April 24 (Bloomberg) -- CertusBank NA executives fired after an investor accused them of wasteful spending on private-jet travel, luxury vacations and lavish corporate condominiums sued the bank over their ouster.
Milton H. Jones Jr., CertusBank’s former chairman, and Walter Davis, the institution’s ex-chief executive officer, contend in the lawsuit the bank’s directors and New York hedge fund manager Benjamin Weinger conspired to defame them with false statements about their spending and alleged mismanagement of what was once described as the largest African-American controlled bank. The pair, along with Angela Webb, the bank’s former president, allege Weinger made racially derogatory comments about them in a letter to other investors.
The suit comes two weeks after Jones, Davis and Webb were fired by CertusBank’s board and replaced by community bank veteran John Poelker. The closely held bank has lost more than $84 million during the past two years, according to Federal Deposit Insurance Corp. records.
Weinger and CertusBank board members worked together “to create a humiliating image of the plaintiffs as African-American spendthrifts,” the fired executives said in the complaint filed yesterday in federal court in Greenville, South Carolina.
Kelly Owens, a CertusBank spokeswoman, declined to comment on the lawsuit yesterday. Weinger didn’t immediately respond to a phone call yesterday after regular business hours seeking comment on it.
Jones, a former Bank of America Corp. executive, and Davis, an ex-Wachovia Corp. official, founded CertusBank in 2010 to acquire other banks that failed as part of the economic meltdown tied to subprime mortgages. The company bought five banks in Georgia and North Carolina and built a new headquarters in downtown Greenville in 2013.
Officials of the $1.66 billion bank touted the opening of the headquarters, which includes a 200-seat theater and the tallest multi-touch media wall in the U.S.
In letters to other bank investors, Weinger, who manages New York-based 3-Sigma Value Investment Management, questioned the $30 million CertusBank executives spent on the headquarters, including more than $1 million on artwork.
The fund manager also accused Jones, Davis and Webb of wasting more than $350,000 on private-jet flights and $1.5 million in buying and outfitting corporate condos for themselves in Greenville. Improvement to those apartments included $11,925 for the addition of a wine cellar and $23,135 on electronics, according to court filings.
The excessive spending came at a time when CertusBank was “losing $10 million per quarter” and operating expenses were rising, Weinger said in one of the shareholder letters.
“More than $100 million in equity capital has been erased in the most baseless and irresponsible way -- by spending exorbitantly on personal excess masked as corporate expense,” the fund manager wrote.
Lawyers for the three former CertusBank executives said in the complaint that Weinger “waged a campaign of misinformation and half-truths” in an effort to persuade board members to oust Jones, Davis and Webb to position the bank to be acquired.
The spending on the private jets and condos was approved by CertusBank directors, attorneys for the fired executives said.
“CertusBank did not expend excessive funds branding its image and creating a framework in which it could foreseeably compete on a national level,” the lawyers said in the complaint.
They also contend Weinger was motivated by racial animus toward the executives, citing derogatory language to describe their actions in the shareholders letters.
Weinger used phrases such as “The ship be sinking,” and “They gots to go” to defame Jones, Davis and Webb, according to the suit. He also accused the trio of “playing the race card” by noting the bank’s top managers were African American, the suit said.
Instead of allowing the executives to issue press releases responding to Weinger’s attacks, CertusBank directors ordered them to remain silent and then fired them, according to the complaint.
“News of the public firing was immediately released by CertusBank, which by implication communicated the false, defamatory and libelous statements first published by Weinger were in fact true and were endorsed, ratified and condoned by CertusBank,” according to the suit.
The case is Jones v. CertusBank NA, 14-cv-01633, U.S. District Court, District of South Carolina (Greenville).
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