The former receiver of the Bank of Saipan filed a lawsuit in federal court yesterday containing allegations that Gov. Benigno R. Fitial committed fraudulent misrepresentation when he was then acting president and chief executive officer of the bank.
Randall T. Fennell, however, did not name Fitial a defendant in the suit. Instead, Fennell sued former acting Attorney General Matthew T. Gregory, acting AG Gregory Baka, and assistant attorneys general Anthony Welch and Tom J. Schweiger for conspiracy, obstruction of justice, and deprivation of rights.
Twenty unnamed persons were also included as co-defendants.
Press secretary Charles Reyes Jr. said yesterday this is no longer a relevant issue because Bank of Saipan has been successfully rehabilitated when Tony Muña replaced Fennell as receiver for the bank.
Reyes said Fitial took step to help the bank and to avoid panic among depositors.
“The main point here is Bank of Saipan is safe. The depositors got their money back,” Reyes stressed.
Saipan Tribune tried but failed to get comments from Gregory, Baka and other co-defendants.
Fennell, through counsel Mark B. Hanson, asked the U.S. District Court for the NMI to pay him damages and attorneys' fees. He demanded payment for the insurance proceeds spent in defending claims by the defunct Marianas Public Lands Authority and in seeking action from the Office of the Attorney General.
Hanson said that beginning sometime in 2001 and continuing up until their arrest by federal authorities in April 2002, a group of purported investors-Bert Douglas Montgomery, DuSean Berkich, and Michael T. Wilson, and then BOS chief executive officer Thomas B. Aldan (Montgomery group)-attempted to purchase a controlling interest in the BOS.
As a result of the negotiations and after discussions with the bank's board of directors in November 2001, the major shareholders of BOS agreed to sell to the Montgomery group all shares of the major shareholders for a controlling interest in the bank.
In April 2002, members of the Montgomery Group were arrested and indicted on charges of conspiracy to defraud BOS.
The incident deflated depositors' confidence in the bank, prompting a bank run. This resulted in BOS asking the CNMI Commerce secretary to place the bank under receivership.
In April 2002, the attorney general and Commerce secretary approached Fennell and asked him to act as receiver for BOS, as he had previous experience being receiver for the Commonwealth Bank of the Northern Marianas Inc.
Hanson said Fennell initially agreed to act as the temporary receiver for a period not to exceed 30 days. The appointment was later extended.
“Fennell undertook a preliminary investigation to determine the condition of the bank and the courses of its failure. What the investigation uncovered was shocking,” the lawyer said.
For example, Hanson cited that, in an attempt convince the MPLA and the NMI Retirement Fund that their deposits with the bank were secure-deposits of almost $14 million-Fitial, as acting president and chief executive officer and the chairman of the BOS board, signed and sent on March 15, 2002, and April 8, 2002, identical letters to both the Fund and MPLA purporting to pledge $5.39 million in U.S. securities as security for their deposits.
In this pledge letters, Hanson said, Fitial also fraudulently represented to MPLA and the Fund that certain BOS loans-known by the bank to be “bad loans”-were being pledged along with the U.S. securities as “100 percent collateral.”
But in fact, Hanson said, the securities and the bad loans were being pledged twice to the same depositors, and the sum total of the U.S. securities and the bad loans were substantially less than the total deposits of MPLA and the Fund combined.
The lawyer said Fennell's further investigation uncovered evidence that the BOS board and in particular Fitial had actual knowledge of the involvement of the Montgomery group in a fraud perpetrated on the First International Bank of Grenada, and that board members had lied to federal investigators about his knowledge prior to the arrest of the Montgomery group.
The receiver's investigation, Hanson said, revealed that MPLA's attorneys, including Gregory, while claiming a security interest in the U.S. securities and bad loans held by BOS, had done no due diligence with regard to Fitial's claims of the pledge of the bank assets as security for the government deposits-due diligence that would have revealed Fitial's fraud on MPLA and the Fund.
Further, Hanson said, neither MPLA nor its attorneys, including Gregory, took any action to perfect a security interest in the BOS U.S. securities nor in the bad loans proposed as collateral-in effect committing legal malpractice.
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