Seeking owners of PSFS shares
It shouldn't come as a surprise, 23 years after government agents seized the former Philadelphia Savings Fund Society and 14 years after the U.S. Court of Federal Claims ruled they did it unfairly, that when the Federal Deposit Insurance Corp. finally got around to paying old PSFS shareholders their promised $272 million, it couldn't find all of them.
It shouldn't come as a surprise, 23 years after government agents seized the former
Philadelphia Savings Fund Society
and 14 years after the U.S. Court of Federal Claims ruled they did it unfairly, that when the
Federal Deposit Insurance Corp.
finally got around to paying old PSFS shareholders their promised $272 million, it couldn't find all of them.
Thousands of claims were approved for payment, according to an FDIC report. But more than 10,000 shareholders, from old lists, didn't respond to mailings or newspaper ads.
The FDIC checked their names against public records, and found 4,500 were dead. Four thousand letters were "returned by post office," address unknown. The rest just didn't answer.
Those who went ahead and filed claims included the people who owned most of the shares. Some had never owned the stock while the bank was alive, but were speculators who bought it up as cheap as a penny a share, sometimes from longtime shareholders who believed it when the government said PSFS was dead.
We know some of the relentless figures who pressed the PSFS zombie back to life: venture capitalist Frank P. Slattery Jr., PSFS's largest shareholder in its final years as a bank, and Gary Hindes, the onetime Delaware Democratic Party chairman, who has made a career of suing the government for bungling bailouts of troubled financial institutions. But the FDIC agreed to keep most shareholders' names secret.
More than 8,500 of the missing shareholder names were from Pennsylvania. They were owed $7 million.
Pennsylvania tried to keep that money. Under the old English concept of escheat, states can seize unclaimed assets if they sit around long enough.
But attorneys for the investors, from Winston & Strawn in Washington threatened to sue, on the grounds that Pennsylvania regulators had helped the FDIC seize the bank, and that the federal court had ruled that the agency had reneged on a promise to go easy on PSFS's capital deficit, since it was incurred in a government-backed bailout of the former Western Savings. (PSFS also made dumb loans, and I've heard bank examiners say it deserved shutting.)
Last spring, after a year of negotiations, acting Pennsylvania Treasurer Christopher Craig signed a deal admitting that the state "closely cooperated with the FDIC in causing the wrongful closing and seizure" of PSFS.
The investors let the Treasurer's Office keep $2 million for "previously unclaiming Pennsylvania-resident shareholders" and sent the last few million to be split among themselves.
"We will receive another distribution of 6 to 7 cents a share," bringing total returns to $4.37 a share, Hindes told investing partners in his Fallen Angels Fund in a Feb. 9 email.
Since his clients started buying when Meritor Financial Group, parent company of PSFS, was worth just a penny a share, Hindes estimates simply compounded returns "at about 28 percent" annually.
Pretty good returns, if you have the patience, and the lawyers.
215-854-5194 @PhillyJoeD
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