Larry Seidman, one of the banking industry's best-known investors, and Jose Guerrero, longtime chairman and CEO of Spencer Savings Bank, have been locked in a costly, bitter feud for nearly two decades.
Despite burdensome discovery requests — and ever-rising legal bills — there are few if any signs the conflict is abating.
The latest episode is playing out in a federal courtroom in Paterson, New Jersey. The $3.7 billion-asset Spencer, which is based in Elmwood Park, New Jersey, seeks to prove Seidman acted with an illicit coterie of out-of-state depositors who sought to benefit from Seidman's purported desire to convert depositor-owned Spencer to stock ownership.
In a court filing Tuesday, Spencer's attorney, Joseph Froehlich, a partner with Lock Lorde in New York, argued the group of nine out-of-state depositors, who are the named defendants in the case, maintained their accounts "for the sole purpose of obtaining member voting rights to effectuate a hostile takeover of Spencer and convert it to a stock-issuing entity."
"Defendants did so in concert with notorious corporate raider Lawrence B. Seidman in order to gain priority purchase rights in an initial stock offering and reap a substantial financial windfall," Froehlich added.
But while Seidman and a colleague, former bank executive Arthur Wein, have campaigned for seats on Spencer's board, the veteran investor insists his goal has always been to strengthen what he argues is Spencer's weak corporate governance — not to force a sale.
"Never," Seidman said, of the allegation. "That's not what I do. … Have I run proxy contests against publicly traded companies? Positively. Have I ever been sanctioned for it? No. I do it according to the rules. I'm a value investor."
Blow-by-blow accounts
The out-of-state deposit issue stems from Spencer's rule permitting only New Jersey residents to open and maintain accounts.
While Seidman and the nine defendants have accused Spencer of lax enforcement of the in-state-only rule, the bank appears to be taking it more seriously now. In mid-2021, Spencer closed a total of 1,651 accounts — including those held by the nine defendants — after reviewing depositors' residency.
Seidman, a New Jersey resident, said he has maintained an account at Spencer since 1988.
The nine defendants fought the closures of their accounts, appealing first to the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corp., then filing a lawsuit in New Jersey state court in November 2021. Spencer filed its separate action Dec. 23 in the U.S. District Court for the District of New Jersey.
In its complaint filed by Froehlich, Spencer likened the nine out-of-state depositors to a "sleeper cell," interfering with legitimate members' rights to govern the institution and seeking to profit in the event of a mutual-to-stock conversion. The bigger target appears to be Seidman, who Spencer accused of orchestrating what amounts to a takeover bid.
"Mr. Seidman's involvement in this case is not surprising as he has made a successful career out of acquiring significant influence over converted mutual banks and shepherding their sale to the highest bidder," Anthony Cicatiello, a bank spokesman, said in a written statement. "This is an individual who over the last 30 years has targeted 49 banks. In 36 out of the 49 cases, the target bank or thrift was sold to or merged with a larger bank, within a short period of Seidman's involvement. Mr. Seidman walked away from those banks and put a lot of money in his pocket."
Ironically, many of Seidman's more recent banking relationships have been marked by collaboration rather than confrontation. In 2020, Bankwell Financial Group, which has $2.7 billion of assets and is based in New Canaan, Connecticut,
'I'm in a conspiracy with people I don't know'
For his part, Seidman said the likelihood of an outsider like himself successfully engineering the conversion of a mutual institution in opposition to its board is virtually nil.
"What they're basically saying is these nine people can take over this bank and convert it," Seidman said.
As for the 49 banks Cicatiello cited, the mutuals on that list were institutions that had already taken the first step of converting from depositor to stock ownership, Seidman said.
Regarding the "sleeper cell" charge, Seidman said he had never met six of the nine defendants prior to Spencer closing their accounts. Seidman said he had longstanding business and personal ties to the remaining three defendants.
"This case … is a fabrication," Seidman said. "There are nine defendants. Six I don't know … I'm in a conspiracy with people I don't know."
Seidman claims Spencer's federal lawsuit amounts to payback for several legal challenges he filed in state courts over the past 15 years targeting the bank's corporate governance under Guerrero.
There is no question Spencer has gone to extraordinary lengths to prevent Seidman from winning a seat on the board. Twice, in 2007 and 2015, Spencer sought to increase the number of signatures required to nominate a director candidate, spurring successful legal challenges by Seidman. In 2016, Spencer closed deposit accounts maintained by Seidman and his family, only to prompt another lawsuit from Seidman and another legal rebuke.
According to Seidman, the root of the feud between him and Guerrero stems from a 2004 phone conversation. Seidman said he called Guerrero to complain about the cost of a board of directors' retreat that had been held in Spain. His comments prompted a forceful response from Guerrero.
"That's what this is about," Seidman said. "It has nothing to do with conversion."
Cicatiello, Spencer's spokesman, said the federal lawsuit is aimed at defending the bank's right to chart its own course free of outside interference.
"Spencer's allegations [against Seidman] speak for themselves," Cicatiello said in his statement. "This is a scheme that has become all too common to mutual banks who are dedicated to their fundamental commitment to mutuality. It clearly constitutes a subversion of the protections that have been instituted by the regulatory authorities to prevent individuals from gaming the conversion rules."
Gathering evidence
Attorneys for Seidman and the defendants sought to have Spencer's case thrown out of federal court, but in a Sept. 28 decision, District Court Judge Kevin McNulty ruled that the case could advance to the discovery phase. It promises to be protracted.
According to Froehlich, Spencer has begun the process of reviewing more than 10,000 emails and other documents collected in response to defense requests and providing them to opposing counsel. Meanwhile, Spencer has subpoenaed phone records and other electronic communications from Seidman and Wein that touch on the bank's management and board of directors, their efforts to win election as directors and any efforts to convert Spencer to a stock-traded institution.
On Oct. 28, a magistrate judge ordered Seidman to provide Spencer with a redacted set of phone records indicating calls to or from a set of numbers Spencer maintains are relevant to the litigation.
"Spencer is fully prepared to prove its allegations in court through robust discovery," Cicatiello said in his statement.
While Seidman objected to requests for his private phone records, he appears to have resigned himself to the need to turn them over.
"I can't do anything about it," Seidman said. "Does it bother me? Yes."
Spencer's ongoing legal battles with Seidman don't appear to have hamstrung its performance in any noticeable way. Through the first nine months of 2022, the bank reported net income of $24.8 million, almost equaling its full-year 2021 profit of $25.2 million.
That's not to say quarrel hasn't come without cost. Seidman estimated Spencer has spent $8 million on legal fees battling him in court. While insurance has paid most of that bill, Spencer has had to pay about $3 million on its own, Seidman said.
"They spent $3 million of members' money, for what?" Seidman said.
