Baltimore Bancorp finalized a deal yesterday to pay $4 million to resolve claims alleging its former leaders defrauded stockholders by exaggerating the company's financial strength after it turned down a takeover proposal from First Maryland Bancorp.
The banking company, which owns the Bank of Baltimore, will pay $1.75 million of the settlement itself, with the rest of the payment coming from an insurance company, general counsel James A. Gast said.
The settlement had been announced last month, but was formally entered into Monday and filed with the U.S. District Court in Baltimore yesterday.
None of the money is scheduled to be paid by former company Chairman Harry L. Robinson or any of the former officers and directors who were named as defendants in the class action suit, said Charles J. Piven, a Baltimore attorney representing the class of shareholders.
The suit was brought by Mr. Piven and a group of New York attorneys on behalf of local investor Frank Tischler and any other investors who bought Baltimore Bancorp stock between May 16, 1990, when Baltimore Bancorp's former board rejected a $17-a-share takeover proposal from First Maryland, and Dec. 31, 1991, when the company's stock closed at $5.25 a share.
In a class action, a small number of plaintiffs bring the case on behalf of everyone in the same position. Mr. Piven said all investors who are eligible to share in the settlement will be identified and then notified of the deal, giving them a chance to claim their share of the $4 million.
The company in 1990 rejected the $17-a-share offer as inadequate, and riled stockholders by refusing to negotiate with First Maryland, parent of First National Bank of Maryland. The refusal to consider the offer helped pave the way for a successful 1991 proxy fight that ousted Mr. Robinson and many of the directors.
Mr. Gast said the company had already reserved the $1.75 million that it must pay as part of the settlement and it would not affect future earnings.