Lawsuit reinstated against former Janesville banker
A ruling Thursday by the U.S. Seventh Circuit Court of Appeals reversed Federal Magistrate Stephen Crocker who had twice dismissed AnchorBank’s suit against Clark A. Hofer of Janesville. Crocker had ruled that the bank’s lawsuit failed to allege a violation of securities law.
According to Anchor’s lawsuit:
Hofer was the “mastermind” of three co-conspirators who began trading shares of a stock-and-cash fund that was part of the employees’ 401(k) plan. The three increased their holdings of the fund from 8 percent to 72 percent of the fund’s shares without any significant cash contributions to their 401(k).
The activity impacted the company’s stock because when fund participants such as Hofer sold shares, the fund paid them in cash and was required to buy more stock on the open market to preserve the fund’s cash-to-stock ratio.
Once they learned their collusive trading was working to their advantage, the co-conspirators between September 2008 and June 2009 ramped up their buying and selling. During that period, the value of the fund dropped 95 percent, from $11 per share to 95 cents. Meanwhile, the co-conspirators each increased the value of their fund holdings by 230 to 270 percent.
On June 22, 2009, Hofer and the two co-conspirators purchased more than 666,000 fund shares and 1.9 million more shares in the following two days.
AnchorBank settled with Hofer’s alleged co-conspirators and didn’t name them in the suit, which seeks unspecified damages for losses due to Hofer’s alleged federal and state security law violations.
One of AnchorBank’s attorneys didn’t return a phone call seeking comment on Thursday’s decision and the suit it has pending against Hofer in Dane County Circuit Court.
Hofer’s attorney, Lauri Morris, said the appeal decision was wrong. She said she would strongly defend her client when the case returned to federal court in Madison.
“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,” she said.
The decline in the price of the bank’s stock wasn’t caused by Hofer’s actions but was a result of the failing economy which hurt many other banks in 2008-09, Morris said. The fund wasn’t established with rules to protect participants from volatile swings in stock prices, exposing them to substantial risk in their 401(k) investments, she added.
Hofer left AnchorBank for Monona State Bank, but AnchorBank alleged that violated the no-compete clause in his contract.
Morris said she didn’t know where her client now works.