CHATHAM, N.J – A fight between a former credit union-turned-bank and an investment firm which owns some of its stock has led to allegations of underperformance by the former CU and overcompensation for its CEO and board. The former Synergy FCU became a mutual savings bank in 1998, adopted a mutual holding company structure in 2002, and then became a straight stock-issuing bank in 2003. Now an investment firm which holds a stake in the bank has charged that the bank's CEO, John Fiore, other executives and the board have been overpaid while the bank has underperformed. According to filings with the Securities and Exchange Commission, Fiore along with four of the bank's nine board members were with the credit union when it became a bank and have remained with it ever since. According to the paperwork, Fiore controls almost 293,000 shares of the bank's stock, including his accounts in the bank's stock ownership and retirement plans. Nancy Davis, a board member since 1977, holds almost 61,000 shares; W. Phillip Scott, a board member since 1996, has just over 46,000 shares; Kenneth Kasper and George Putvinski, board members since 1993, own 67,000 and 60,000 shares respectively. According to the latest quote as of press time, the share price is hovering around $12.98. At current market prices Fiore has become a millionaire after the conversion of his credit union and the board members have holdings worth hundreds of thousands of dollars. Synergy was founded in 1952 to serve the employees of the Schering-Plough pharmaceutical manufacturer, according to Alan Theriault, CEO of CU Financial Services, a consulting firm which helps credit unions become banks but did not work on the Synergy conversion. Richard Lashley, principal investor in the P.L Capital Group, said that his firm holds positions in roughly 35 – 50 banks and thrifts around the country at any one time and specializes in investing in financial institutions. "The thing is, all the data we cite in our proxy solicitation is data they included in theirs," Lashley said. "We think it's remarkable that this bank has paid out more to its board and executive officers in the last three years than it brought in," Lashley said. In its proxy solicitation, also filed with the SEC, the firm said that Synergy's return on equity was less than 5% in both 2004 and 2005, a number far below the average thrift ROE of 12.8% or average publicly traded ROE of 12.4%. "We think that this bank should return some of their capital to stockholders in the form of a stock buy back since they are clearly not making good use of it now," Lashley said. Should the firm succeed in the attempt, it will place two new board members on the ballot for the board and will likely see them elected. Should that happen, the new board members would presumably vote in favor of the stock buy back or similar strategies. But as the fight in New Jersey simmered and seemed destined for litigation, advocates on both sides of the debate over credit unions becoming banks say they are not sure whether the proxy fight and allegations of overcompensation at a former CU now bank will have an impact on the ongoing controversy. "I haven't had time to keep up with the case, but my gut reaction is that the situation shouldn't have any impact," said Lee Bettis, executive director of the Coalition for Credit Union Options, a banker-led group which advocates for credit unions being able to change their charters to mutual banks. Bettis made the point that even though some of the board and leadership have been the same, the former CU has been a bank for eight years and can't be seen as a symbol of any untoward results for credit union-to-bank converts as a whole. But Jim Blaine, CEO of the $13 billion State Employees' Credit Union, headquartered in Raleigh, North Carolina, said the case merely illustrates the underlying concern about possible insider enrichment whenever any mutual – whether credit union, savings and loan or health insurer – demutualizes. "Mutually held capital should not be allowed to be appropriated for private enrichment," Blaine commented, "it's that simple." He also noted that the fight illustrates the reality that credit union members are not the only ones to lose control of their institution when it issues stock; often the CU leadership loses control as well. [email protected]