SOUTHEAST JOURNAL
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Carolina First Shareholders Sue
Bank and Executives Over Bonuses
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By Rick Brooks and Nikhil Deogun
Staff Reporters of The Wall Street Journal
Shareholders of Carolina First Corp. sued the Greenville, S.C.,
community-banking company and three top executives over controversial
stock gifts those executives received for making an investment on the bank's
behalf.
The lawsuit, filed Monday in a Greenville County state court, accuses the
trio of improperly receiving stock currently valued at about $4.8 million in
Affinity Technology Group Inc. It also claims that the executives' bonuses
were a far sweeter deal than the one received by the bank, which lent money
to Affinity in exchange for a stake in the tiny company. Affinity develops
automated loan machines for banks.
The investment gave Carolina First, which has $1.5 billion in assets, about a
20% stake in Affinity, or nearly six million shares (including warrants to
purchase 5.87 million shares). Affinity, based in Columbia, S.C., went
public in April, and Carolina First's investment is now valued at about $42
million based on Affinity's current stock price.
The bank's outside lawyer, David Freeman of Greenville, says, "The
company believes this action is completely lacking in merit."
The lawsuit alleges that Carolina First executives have a better opportunity
than the bank to profit from Affinity's shares. Federal banking rules
effectively prevent the bank from selling more than a small part of its stake
at any time. And an accord between Carolina First and Affinity blocked the
bank from selling any shares for 180 days after the initial public offering
without Affinity's permission.
But the bank's board set much less restrictive limits on the stock gifts to the
three executives in January, according to the lawsuit. The executives --
including Carolina First's CEO, Mack Whittle Jr. -- received a total of 6,289
shares, which increased to 666,634 shares after a 106-for-1 stock split at the
April IPO. At Affinity's all-time high of $24.25, the executives' shares were
valued at $16 million, and analysts have considered the size of the gift as
unusually large.
The lawsuit accuses Carolina First and the three officials of failing to
disclose the different restrictions to the bank's directors or shareholders.
And the suit claims that the executives refuse to disclose whether they have
sold any Affinity shares. The shareholders are seeking $55.6 million in
actual and punitive damages.
The suit also accuses Carolina First's management of many other charges,
including negligent management and failure to disclose certain financial
problems at the bank.
Mr. Whittle was traveling yesterday and couldn't be reached. In an earlier
interview, Mr. Whittle said he didn't think the award was "excessive" and
noted that the executives' stock can't be readily traded.
Carolina First's Affinity stake stands at only a third of the $145 million
value last spring, just before the company's shares tumbled to the current
price of about $7 each. The firm's losses widened to almost $3.3 million, or
12 cents a share, in the third quarter, compared with a year-earlier loss of
$404,000, or
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