Baltimore Bancorp director G. Gregory Russell gave former Maryland Port Director Michael P. Angelos a $50,000 check that was used to purchase the bank's stock prior to the announced sale of the company, board members have been told.
The check -- written by Mr. Russell and endorsed by Mr. Angelos -- is apparently a key part of a federal investigation into whether confidential information from a bank insider influenced the trading of stock.
The transaction was revealed to the Baltimore-based company's board at a meeting in November 1994, shortly after lawyers for the company showed Chairman Edwin F. Hale Sr. the canceled check, according to several directors interviewed by The Sun.
A copy of the check was obtained by the U.S. Securities and Exchange Commission during its probe into whether certain stock trades made before the $346 million sale of Baltimore Bancorp to New Jersey-based First Fidelity Bancorp. violated insider trading laws, the board was informed.
During the board meeting, Mr. Hale and attorneys for the bank told the directors that "he [Mr. Russell] loaned him [Mr. Angelos] the money to purchase bank stock," said a director, who like other board members interviewed, spoke only on the condition of anonymity.
Of particular significance to the SEC is just when the company reached critical points in sale negotiations, when Mr. Angelos purchased the banking company's stock, and whether Mr. Angelos benefited from any confidential information from someone connected to the bank.
Neither the specific date of Mr. Angelos' stock purchase nor the date of Mr. Russell's check to Mr. Angelos was revealed to the board. Mr. Russell, who had served on the board since September 1991 and was chairman of its audit committee, has not been available for comment.
Mr. Angelos has denied any wrongdoing, and yesterday he said: "I can't comment on anything about the investigation."
The SEC also has declined to make any comment.
The political fallout from the investigation came earlier this week when Mr. Angelos was placed on administrative leave by Gov. Parris N. Glendening on Monday. He resigned his $105,000 a year state job the next day, saying he did not want to embarrass the new governor nor adversely affect the Maryland Port Administration's operations.
Resigned Feb. 20
Mr. Russell also has submitted his resignation as the deputy director. Although not disclosed until this week, his resignation was dated Feb. 20 and was linked to a controversy earlier this year. In that instance, Mr. Russell was criticized for negotiating a $3 million deal on behalf of the state to purchase a cruise ship terminal site in the Inner Harbor while simultaneously trying to purchase a hotel property nearby as part of a group of investors.
In June 1994, Mr. Russell was tapped by Mr. Angelos for the agency's No. 2 job, which paid $85,000 a year.
Bank insiders, such as directors and officers, are prohibited from buying stock except during specific periods of time, known as "windows."
"We were always told when we could buy and not buy stock," said one member. "Anybody who had a brain in his head paid attention. Essentially, once there was a discussion going on about a sale, directors were not allowed to buy stock. Most of us paid attention."
In addition, several members said that Mr. Hale -- who took over the bank in September 1991 saying it would some day be sold -- had been adamant about the need for secrecy regarding any sale negotiations.
"He warned us about it at the beginning and at the end of every meeting," a director said.
At the end of 1993, with stock trading around $14 a share, Baltimore Bancorp hired Alex. Brown Inc. to act as its investment adviser and looked for a purchaser.
On Jan. 12, 1994, offers from prospective buyers were due. The stock closed that day at $13.875 a share. Over the next two days, after a news report that the company was "mulling a $21 per share bid" from Mellon Bancorp, the company's stock shot up to $17.375 a share on extremely heavy volume.
Two months later, Baltimore Bancorp announced its agreement to be sold to First Fidelity for $20.75 a share. The merger was completed inDecember 1994.
The bank's directors were aware that the SEC would likely look at the sale, particularly after the stock suddenly shot up in mid-January. But the November 1994 board meeting represented the first specific mention to the board of an SEC probe.
"We were told at the board meeting that he [Mr. Russell] was being investigated," one director said.
'Everybody was upset'
Mr. Russell remained outside the board room as the directors were briefed by Mr. Hale and attorneys for the bank, including in-house counsel James A. Gast and Hogan & Hartson attorney Charles E. Allen.
"Everybody was upset," one board member recalled. "We had worked so hard to elevate the bank. . . . It tainted the Bank of Baltimore."
Mr. Gast declined to comment. Mr. Allen was traveling and could not be reached yesterday.
According to one director, the 46-year-old Mr. Hale -- who lead a group that took over the company in a shareholder revolt in 1990 and spearheaded its turnaround over four years -- was visibly angry.
After Mr. Russell rejoined the meeting, there was little discussion, according to several board members. "Everyone was very solemn," a person in the meeting said. The board voted to retain an attorney on Mr. Russell's behalf.
Hale stands by Russell
In an interview this week, Mr. Hale said: "To have this end the Bank of Baltimore story is a sad day for the company, the director and all the stockholders. I stand by Greg as being a very good director for us and excellent chairman of the audit committee. I hope the investigation will clear all this up."
Mr. Russell and Mr. Angelos, as state officials, had reported their stock ownership in Baltimore Bancorp with the State Ethics Commission.
Mr. Angelos, who had purchased stock in 1992, showed that he bought nearly $22,000 worth of shares on Sept. 20, 1993.
Mr. Russell, according to the company's SEC filing before its merger, owned 38,146 shares in Baltimore Bancorp, including stock options. Among that stock apparently were 21,000 shares purchased Sept. 29, 1993, SEC filings show. That was twice as many shares as purchased that day by any other board member, including Mr. Hale, who bought 10,000 shares. Prices ranged between $12 and $12.13 a share.
Indeed, the size of Mr. Russell's purchase prompted Mr. Hale to call Mr. Russell.
"I was surprised by the size of the purchase when I heard about it, as were other board members and senior management," Mr. Hale said. It was the last time board members were allowed to buy stock until after the sale was announced, he said.
Mr. Hale said he was told by Mr. Russell that the Sept. 29 stock was bought on margin, meaning that part of the purchase was made on credit from a brokerage firm. Mr. Russell has reported that he had a margin account with the Chapman Co., a Baltimore brokerage.
Disclosure statements with the ethics board for 1994 have not yet been filed.