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Macatawa nears settlement in lawsuit
Macatawa Bank Corp. reached a preliminary settlement today in a lawsuit brought by investors in the now-defunct Trade Partners, Inc. of Grand Rapids. Under the preliminary settlement Macatawa will pay the plaintiffs $2.75 million in cash, will issue common stock valued at $3 million and will issue three warrants for each share of common stock issued in the proposed settlement. The preliminary settlement also calls for Macatawa to provide plaintiffs with money collected from other defendants up to $250,000. If the bank collects less than $250,000 from other defendants, it is to make up the difference by issuing of additional common stock. Macatawa’s insurers will contribute $950,000 to the cash portion of the settlement.
A nationwide class action suit was filed against Macatawa Bank Corp. in the summer of 2007 on behalf of people who invested in Trade Partners. Macatawa inherited Trade Partners’ business when it acquired Grand Bank in January of 2001.
According to court records, the plaintiff alleged that the bank “acted as a fiduciary and escrow agent for Trade Partners and breached its contracts with investors by failing to pay premiums on time, refusing to communicate with investors, and failing to alert investors of Trade Partners’ impending collapse.” Before Trade Partners went bust amid allegations of fraud and deceit, its founders allegedly had managed to sell $212 million in investments to some 3,400 investors from West Michigan to South America.
The parties to the settlement agreement are Macatawa Bank Corp., Macatawa Bank, Richard Deardorff, and the law firms Nickens, Keeton, Lawless, Farrell & Flack LLP and Moulton & Meyer, LLP, counsel for the majority of plaintiffs. The settlement involves no admission of fault or wrongdoing by the Macatawa Corp., according to Macatawa.
The number of shares and warrants to be issued will be determined based on the stock price at the time the settlement is finalized. Based on the current market price of its common stock, the bank estimates that it would issue approximately 530,000 shares of its common stock and warrants to purchase approximately 1,590,000 shares of its common stock in connection with the proposed settlement.
The company indicated that if the proposed settlement is finalized, it’s expected to reduce earnings by approximately $4 million on an after-tax basis, but the impact on Macatawa’s capital level would be nominal, bank officials said.
The legal proceedings involving Trade Partners were previously discussed in Macatawa’s annual report for the year ended Dec. 31, 2007, in the company’s quarterly report for the quarter ended June 30, 2008, and again in a Form 8-K SEC filing on Oct. 14, 2008.