Even from a prison cell, Michael Kwasnik remains a thorn in the side of Liberty Bell Bank.
The bank, based in the Philadelphia suburb of Marlton, N.J., last month
The bank's management and board, which includes William Dunkelberg, the chief economist at the National Federation of Independent Business, make no attempt to disguise their motives. A group of investors, led by Kwasnik — who is jail on charges of financial theft — has repeatedly quashed Liberty Bell's efforts to issue new shares of common stock or create new classes of stock, the bank says in regulatory filings.
Last year, the $170 million-asset bank failed in an effort to issue noncumulative perpetual common stock in hopes of participating in the Small Business Lending Fund. The bank, in its application to form a bank holding company, blamed the Kwasnik-led group.
"The bank has been unable to issue preferred stock, trust preferred stock, and was unable to participate in the [Troubled Asset Relief Program] or SBLF program," Liberty Bell wrote in its Jan. 5 application with the Federal Reserve Board. Kwasnik's group "controls a large percentage of the bank's stock [and has] voted against all proposals [to issue additional stock] in the past."
In recent months, Kwasnik has been embroiled in legal problems that threaten to complicate matters for the bank.
A grand jury in the state superior court in New Jersey indicted Kwasnik on Nov. 7. He stole more than $1 million from a 96-year-old woman in Cherry Hill, N.J., after she hired him to form a family trust, the indictment says.
A civil lawsuit filed in October in Essex County Superior Court by the New Jersey attorney general accused Kwasnik of running a scheme where investors, mostly elderly, lost about $8.5 million.
"We charge that Kwasnik is a cheat and a thief who betrayed his oath as an attorney to uphold the law," New Jersey Criminal Justice Director Stephen Taylor said in a November press release announcing the first indictment.
Two days after the indictment, Kwasnik was arrested in Dothan, Ala. He was driving to Florida to evade prosecution, prosecutors say.
New Jersey's attorney general filed more charges on Jan. 24, alleging that Kwasnik stole more than $324,000 from the proceeds of a personal-injury lawsuit settlement he recovered for a client. At the time that the new charges were filed, Kwasnik was set to be released from jail. But a Camden County Superior Court judge ruled that lawyers needed time to evaluate the new charges, ordering Kwasnik to stay behind bars. A spokeswoman for the New Jersey attorney general's office said Kwasnik is still being held in the Camden County, N.J., jail.
On top of the mountain of charges filed against him by the state prosecutors, Kwasnik faces several civil lawsuits from investors who claim they were defrauded. John S. Chapman, a Cleveland lawyer, runs a website called LibertyStateFraud.com to offer his services to potential plaintiffs who wish to pursue legal claims against Kwasnik.
Efforts to reach Kwasnik were unsuccessful. A woman who answered the phone at his Philadelphia law firm, Kwasnik Kanowitz & Associates, declined to provide contact information. Two lawyers who have represented Kwasnik in recent civil matters — David DeClement of Pitman, N.J., and Rocco Cipparone of Haddon Heights, N.J. — did not returns calls seeking comment.
Kevin Kutcher, Liberty Bell's president and chief executive, and Dunkelberg did not return calls seeking comment. Timothy Demers, listed as the bank's lawyer on its Fed application, also did not return a call seeking comment.
Lawyers unaffiliated with the case say it is not surprising that Liberty Bell would want nothing to do with its former chairman. In its Fed application, the bank said that forming a holding company would give management more control over its affairs, such as the power to appoint the entire board. Liberty Bell Bancorp Inc. could also issue new shares for the purpose of raising capital for its bank, or to use as currency for acquisitions.
Its previous capital raises have been small. In February 2011, Liberty Bell raised $690,000. The bank had lined up nearly $5 million a year earlier, partly with a goal to buy other banks or financial companies, but the capital-raise was eventually withdrawn, according to a Nov. 30, 2010, article in the Philadelphia Business Journal.
Liberty Bell may have additional, undisclosed plans, says Paul Aguggia, a lawyer at Kilpatrick Townsend & Stockton LLP who has advised mutual thrifts on stock conversions.
If Liberty Bell can form a holding company supervised by the Fed, then management might have a better shot of getting regulators to intervene with Kwasnik. "The Fed is very concerned by these issues and has proven pretty aggressive on control determinations," Aguggia says.
Under the
Barbara Hagenbaugh, a spokeswoman for the Fed, declined to comment on Liberty Bell's application. She also would not discuss whether the Fed was aware of the criminal charges against Kwasnik.
There are possible drawbacks to forming a holding company, Aguggia says. First, it won't give management complete control because the holding company would need approval from two-thirds of shareholders to make acquisitions or other materially important decisions. Kwasnik's group owns 37.1% of its common stock, according to Liberty Bell.
Aguggia says the bank's plan could also backfire in a way that gives Kwasnik even more control. That could happen if Kwasnik's group unanimously accepts the offer and the bank fails to get buy in from all of its other shareholders, he says.
The public comment period on Liberty Bell's Fed application ends Friday.
Liberty Bell's Fed application lists investors it believes to be working with Kwasnik to thwart the bank's management, but it does not provide proof of their ties with the former bank chairman.
The list includes his father and two other people also named Kwasnik; and Liberty State Financial Holdings Corp., a company Kwasnik used in his attempts to take over the bank.
Another investor listed as a Kwasnik backer, Russell DiBella of Tabernacle, N.J., says there have been problems between Kwasnik and Kutcher, though he isn't sure what caused the problems. DiBella says he has no involvement with Kwasnik's attempts to take over the bank or to block management's efforts to issue a new stock.
"I can't speak for the rest of them, but from my perspective, I haven't been involved in any of that stuff," says DiBella, a retired investigator in the criminal division of the Internal Revenue Service. "I'm not familiar with what Kutcher was trying to do and I don't know what Mike was trying to oppose, so I can't say 'yes' or 'no' [as to] whether I support it."
DiBella says he became a Liberty Bell shareholder when Kwasnik repaid a debt to him in bank stock. DiBella says he could not remember how many shares he owns, but that it's a "substantial" amount. (A January 2008 filing with the FDIC listed his stake at 9,296 shares, or roughly 0.3% of the bank's stock.)
DiBella says Kwasnik's arrest is concerning because it could be hurting the bank's stock price. Liberty Bell's shares have fallen 25% since Kwasnik's Nov. 7 indictment, to $1.68 a share on Tuesday.
