Synovus Financial Corp. has settled a lawsuit connected to its business dealings with Sea Island Co., a luxury resort on the coast of Georgia.
The settlement of $11.8 million, reported Tuesday by business publication Bloomberg, appears to put to an end a case dating to July 2009.
That’s when the City of Pompano Beach (Fla.) General Employees’ Retirement System filed the complaint against Synovus and several of its top executives over financial losses connected to the Sea Island following bad loans made to the resort company. The civil action was filed in U.S. District Court for the Northern District of Georgia.
Synovus is headquartered in Columbus and is the parent company of Columbus Bank and Trust, the city’s largest financial institution.
"Subject to approval of the settlement by the court and execution of a customary release, the settlement will be fully covered by insurance and there will be no additional financial impact to Synovus related to this settlement," Synovus spokesman Greg Hudgison said Wednesday via email.
The crux of the original lawsuit centers around those who invested in the company from Jan. 24, 2008, through Jan. 21, 2009. That’s when the plaintiffs allege the bank’s executives did not properly disclose financial losses connected to the Sea Island Co.
A loan, estimated at more than $200 million in various reports, was consummated between now-retired Synovus Chairman and Chief Executive James Blanchard and then-Sea Island CEO Bill Jones III, who are longtime friends, according to court documents. Blanchard also at one time served on the Sea Island board of directors, while Jones served on the Synovus board.
The money loaned by Synovus to Sea Island was to be spent on improving and expanding the resort. But when the U.S. economy fell into a Great Recession, tourism business began to falter at Sea Island and the resort defaulted on the loan. Sea Island filed for bankruptcy in 2010 and was eventually bought out by an investment coalition that included Avenue Capital Group, Anschutz Corp., Oaktree Capital Management and Starwood Capital Group, according to reports.
At its heart, the lawsuit alleges Synovus and its top executive officers misled shareholders and did not write off loan losses connected to Sea Island in a timely manner. It said the company’s stock was trading at “artificially inflated prices” during the class-action period, hitting a high of $13.49 per share on Feb. 1, 2008.
Synovus shares began tumbling after that, according to court documents, dropping to $4.75 per share on Jan. 22, 2009. That was after Synovus reported a net loss of $637 million, or $1.93 per share, in the fourth quarter of 2008.
The banking firm at that time charged off $443 million for a non-cash goodwill impairment charge, apparently because of its losses connected to Sea Island.
The lawsuit filings included a series of earnings report information, financial forecasts by executives and conversations with stock market analysts to paint a picture of Synovus’ lending relationship with Sea Island.
In June 2010, according to Bloomberg, an amended complaint was submitted to the district court in Atlanta by the Labourers’ Pension Fund of Central and Eastern Canada and the Sheet Metal Workers’ National Pension Fund. Those groups asked the court Tuesday to approve the $11.8 million settlement, Bloomberg said.
Synovus stock shares on Wednesday rose 6 cents to close at $3.47 in trading on the New York Stock Exchange. The stock’s 52-week trading range is $2.46 to $3.79 per share.