The $22.3 million acquisition of Sacramento-based Golden Pacific Bancorp Inc. is being challenged by a founder of the community bank, who accuses it of illegally converting preferred shares into voting shares in order to get the deal approved.
In March, Golden Pacific Bancorp announced it had agreed to be acquired by San Francisco-based financial technology company Social Finance Inc. The company is now known as SoFi Technologies Inc. (Nasdaq: SOFI) after going public in June through a merger with a special purpose acquisition company.
The deal with Golden Pacific, which was meant to provide SoFi with a national bank charter, was expected to be approved and completed by year-end. When announcing the deal, Golden Pacific CEO Virginia Varela said in a statement that the combination with SoFi would enhance the bank's ability to serve its customers, and that Golden Pacific would continue its commitment to bring more services and convenience to its customers and clients throughout the region.
Rick Fowler was a founder of Golden Pacific Bancorp and its subsidiary Golden Pacific Bank in 2010 and currently owns 1.28 million shares of its common, voting stock. He alleges that Golden Pacific violated the California Corporations Code, which states that terms of a reorganization must be approved by holders of a majority of outstanding shares.
Shareholders were notified of SoFi's intent to acquire Golden Pacific in a March 9 letter. A few weeks later, the bank's board Chairman David Roche sent another letter to shareholders stating that holders of approximately 58% of common shares had consented to the deal.
Fowler alleges that a large portion of the shares used to approve the deal were preferred stock that had been illegally converted into voting shares. He stated that since 2018, the bank's board has authorized the holder of all of the bank's outstanding Series B preferred stock to convert a total of 1.05 million non-voting shares into common stock. When deducted from the total used to approve the SoFi acquisition, Fowler alleged only 43% consented to the deal, failing to meet the majority threshold for approval.
The holder of the preferred stock, New York-based hedge fund Gapstow Capital Partners LLP, invested $636,000 in Golden Pacific Bank in 2013. Representatives of Gapstow Capital did not immediately respond to a request for comment for this story.
In a written response to the allegation earlier this year, Roche stated that Fowler's legal counsel had no basis for the accusation, and noted that the Federal Reserve had signed off on the conversion of preferred shares to voting stock.
"To accuse our CEO of thrusting an 'illegal' transaction upon us, directors of a highly regulated and well-regarded bank holding company, is unprofessional, highly insulting and, of course, without foundation," Roche stated in a letter to board members. "Unfortunately similar disruptive communications both written and oral, singling out Ms. Varela have been sent in the past. It is obvious here that Mr. Fowler was once again attempting to promote his own agenda at the direct opposition to the best interests of GPBancorp shareholders." Roche's letter was included as an exhibit with a court filing.
Fowler is seeking a preliminary injunction blocking SoFi's acquisition of Golden Pacific until the court determines that the number of shares used to approve the deal were obtained lawfully. If the court finds the shares were not lawfully obtained, Fowler is seeking to block the acquisition altogether.
If the court determines that the majority consent was obtained lawfully, Fowler is asking for the court to appoint an impartial appraiser to determine the fair market value of his dissenting shares, which he alleges the bank is undervaluing.
In April, Fowler notified the bank that he did not consent to the acquisition and demanded it purchase his shares in cash for their fair market value. A few weeks later, he received a letter stating the fair market value of the common shares was $1.65 each. Fowler contends that they should be valued at no less than $3.1948 per share.
Representatives of Golden Pacific did not respond to a request for comment from the Business Journal. The company's legal representative declined to comment on pending litigation.
This isn't the first legal dispute between Golden Pacific and Fowler.
Fowler is also the chief operating officer of Kronick Moskovitz Tiedemann & Girard, a Sacramento law firm that represented the bank in a 2015 legal dispute with a financial technology company. The case was ultimately settled, but the bank later sued Kronick for allegedly pushing the bank to settle for a relatively small sum compared to what it believed it could've been awarded. Golden Pacific also accused Fowler of violating an agreement to not discuss the litigation with lawyers at Kronick due to conflict-of-interest concerns. Fowler's legal representative denies such discussions ever occurred.
Fowler's attorney, Jeffrey Tisdale, managing partner of Tisdale & Nicholson LLP in Los Angeles, told the Business Journal that the underlying litigation, which is still unresolved, is the core of the latest dispute.
"Plaintiff's primary interest in this litigation is to be paid enough for his shares to ensure he can repay debts he has been forced to incur by being unfairly sued for trying to protect the defendant. If successful in this litigation, plaintiff would also reinvest in defendant in order to protect the existing shareholders' investment under a new and capable management team plaintiff is ready and willing to serve," the lawsuit stated.
Another added component to the lawsuit, Tisdale said, is Fowler's concern that if the SoFi acquisition is completed, the Sacramento region will potentially lose one of its few community banks.
"I think (this case) is a real winner for my client, and we'll see what the court says," Tisdale said.
The lawsuit was filed on Sept. 21 in Sacramento County Superior Court. No hearings have been scheduled as of yet.
