Sun Savings & Loan Is Accused of Fraud
Two shareholders of troubled Sun Savings & Loan Assn. filed suit Monday against Sun and several of its former and current directors, accusing them of fraud, negligence and mismanagement. The suit also claims that “high risk and speculative” lending practices are at least partly responsible for Sun’s current fiscal woes.
The suit, filed on behalf of Sun shareholders Aaron and Ruth Blake, also seeks damages under the Racketeer Influenced and Corrupt Organizations Act (RICO), which would give the plaintiffs triple damages should they win their case.
Newport Beach developer Robert Blake, the shareholders’ son, has served as his parents agent for their Sun investment, and many of the allegations in the lawsuit are based on personal representations allegedly made to Blake by Sun officials.
Other allegations in the lawsuit mirror charges contained in a lawsuit Sun filed in October against ousted Chairman Daniel W. Dierdorff. Many of those charges stemmed from a 13-page investigative report conducted in 1984 for Sun by the San Diego law firm of Fredman, Silverberg & Lewis.
Named in the Blakes’ lawsuit were Dierdorff, former chairman and developer Harry Summers, former directors Tadashi Fujita, John McKenna Case, Richard C. Raimann, and current director Allan Koljonen.
In addition, banking industry attorney Ernie Leff and his former partner, John Grosvenor, now Sun’s in-house counsel, are named in the suit, as is New York financier Van D. Greenfield, who made three unsuccessful bids to infuse much-needed capital into Sun.
Also named was Arthur Young & Co., Sun’s former auditor, and Kenneth Clare, the accountancy firm’s partner-in-charge of the Sun account. Sun fired Arthur Young & Co. in October, citing an “apparent conflict of interest” between Dierdorff and the accounting firm.
Sun officials said late Monday that they had not yet seen the lawsuit.
“We are generally aware of the nature of the lawsuit and, once we have an opportunity to review and analyze the allegations, we intend to respond in accordance with formal legal procedures,” Grosvenor said.
The suit, filed by the San Diego office of Milberg Weiss Bershad Specthrie & Lerach, a noted class-action law firm, cites many of the same allegations raised against Dierdorff by Sun in its suit filed in October. Included are charges that Dierdorff “artificially” inflated Sun’s short-term earnings to boost his salary incentives. The suit also revives previous allegations of “insider” dealings involving Sun officials.
Because of that, the Blakes’ lawsuit could raise some intriguing legal questions.
For example, Sun directors’ and officers’ liability insurance coverage ended in October, 1984, so it is debatable what entities named in the lawsuit would be covered by the policy. (The coverage may extend for one year past the expiration date, according to sources familiar with the policy, depending on when Sun was notified of the pending action.)
In addition, because Sun is also charging Dierdorff with many of the same improprieties as the Blake suit, Sun’s new management could argue that “the Blakes have a problem with Dierdorff,” according to one source familiar with the lawsuit.
The Blakes’ action is the first lawsuit brought against Sun by any shareholder during a stormy two years at the once-booming savings and loan.
In the last two years, Sun has generated nearly $11 million in losses and its net worth has virtually run out--plunging to $1.27 million as of Dec. 31, or 0.3% of its $403 million in assets and far below the 3% regulatory minimum.
The lawsuit deals only with events at Sun before 1985.
Blake would not elaborate on his lawsuit, saying only that he plans to be “as tenacious as possible for as long as necessary to pursue this matter.”
Blake’s parents bought 20,000 shares of Sun stock, at prices ranging from 13 1/2 per share to 8 7/8. Sun stock closed Monday at 3 3/4, up one-quarter.
