Beach First National Bancshares’ long-running bankruptcy case could be drawing to a close with a proposed settlement between the trustee and the bank holding company’s former directors, but Beach First’s former shareholders likely won’t have much to cheer about.
Michelle Vieira, the trustee for Beach First’s bankruptcy estate, has asked the court to approve a settlement in which the holding company’s directors will pay a combined $50,000 to the estate to settle all claims.
It’s a far cry from the money Vieira hoped to collect when she filed a lawsuit against the directors in September 2010, accusing them of negligence and breach of duty that led to the failure of the holding company’s Beach First National Bank.
It means little will be available for the bank’s shareholders, who saw their stock devalue as the bank skidded toward failure. Creditors, many of them shareholders, have filed 173 claims totaling $14.3 million against the bank holding company.
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So far, the only money paid out by the estate has been to lawyers and accountants working for the trustee. The Nexsen Pruet law firm has been paid $173,398 to represent Vieira in court proceedings and accounting firm Faulkner and Thompson has been paid $67,752.
Vieira also made $20,000 from the sale of Beach First’s interest in its headquarters building at 38th Avenue North and Grissom Parkway.
David Parrish, a lawyer for Vieira, said in court documents last month that the settlement with the directors is about the best that can be expected because of “uncertainty about application of the legal and factual issues involved in the case.”
The bank’s directors and Walt Standish, its president and chief executive, admit no wrongdoing in the proposed settlement, which will be considered by a judge next month in Charleston.
Standish, now a vice president with The Citizens Bank, declined to comment on the proposed settlement. Vieira has said she does not comment on pending cases.
The proposed settlement follows a pair of setbacks Vieira suffered in trying to get the holding company’s directors to pay for what she termed in her 2010 complaint “serious deficiencies related to the operation and management” of Beach First, including “unsafe and unsound lending.”
A district court judge ruled in June 2011 that Vieira didn’t have the right to sue the directors because only the Federal Deposit Insurance Corp. could pursue such claims. A federal appeals court agreed in December 2012, but gave Vieira the right to pursue claims only against a subsidiary corporation the holding company had formed to build its Myrtle Beach headquarters.
The FDIC has examined the bank’s financial records and has declined to bring any legal action against the directors.
Vieira, in court documents, said the proposed settlement will avoid the costs of further litigation.
At least one shareholder is objecting to the proposal. Mary Smith of Surfside Beach said in a letter to the bankruptcy court that she “invested $2,000 and [I] intend to have my investment back.”
“It is not appropriate that I will see nothing,” Smith wrote in her letter, adding that she feels the case has been “improperly handled.”
Beach First’s financial track record was solid until the national real estate crisis wiped out property values nationwide.
For example, the bank's net income grew from $1 million in 2003 to nearly $6.2 million in 2006, and its stock price increased by more than 50 percent during that period.
Beach First was founded in 1996 by a group of local business leaders — many in the tourism and real estate industries — interested in having a bank that could help small — to medium-size businesses. Its success — and ultimate failure — was based on the loans it made in the local real estate market.
The FDIC shut down the bank in April 2010, and Bank of North Carolina assumed its deposits and office space. Beach First filed for a Chapter 7 bankruptcy liquidation in May 2010 and that case continues today.
In addition to Standish, the directors who have tentatively approved the settlement with Vieira are: Bert Anderson; Bart Buie; Ray Cleary; Thomas Fulmer; Michael Harrington; Joe Jarrett Jr.; Richard Lester; Leigh Meese; Rick Seagroves; Don Smith; Samuel Spann Jr.; Larkin Spivey Jr.; and James Yahnis.