An amended lawsuit filed Thursday over massive shareholder losses at First National Community Bancorp alleges the Dunmore-based bank's purported independent auditor acted as a "shill" for another accounting firm that could not legitimately fill the role because of close ties to the board of directors.
The second firm, Robert Rossi & Co., Olyphant, was professionally negligent in aiding and abetting board members in the issuance of millions of dollars in risky, insider loans to directors and other related parties, according to the revised complaint.
The new filing, which amends a complaint originally filed by shareholder Lori Gray in Lackawanna County Court in March 2012, adds Rossi & Co. as a defendant in the case, joining the bank and its individual board members.
Attorney Joseph R. Solfanelli, who represents Ms. Gray, said the amended complaint outlines the lengths FNCB directors went to cover up their actions and the deliberate issuance of false financial statements.
It accuses Rossi of providing services credited to Demetrius & Co. LLC, the Wayne, N.J., firm which supposedly performed independent audits of FNCB's financial statements and its internal controls over financial reporting for 2009, along with reviews for the first two quarters of 2010.
The complaint alleges the statements were materially inaccurate, failing to reveal the huge financial losses that the board of directors initially sought to hide from both shareholders and regulators.
"Demetrius, however, was a mere shill, performing seemingly none of the actual work while still issuing unqualified opinions," the complaint said.
Mr. Solfanelli said Demetrius turned the "entire audit process" over to Rossi, a fabrication necessitated by Rossi's inability under federal regulations to serve as independent auditor because of Robert Rossi's long association with former FNCB director Louis DeNaples and other board members.
"The FNCB filing listing Demetrius as the bank auditor was false, misleading and apparently manufactured to support this charade," Mr. Solfanelli said.
Efforts to reach representatives of FNCB and Rossi & Co. were unsuccessful.
As of Thursday, FNCB shareholder equity stood at $60 million, down from $119 million at the end of 2009, Mr. Solfanelli said.
The bank experienced a $13.7 million loss in 2012, according to financial documents filed last week with the U.S. Securities and Exchange Commission. That followed losses of $31.7 million in 2010 and $44.3 million in 2009.
Contact the writer: dsingleton@timesshamrock.com