Columbus, GA-based Synovus Financial Corporation (SNV) settled a Securities Class Action lawsuit for $11.8 million. Some existing and former officials of the bank were charged of making false statements and misguiding investors regarding the bank’s loan exposure to Sea Island Co., a luxury resort in Georgia.
The concerned lawsuit was filed on July 6, 2009 in the U.S. District Court for the Northern District of Georgia by City of Pompano Beach General Employees' Retirement System. It accused Synovus Financial of violating the Securities Exchange Act of 1934 by misrepresenting information in the period from Jan 24, 2008 to Jan 21, 2009 regarding Sea Island’s financial condition in which Synovus had exposure through a loan of $220 million.
Later, an amended complaint was filed on June 11, 2010 by two lead plaintiffs – Labourers' Pension Fund of Central and Eastern Canada and the Sheet Metal Workers' National Pension Fund. They accused Synovus Financial and its officials of concealing the true facts that artificially pumped up the company’s stock price in defiance of the federal securities laws.
Notably, Synovus’ stock price per share escalated to $13.49 on Feb 1, 2008 and later tanked to a low of $4.52 on Jan 22, 2009 after the company reported fourth-quarter 2008 loss of $637 million. The suit further alleged Synovus Financial of managing the loan in an inappropriate manner and also refrained from recording losses in a timely manner for its impaired loans leading to incorrect financial results.
Synovus granted the loan to Sea Island for restructuring and expansion of the luxury resort. However, the tourism market was severely hampered by the financial crisis of 2008 and it hit Sea Island as well. Consequently, in Aug 2010, Sea Island filed for Chapter 11 bankruptcy and later that year the company was sold to Oaktree Capital Management LP, Avenue Capital Group, Anschutz Corp. and Starwood Capital Group.
The latest settlement comes as a relief from the litigation tussle, which has been dragging on since July 2009. Further, according to Synovus’ latest 10K filing, the company expects the settlement amount to be fully covered by insurance. Hence, there would be minimal impact on the company’s financial results in the upcoming quarters.
Synovus currently carries a Zacks Rank #3 (Hold). Some other Southeast banks worth considering include Bank of Kentucky Financial Corp. (BKYF), Access National Corp. (ANCX) and SY Bancorp Inc. (SYBT). All these stocks hold a Zacks Rank #1 (Strong Buy).
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