The long-running fight between investor Larry Seidman and Spencer Savings Bank in Elmwood Park, New Jersey, continues to grind on with no end in sight.
The sides are battling in federal court over Spencer's accusation that a group of depositors whose accounts the bank closed for residing outside New Jersey
A spokesman for Spencer described the case, originally filed in December 2021, as "a cannon shot across the bow" of depositors seeking to profit from a mutual conversion. Seidman, however, railed against the $3.9 billion-asset Spencer's claim that the nine defendants in Spencer Savings Bank vs. Vasta "formed a sleeper cell of out-of-state, bad-faith — and in some cases, fraudulent — member-depositors looking to assist Seidman's takeover efforts for their own financial gain."
A veteran bank investor, Seidman has mounted proxy contests against stock-owned banks, but avowed he has never sought to pressure any mutual to convert.
"It's a fabrication," Seidman said of Spencer's takeover allegation. "There's not a single bank I did anything to force to convert."
Though the bank's complaint describes him as "the leader of the effort to hijack Spencer's board," Seidman is a New Jersey resident, thus entitled to maintain an account. The depositor-owned Spencer requires deposit customers to live or work in New Jersey. The defendants are accused of having accounts without the necessary ties to the Garden State.
Some defendants are challenging Spencer's assertions. Andrew Fish said his firm, The Real Estate Equity Company, has long operated from an office not far from the bank's headquarters in Englewood Park, while Richard Lashley maintained he opened his first account at Spencer in 1997. Lashley claimed he informed the bank of his 2019 move from New Jersey to Florida.
A noted bank investor in his own right, Lashley, the co-founder of PL Capital, stated his involvement in Spencer had "nothing to do" with Seidman. "I held deposit accounts at Spencer … for no other reason than to have a FDIC-insured safe investment that may, or may not, become an opportunity to invest in a mutual conversion," Lashley wrote in an email to American Banker.
Douglas Faucette, a partner at Lock Lorde, the Washington, D.C., law firm that represents Spencer, said the bank opted to file its lawsuit after the defendants challenged its decision to close their accounts in New Jersey State court.
"We determined to sue them for misrepresentation in a federal action," Faucette said. "I think that's the last thing in the world they expected."
For depositor-owned mutual banks, policing their depositors can be an "existential" issue, according to Faucette. "The existential issue … is the threat of an unwanted conversion foisted upon an institution that's not desirous of one by people whose sole motive is personal gain in a conversion they have no right to participate in," Faucette said.
According to Federal Deposit Insurance Corp. statistics, more than 200 mutual banks have converted in the past quarter century, leaving fewer than 430 depositor-owned banks in the country.
Spencer, in its complaint, did not cite a specific case of a mutual bank being cajoled to convert contrary to the will of its depositors and leadership. Spencer did highlight the long history of investors opening speculative accounts in mutual banks in hopes of gaining an inside opportunity to buy shares if a conversion were to occur. At the same time, most depositor-owned banks that did convert later agreed to merge, Faucette noted. It's a trend executives at the existing depositor-owned banks have noticed, Faucette added.
"They're aware of the empirical evidence that says if you convert, you're gone in five to seven years," Faucette said. "You've sold the bank, effectively."
Seidman, who is seeking a seat on Spencer's board, has been battling Spencer and its CEO, Jose Guerrero, for two decades. Guerrero did not comment for this story. Seidman said their dispute traces back to a combative phone conversation after he chided the CEO over purportedly lavish board-related travel expenses. Even today, Seidman said his chief complaints about Spencer involve its governance — not a potential conversion.
Lashley stated it is next to impossible for a third-party or group to push an unwilling bank to convert. "The only way one person or a small group of people could force a conversion is if there was a bona-fide annual election of directors and a majority of depositor-members voted for a candidate or candidates who advocated for the mutual to consider" changes to the corporate structure, Lashley wrote in his email. "It would be the will of the member-depositors, not one person or a handful of people, and even in that instance, the mutual management and board would have to agree to it after thorough deliberation."
Faucette, whose colleague Joseph Fenech is trying Spencer Savings vs. Vasta, said the case is likely to keep rumbling toward an eventual courtroom clash. "The contest between Spencer and Seidman has been going on for 20 years," Faucette said. "Do you see either party saying, 'I surrender'?"
