Mercantile files suit against ex-executive

Counterclaim made two months after bank was sued over dismissal

September 30, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Mercantile Bankshares Corp. has sued a former top executive, the latest salvo in a case alleging double-dealing and illicit sex in the button-down world of Baltimore banking.

Mercantile, the state's largest independently owned bank, sued former employee John J. Pileggi for more than $8 million in Baltimore Circuit Court this week, two months after Pileggi sued the bank for $240 million over his dismissal in the spring.

In a 51-page lawsuit filed Monday, the bank alleged that Pileggi intentionally withheld from his superiors information that the mother of one of his employees stood to gain a nearly six-figure fee if the bank used a firm she recommended to oversee investments in a hedge fund.

Mercantile also alleged in its countersuit that Pileggi breached his fiduciary duty by misleading the company on other occasions. It claimed that he pressured a bank official to hire a woman with whom he was having an extramarital affair.

Pileggi, one of two wealth-management executives fired in March, sued the bank in July, claiming that his dismissal as head of the investment and wealth-management division deprived him of a potential payout if Mercantile was sold.

In a statement released yesterday by his attorney, Pileggi said the claims in the suit are designed to "intimidate and discourage" him from moving ahead with his "strong claims for defamation and breach of contract" against Mercantile and Chairman Edward J. Kelly III.

"When the facts come out, it will be clear that Mr. Kelly and the bank acted maliciously and irresponsibly in a deliberate attempt to destroy my career in the financial-services community, and that these counterclaims are more of the same," Pileggi said.

In his suit, Pileggi said the chief executive held regular meetings with a senior officer of another Baltimore bank to explore a possible merger. He also alleged that representatives of two investment banking firms told Mercantile board members in January that the best way to enhance shareholder value was to sell the company.

Pileggi stood to receive a severance package worth three times his annual salary if fired in connection with the sale of the bank. Mercantile officials were expecting a sale at the time he was dismissed, his suit says.

Pileggi could not be reached for comment yesterday.

His attorney, John J. Walsh, declined to elaborate beyond his client's statement.

James E. Gray, an attorney for Mercantile, said: "The bank denies that Peliggi's allegations regarding a change in control are correct."

Mercantile described its stance as "legally and factually correct ... supported by the law and the facts," added Gray. "From the bank's standpoint, in regard to its credibility ... it is the appropriate thing to do."

The bank's 2-inch-thick counterclaim includes personal e-mail and anonymous letters among its 55 exhibits. It portrays Pileggi as an executive who despised his boss, played favorites and withheld critical information from superiors.

It alleges that Pileggi, who is married, was engaged in an extramarital affair with a woman whom he helped land a $65,000-a-year job at Mercantile as a Web designer even though she had no experience. The two frequently went out to dinner and had coffee breaks and lunches, the suit says.

"I love you very, very much," Pileggi wrote to the woman in an e-mail, according to the bank's counterclaim.

The bank said Pileggi breached his fiduciary duty on several occasions. It alleged that he urged the bank to establish a brokerage and wealth-management firm that would be run by a friend and fed the friend confidential information to help him gain the upper hand in negotiations.

Value of company

Pileggi also misrepresented the value of a hedge-fund marketing company in Baltimore that Mercantile ultimately bought, the bank claimed. Mercantile said it terminated employment agreements with two of the firm's three principals after the bank determined that the firm couldn't generate the revenue expected.

Pileggi joined Mercantile in February 2002, at a starting salary of $400,000 a year with the potential for a $400,000 bonus. Regarded as a mutual fund expert, Pileggi worked in New York and became president and chief executive of two subsidiaries designed to build the company's wealth-management business.

He reported to Wallace Mathai-Davis, chairman of Mercantile's wealth-management division, who recruited Pileggi.

On Pileggi's recommendation, the bank hired Michael Donnell, who had worked with Pileggi at PlusFunds and was a close friend, the counterclaim said. Donnell, who struggled financially with more than $100,000 in personal debt, asked Pileggi "to be the co-applicant on a lease for a BMW automobile," the counterclaim said.

Shortly after Pileggi was hired, he was charged with launching three hedge funds to attract wealthy clients to Mercantile. He appointed Donnell manager of the project. The two were chosen by Mathai-Davis to find outside advisers to manage money in the Mercantile funds.

2002 recommendation

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