Securities Fraud Suit Allowed against S&l
The ruling Wednesday involving Oregon investors in the Tacoma, Wash.-based Pacific First Federal Savings Bank rejected the thrift's arguments that an investor's only recourse was to challenge a federal agency's approval of the stock sales.
""Congress has expressed the intent not to except bank conversion securities from the protective provisions of existing securities laws,'' said Judge Arthur Alarcon for a three-member panel of the 9th U.S. Circuit Court of Appeals.
The ruling, which reinstates a suit dismissed by U.S. District Judge Helen Frye in Portland, is the first by a federal appeals court to apply federal securities laws to fraud suits by investors in savings and loans that convert from depositor ownership to shareholder ownership.
Such stock offerings have become common in this decade, a product of loosened federal regulations and cash shortages in the thrift industry. For the previous several decades, conversion to stock ownership had been forbidden or tightly restricted.
A savings and loan must apply to the Federal Home Loan Bank Board, which decides whether to approve the conversion after reviewing an outside appraisal of the institution's assets.
After board approval in June 1983, Pacific First Federal offered depositors the right to buy 5.8 million shares. Wayne and Karen Rembold, who bought 328,000 shares the following month, later sued the savings and loan and its private appraisers, contending the company statement announcing the stock offer had overstated the value of its loan portfolio and real estate. …