State Bancorp Inc.'s share price plummeted more nearly 17% Tuesday, after a Long Island jury found the Jericho, N.Y., company liable for $44 million of damages in a 4-year-old fraud case.
The plaintiff, HSA Residential Mortgage Services of Texas, claimed that the $1.5 billion-asset State Bancorp helped a depositor, Island Mortgage Network Inc., misappropriate millions of dollars that HSA had lent it.
State Bancorp, the holding company for the 40-year-old State Bank of Long Island, says it plans to appeal.
"We are enormously disappointed with the verdict, and frankly, we think it is mistaken," State Bancorp's attorney, Andrew T. Gardner, said Tuesday.
Mr. Gardner, a partner with Fried, Frank, Harris, Shriver & Jacobson LLP in New York, said that State Bancorp never had any business relationship with Island outside of its depository role.
HSA is a warehouse lender that makes loans to mortgage companies.
Island, a mortgage originator, obtained loans from HSA to fund the deals it originated. HSA's money was supposed to be given to property sellers upon settlement, but according to the complaint, Island diverted the money to other uses, and State Bank assisted in the scheme.
"Our client is very happy with the verdict," Fred T. Davis, HSA's lead attorney, said Tuesday, and the $44 million verdict represented the full amount it was seeking from State Bancorp.
Mr. Davis is a partner with Shearman & Sterling LLP in New York.
Island maintained a number of deposit accounts at State Bank of Long Island from February 1999 to July 2000.
The mortgage company went out of business in 2000, shortly after the New York State Banking Department revoked Island's mortgage-banking license on June 30, 2000, because the company was hanging on to funds that it should have disbursed to property sellers.
Mr. Gardner said that he plans to ask Judge Joanna Seybert to set aside the verdict and that he would file an appeal if she refuses. He said the $44 million judgment would probably be stayed, pending State Bancorp's appeal.
The case originally included at least two other warehouse lenders, but State Bancorp settled with both.
State Bancorp has not released its fourth-quarter and full-year earnings. In the first nine months of the year its net income fell 46% from a year earlier, to $5.7 million, largely because of its legal bills.
State Bancorp's stock closed at $15.60 Tuesday.
