Law firm Stull, Stull & Brody announced Tuesday that it has filed a class-action lawsuit against Pacific Capital Bancorp, parent company of Santa Barbara Bank & Trust.
The lawsuit has been filed in U.S. District Court for the Central District of California, and the law firm’s complaint against the company alleges that senior executive officers issued false and misleading information, and may have concealed information from shareholders about the company’s ability to absorb loan losses within Pacific Capital’s portfolio.
The suit comes forward on behalf of a plaintiff as well as purchasers of Pacific Capital Bancorp stock between April 30 and July 30. According to the complaint, those dates represent when Pacific Capital issued its first-quarter financial results and officials announced that the company had made strong allowances for loan losses as the recession continued, and in July when the company reported a quarterly net loss of $362.6 million.
The complaint said defendants knowingly led the market to believe that loss provisions were maintained at high levels “when, in fact, the defendants knew or recklessly failed to know that the loan-loss provision taken in the first quarter of 2009 as wholly inadequate,” adding that the company didn’t adopt a conservative reserve approach until July 30. Analysts raised the company’s rating from “Buy” to “Hold,” signaling the company was adequately reserved for loan losses, the complaint said.
As the company’s exposure was discovered, stock fell from $6.94, its closing price on April 30, to $2.12 on July 31. Shares for the company closed at $2.18 on Wednesday.
The company itself is listed as a defendant in the lawsuit, as well as president and CEO George Leis, chief credit officer David Porter and private firm Sandler O’Neill, which provided analyst coverage and reports.
“In the current environment, and in particular in connection with transactions such as the proposed reverse stock split, it is not uncommon for companies to be subject to these type of allegations,” said Debbie Whiteley, executive vice president of investor relations and corporate communications for the company. “We believe the allegations and lawsuit to be completely without merit, and we intend to vigorously defend against them.”
The company entered into a memorandum of understanding with the Office of the Comptroller of the Currency in April. Pacific Capital pledged to manage risk within its commercial and residential real estate portfolios, enforce collection for delinquent residential real estate loans, report residential real estate loans in a timely manner and make sure that risks associated with its commercial loan portfolio were reflected on the company’s books.
In June, Pacific Capital announced it would suspend dividend payments to shareholders, and the next day, its credit rating was lowered to junkbond status.
In addition to SBBT, Pacific Capital owns banking offices in eight counties, including South Valley National Bank, San Benito Bank, First Bank of San Luis Obispo and First National Bank of Central California.
— Noozhawk staff writer Lara Cooper can be reached at lcooper@noozhawk.com.
