First National Community Bank, already targeted by federal bank regulators, a U.S. Securities and Exchange Commission investigation and threatened lawsuits from shareholders, was the subject of two federal grand jury subpoenas issued last year, according to court documents.
The subpoenas, revealed in documents the Dunmore-based bank's attorneys filed in a civil dispute with its former insurance carrier, are the first indication that federal prosecutors have reviewed or are reviewing the troubled bank's operations.
The documents filed Friday in U.S. District Court include correspondence between the bank and its former insurer, Fidelity and Deposit Co. of Maryland, that make reference to a grand jury subpoena issued to the bank in August 2011 and another issued to its former independent public accounting firm earlier in the year.
The latter subpoena was delivered through the U.S. Attorney's office in Scranton and sought "specified FNCB documents," according to an April 2011 letter to Fidelity signed by the bank's senior vice president and chief administrative officer, Robert J. Mancuso.
Neither subpoena was included in the documents filed Friday, but a copy of an email between FNCB and Fidelity attorneys attached to the filings says the subpoena to the bank sought some sort of testimony.
A spokeswoman for the U.S. Attorney's Office did not respond to an email seeking comment Monday.
FNCB Chief Operating Officer Jerry Champi said the bank "has not and will not comment on any legal or regulatory issues."
The emails and letters revealing the grand jury subpoenas were among the exhibits attached to the bank's counterclaim to a federal lawsuit filed in September by Fidelity. The suit seeks a ruling that Fidelity, which insured the bank from 2003 through July 1, 2011, is not liable to pay a potential $10 million settlement in a civil action filed against the bank and its board of directors by a disgruntled shareholder in Lackawanna County Court in May. The Fidelity suit says a similar class-action claim also has been threatened.
The shareholder's suit alleges the bank's share price plummeted because it made risky loans, had weak internal controls, gave bank directors favorable loan treatment and underreported losses in 2009 and 2010. The bank has been under supervision by the U.S. Office of the Comptroller of the Currency under a September 2010 consent order that required it to restate its financial information for 2009 and 2010 to reflect tens of millions of dollars in losses.
As part of that process, the bank replaced its independent public accountant, Demetrius and Co. LLC of Wayne, N.J., which was subpoenaed last year to provide FNCB documents to a grand jury. Demetrius and Co. President Michael Wolansky declined comment on the subpoena Monday.
In its suit against FNCB, Fidelity claims the bank provided "incomplete, inaccurate and misleading" information regarding the resignations of several top employees and ongoing investigations by the SEC and OCC when it applied to renew coverage in 2010.
Two of the directors resigned in 2009 after defaulting on a $4.5 million FNCB loan that funded a failed townhouse development. One of those directors, former Luzerne County Judge Michael T. Conahan, was subsequently sentenced to 17½ years in prison in a political corruption case that involved several other guarantors of the defaulted townhouse loan project.
According to Fidelity, the bank did not reveal when applying for renewal of its policy that a grand jury had subpoenaed bank records related to the Conahan loan in 2010.
In its answer and counterclaim filed Friday, the bank maintained that information on the departure of employees and directors was public record either through media reports or the bank's SEC filings, that it made timely disclosures of all relevant information and that any errors in the renewal application were "inadvertent" or "not material."
The bank maintains the shareholder's suit, while filed nearly one year after the expiration of the policy, is based on actions allegedly taken while the policy was in effect and should be covered.
While the counterclaim makes no reference to the 2011 grand jury subpoenas, it argues that Fidelity was bound by its policy to pay legal expenses for three bank employees whose testimony was sought by SEC subpoenas in March and May 2012 because the subpoenas were related to incidents that occurred during the coverage period.
The bank's board of directors was led for a decade by Dunmore landfill/auto parts magnate Louis A. DeNaples until his suspension by federal banking regulators in 2008 because of an indictment on perjury charges. In May, the Board of Governors of the Federal Reserve System forced Mr. DeNaples, 72, to resign from the bank board, ruling an agreement with prosecutors that led to withdrawal of the charges made him ineligible to serve and ordering him to sell his controlling share in the bank.
Mr. DeNaples, who owns 10 percent of the bank's stock individually and nearly 20 percent in conjunction with family members, is fighting the order in a federal appeals court.
Mr. DeNaples' son, Louis A. DeNaples Jr., and brother, Dominick DeNaples, who succeeded him as chairman, remain members of the board.
Contact the writer: djanoski@citizensvoice.com