CHICAGO (CN) – A Wisconsin bank can sue one of its former loan officers who it says engaged in a collusive stock trading scheme that hurt the company, the 7th Circuit ruled.
U.S. Magistrate Judge Stephen Crocker had twice dismissed the suit, filed by AnchorBank against Clark A. Hofer.
The bank says Hofer and two alleged co-conspirators coordinated sales and purchases of stocks making up their 401(k) plan. The co-conspirators settled with AnchorBank and were not named in the suit.
Hofer and his partners allegedly coordinated their sale of stock-and-cash fund units, triggering a payout from the cash reserves and a sale of AnchorBank stock, lowering its price. When the conspirators bought fund units, the trustee would buy AnchorBank shares and drive up the price.
AnchorBank said the cycle occurred 36 times from September 2008 to June 2009. Without making cash contributions to the plan during this time, the conspirators allegedly increased their holdings from 8 percent to 72 percent.
The fund’s value plunged 95 percent, from $11 to 95 cents per share. Hofer and his partners, however, saw gains of 230 to 270 percent.
AnchorBank said it caught onto the scheme when the partners purchased 1,943,986 shares on June 29, 2009. That transaction represented 100 percent of the fund’s trading that day and 782 percent of average trading volume over the next five days.
On Thursday, the 7th Circuit revived AnchorBank’s lawsuit, which seeks to hold Hofer liable for violations of federal and state securities laws, breach of fiduciary duty, and unjust enrichment.
AnchorBank sufficiently met the pleading requirements for securities fraud, the court found, remanding the case for further proceedings in Wisconsin.
Hofer claims that the falling economy, rather than his actions, led to fund’s significant decline in value. His attorney Lauri Morris refuted the charges in a statement. “This suit has no merit – we’re confident there was no scheme as the bank alleged. Mr. Hofer did nothing wrong, and he will be fully vindicated,” Morris said.
AnchorBank is seeking unspecified damages for losses related to the price manipulation.