03/98

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