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Amended Complaint in SEPTA vs. Orrstown Bank in U.S. District Court, Pa. Middle District

Amended Complaint in SEPTA vs. Orrstown Bank in U.S. District Court, Pa. Middle District

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Published by Franklin Opinion
SEPTA claims Orrstown Bank misrepresented its lending practices when selling bank in March 2010.
SEPTA claims Orrstown Bank misrepresented its lending practices when selling bank in March 2010.

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Categories:Types, Business/Law
Published by: Franklin Opinion on Mar 28, 2013
Copyright:Attribution Non-commercial

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08/14/2014

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CHIMICLES & TIKELLIS LLP
Nicholas E. Chimicles, Pa. Id. No. 17928Kimberly Donaldson Smith, Pa. Id. No. 84116Christina Donato Saler, Pa. Id. No. 92017Benjamin F. Johns, Pa. Id. No. 201373One Haverford Centre361 West Lancaster AvenueHaverford, PA 19041Phone (610) 642-8500Fax (610) 649-3633
UNITED STATES DISTRICT COURTMIDDLE DISTRICT OF PENNSYLVANIA
SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY,on behalf of itself and all otherssimilarly situated,Plaintiff,v.ORRSTOWN FINANCIALSERVICES, INC., ORRSTOWNBANK, ANTHONY F. CEDDIA, JEFFREY W. COY, MARK K.KELLER, ANDREA PUGH, THOMASR. QUINN, JR., GREGORY A.ROSENBERRY, KENNETH R.SHOEMAKER, GLENN W. SNOKE, JOHN S. WARD, BRADLEY S.EVERLY, JOEL R. ZULLINGER, JEFFREY W. EMBLY, SMITHELLIOTT KEARNS & COMPANY,LLC, SANDLER O’NEILL &PARTNERS L.P., and JANNEYMONTGOMERY SCOTT LLC,Defendants.Civil Action No.1:12-civ-00993
AMENDED CLASS ACTIONCOMPLAINTECF
AMENDED CLASS ACTIONCOMPLAINT FOR VIOLATIONS OF§§ 11, 12(a) and 15 OF THESECURITIES ACT OF 1933 AND §§10(b) and 20(a) OF THE SECURITIESEXCHANGE ACT OF 1934DEMAND FOR JURY TRIAL ________________________________ 
Case 1:12-cv-00993-YK Document 40 Filed 03/04/13 Page 1 of 190
 
 
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 TABLE OF CONTENTS
AMENDED COMPLAINT ...................................................................................... 1I. SUMMARY OF THE ALLEGATIONS ........................................................ 2II. JURISDICTION AND VENUE ................................................................... 14III. PARTIES ...................................................................................................... 16A. Lead Plaintiff ...................................................................................... 16B. Securities Act Defendants .................................................................. 161. The Orrstown Securities Act Defendants ................................ 162. The Underwriter Defendants .................................................... 223. The Auditor Defendant ............................................................ 24C. Exchange Act Defendants .................................................................. 26IV. OTHER RELEVANT PERSONS ................................................................ 28V. RULE 23 CLASS ALLEGATIONS ............................................................. 31VI. BACKGROUND AND FACTS .................................................................... 35A. Orrstowns Lending Practices ............................................................. 351. Aggressive Expansion into the Hagerstown, MarylandCommercial Lending Market ................................................... 352. The Bank’s Deficient Credit Review and Loan ApprovalProcess ...................................................................................... 393. The Bank’s November 2009 Internal Review ......................... 48
Case 1:12-cv-00993-YK Document 40 Filed 03/04/13 Page 2 of 190
 
 
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B. Significant Lending Relationships Evidencing the Bank’s Lack of Effective Internal Controls .................................................................. 521. The Azadi Lending Relationship .............................................. 522. The Shaool Family Lending Relationship ................................ 553. The Chambersburg Borrowers Lending Relationship .............. 574. The Yorktown Funding, Inc. Lending Relationship ................. 59C. The March 2010 Offering .................................................................. 64D. The Federal and State Banking Regulators’ Investigation.................. 67VII. SECURITIES ACT SUBSTANTIVE ALLEGATIONS: MATERIALLYFALSE & MISLEADING STATEMENTS CONTAINED IN THEOFFERING DOCUMENTS .......................................................................... 81A. The Offering Documents Materially Untrue and MisleadingStatements and Omissions Regarding the Credit, Underwriting andLoan Review Procedures .................................................................... 82B. The Offering Documents Materially Untrue and MisleadingStatements and Omissions Regarding the Effectiveness of Management ....................................................................................... 92C. Auditor Defendant Smith Elliott’s Statements in the 2009 10K WereFalse, Misleading and Lacked a Reasonable Basis ............................ 95D. The Securities Act Class Is Damaged by the Offering DocumentsFalse and Misleading Statements ..................................................... 104VIII. SECURITIES ACT CLAIMS FOR RELIEF .............................................. 108COUNT I (For Violations of § 11 of the Securities Act Against Orrstownand the Bank) .............................................................................................. 108COUNT II (For Violations of § 11 of the Securities Act Against theIndividual Securities Act Defendants, Underwriter Defendants and theAuditor Defendant) ..................................................................................... 110
Case 1:12-cv-00993-YK Document 40 Filed 03/04/13 Page 3 of 190

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