Govt, law firm oppose end of BoS receivership

A law firm that worked for former Bank of Saipan receiver Randall Fennell said government depositors are losing millions of dollars in declining interests on long-term deposits, opposing the request of bank directors and current receiver Antonio Muna to end the receivership.

In a separate submission to the Superior Court, the CNMI government also opposed the bank directors and Muna’s request to end the receivership at this time.

Acting Commerce Secretary Daniel L. Camacho and the law firm Schwabe, Williamson, and Wyatt said Muna’s request for exoneration is premature without a full and final accounting of his actions as receiver.

The Schwabe firm also said Muna’s entering into an agreement with the bank directors that purported to protect the parties from liability was inappropriate and conflicted his fiduciary duty to the bank.

“Despite his duty to investigate wrongdoing that caused the bank’s demise, and despite the existence of facts that literally have been placed before him which plainly provide probable cause to investigate the Bank/Attorney Culpable Parties [bank directors, shareholders and their attorneys], Mr. Muna has failed to conduct any investigation or to explain why those facts do not support a claim,” said Sean Frink, a Saipan-based attorney representing the Schwabe firm.

“Instead, at the expense of the bank, its depositors, its minority shareholders and the public, Mr. Muna and Bank/Attorney Culpable Parties entered a release agreement that purports to protect the parties from liability. Until the court or a truly neutral officer of the court conducts an adequate investigation, termination of the receivership is premature because of these impermissible conflicts,” Frink said.

Frink reiterated Fennell’s contention that there were ample evidence showing the bank directors’ alleged wrongdoing or negligence that permitted the fraudulent loan by a group of businessmen led by Bert Montgomery, who has been serving a federal prison sentence on wire fraud convictions.

Fennel had pointed out that the bank’s directors and the bank’s attorney, Calvo and Clark law firm, failed to conduct any due diligence investigation on Montgomery when the trader fraudulently loaned $8.7 million from the bank, which led to the financial institution’s near collapse sometime in 2002.

“Under the watchful eye of Calvo & Clark, the entire Montgomery fraud could have easily been avoided. All the bank had to do was a simple investigation of his background,” Frink said.

Frink noted that a simple Internet search would show Montgomery’s past involvement in bank fraud.

He also said that certain Commonwealth agencies are currently subsidizing the bank’s finances through long-term deposits without any fair consideration in return. He said the CNMI government depositors stand to forego millions of dollars through declining interest rates.

The CNMI government remains the bank’s biggest depositor, with approximately over $15 million in deposits. Of the total amount, the Marianas Public Lands Authority has some $9 million; the Northern Mariana Islands Retirement Fund, $5.6 million. The Commonwealth Development Authority controls the rest of the deposits.

“This subsidy substantially reduces the interest on those government deposits for many years. As an illustration, the MPLA and the Retirement Fund at the time of the receivership earned more than 4-percent per annum on deposits that the bank represented were secured,” Frink said.

“Now, MPLA receives roughly only 1 percent. In the future, MPLA and NMIRF will receive the bank’s savings account rate, a rate approximately three or more percentage points below secure market rates for substantial long-term deposits with insured banks or even Treasury bills,” he added.

Consequently, Frink said the government depositors stand to forego over $5.5 million in interest, while they have no equity participation of management control over the bank.

Frink also said the bank directors should stop litigating against Fennell, which would just drain the bank’s resources, notwithstanding the possibility that the former receiver might prevail in a potential counterclaim. The CNMI government shares this position.

Assistant attorney general James Livingstone also assailed the agreement between Muna and the bank directors to exonerate the parties from liabilities.

“Neither the court nor the parties were provided any information explaining this release or why the receiver believes that it is consistent with his fiduciary duty to undertake,” Livingstone said. “If Mr. Muna has a justification for why it is consistent with his fiduciary duty to release these claims, it should be provided.”

Livingstone said that, while the bank has come a long way during its receivership, terminating it, as well as discharging Muna and the bank from any liability, remains premature. He said the receiver has yet to perform a final accounting of his actions, while the bank and the Commerce Secretary must agree to a new regulatory agreement first for the government to better regulate the bank without the receivership.

Frink said exonerating Muna without a lawsuit or concrete claim being filed against him yet has been barred by the Supreme Court, which earlier vacated a Superior Court order granting Fennell immunity from future claims and lawsuits for his actions as bank receiver.

“The bank’s and Mr. Muna’s termination and release agreement is unprecedented. After all, Mr. Muna is supposed to be an agent of the judiciary,” Frink said. “Accordingly, the bank directors, knowing full well that they likely face counterclaims and third party claims in the bank director litigation [against Fennell], seek to obtain release of all wrongdoing.”

Sometime in August, the bank claimed it has achieved financial stability and disclosed that it was ready to end the receivership, more than three years after the bank began under judicial supervision following its near collapse.

BoS president Jon Bargfrede and Muna declared the bank as stable and financially sound. They said bank operations have normalized, and withdrawal restrictions on any private depositors’ accounts have been lifted. They claimed that deposits have grown and the bank has been generating new loans.

In January 2005, the bank reopened its Garapan branch and became one of the few banks that serve local customers seven days weekly.

Before the reopening of the Garapan branch, Bargfrede disclosed in December 2004 that the bank had an operating profit of approximately $1 million for the year. At that time, the bank reported new deposits at $4 million, which increased total deposits to about $23 million.

The bank’s main branch in Chalan Kanoa reopened in May 2003 following the court’s approval of a rehabilitation plan. The bank temporarily shut down operations in 2002 after a bank run that ensued following the fraudulent acquisition of loans by the group of Montgomery.