ABILENE Texas — One of the last pieces of the Bank of Saipan trail of litigation was settled here on April 6.
Gathered in the single courtroom of the U.S. District Court for the Northern District of Texas before Judge Sam Cummings and a seven-man jury were the president and attorneys of the Bank of Saipan represented by Michael Dotts; and Barry D. Hunter of Lexington Ky. heading the legal team for CNG Financial of Ohio.
Waiting to testify at the Civic Plaza Hotel a two-block walk away were some of the most politically and financially powerful men in the Marianas all waiting to once again tell how sophisticated con men looted their bank of millions of dollars.
In May 2001 Bert Douglas Montgomery arrived on Saipan. His stated desire was to purchase the Bank of Saipan. Montgomery had a partner named DeSean Berkich. Together they struck a deal with bank President Tomas Aldan in which Montgomery would buy out the bank’s shares at an inflated price and bring approximately $20 million in additional investment. Liking the deal the board placed a moratorium on high-dollar loans and waited for the transition to the new owners.
With the board looking the other way Montgomery and Berkich with the assistance of Aldan began making questionable loans without the board’s approval. One of these loans was to another con artist Mark Wilson of Texas. Wilson wanted $5 million to purchase two failing credit card companies from CNG Financial. A convicted felon Wilson loaned the money from the Bank of Saipan without collateral or a credit check and transferred the funds to CNG.
In late February 2002 simple Internet searches conducted by a Bank of Saipan board member and a law firm associated with another board member revealed Montgomery and Berkich’s names associated with a case of bank fraud and failure on the island of Grenada.
Aldan Montgomery and Berkich were confronted indicted and later convicted on multiple felony charges after Michael Wilson accepted a plea and testified against them. Montgomery received 20 years and Aldan 10 years in federal prison. Berkich was never sentenced committing suicide soon after the conviction.
The latest trial was in Abilene because CNG Financial which held $4.5 million of the swindled bank funds sued the bank in Abilene court rather than allow the bank to sue in Saipan court. In the original trial in September 2003 the district judge ruled in favor of CNG.
The Bank of Saipan filed a timely appeal. The Fifth Circuit Court of Appeals reviewed the judgments and reversed the district court’s decision sending the case back to Abilene for a new jury trial.
In opening arguments the bank argued that CNG was holding money that rightfully belonged to the bank and that absent the fraud by Montgomery and Berkich the bank would still possess that money. The bank further alleged that CNG knew or should have known that Wilson could not get legitimate financing and that CNG raised its asking price for the companies after it learned of Wilson’s fraud presumably to take advantage of the known fraud in whatever way it could.
CNG’s position was that money was borrowed from the bank by a professional con man and used to purchase CNG assets. CNG contends that the bank failed to investigate Wilson’s credit and collateral and that the bank’s board loan committee and other officers failed in their corporate responsibilities.
The first witness Ben Fitial former speaker of the CNMI House of Representatives Bank of Saipan board member and chairman of the bank’s loan committee explained to the jury how he accidentally discovered Berkich’s shady past.
Fitial testified that he was searching the Web for an offshore bank for his money and ran across an article linking Berkick to a liquidated bank in Grenada. When CNG attorney Barry Hunter asked Fitial if Saipan banks were considered offshore banks Fitial replied “That’s not the offshore I had in mind.”
After confirming the facts Fitial contacted several members of the board of directors the bank’s attorney and Tom Aldan. Aldan who was en route to Washington D.C. on other business told Fitial not to worry about the bank in Grenada that it was “nothing important.” By the end of February Aldan was replaced.
CNG attorney Barry Hunter then led Fitial through a series of questions designed to portray the board of directors as greedy and incompetent with unclean hands. Under questioning Fitial admitted that the shareholders took a $1 million dividend at the end of 2001 just before the official sale of the bank.
Hunter also pointed out that Fitial had not attended a board of directors meeting from May of 2001 through February of 2002 missing a total of six meetings. He also showed Fitial bank records indicating that more than 30 loans were made during the moratorium on loans without the lending committee or board of director’s knowledge.
CNG then introduced three reports damaging to the bank’s board of directors. The first is a 1977 report issued by the FDIC when Bank of Saipan submitted an application to the FDIC so the bank would qualify as executor of the Hillbloom estate. The second an internal audit done at the board’s request after discovery of the questionable loans; and the third a May 2002 letter from Fermin Atalig secretary of commerce and banking director which put the bank in receivership. All three of these documents spoke of lack of supervision by the board.
Fitial testified repeatedly that Aldan was a trusted member of the community and friend. The board of directors had no reason to mistrust him. Later the board learned that Aldan was expecting a raise from Montgomery along with an interest in the bank. Fitial also made it clear that bank operations prior to the Wilson loan did not contribute to problems at the bank. Insider loans never caused any material loss to the bank.
There followed a series of witnesses both live and through video deposition who told a tale of Montgomery’s complete freedom in the bank. Nowhere was there evidence that Aldan or Montgomery told anyone in the bank to keep the loans a secret. According to statements the bank’s employees assumed that since Montgomery was purchasing the bank and Aldan the president and chief executive officer approved everything all was well.
Witnesses testified there were certain irregularities with the loans and documentation which bank employees diligently worked to clear up once to the point of asking Wilson to predate his promissory note so that the loan would appear documented at the time the money was dispersed. At one point a bank delegation left Saipan for Texas to inspect Wilson’s collateral and due diligence. They were unaware that the men they were flying to meet in Texas were on the way to Saipan in a plan crafted to prevent the meeting.
On day two of the trial Paul M. Calvo Sr. president and chairman of Calvo Enterprises Inc. testified for the bank. As Calvo was listing his political and business accomplishments for the jury he paused slightly after mentioning Pepsi Bottling Co. remarking that on Guam “Pepsi is No. 1 over Coke.” Calvo related how Larry Hillbloom asked the Calvo brothers if they wanted to found the Bank of Saipan with him. According to Calvo’s testimony in mid-1991 Aldan came to him with word that there was an offer to purchase the bank.
Later while on vacation in California Calvo met David J. Lujan now partner in Lujan Unpingco Aguigui and Perez Thomas J.M. “Jerry” Calvo second vice president of Calvo Enterprises and Aldan at the Las Vegas Hilton. The following morning Montgomery and Berkich picked the directors up in a limousine and took them to an impressive private home where they were told that Montgomery was willing to buy all the stock they were willing to sell.
Offers were made through Calvo and Clark the brothers’ attorneys shares were sold and payment was received. The Calvos’ stock was tendered to the attorneys pending meeting the final requirements of the sale. Calvo still considered himself a director and did not resign from the board.
Calvo testified he first learned of the problems with Montgomery and Berkich through an attorney at Calvo and Clark who discovered information on the Grenada liquidation at the same time as Fitial.
At the board meeting on Feb. 27 2002 Calvo said he remembers Montgomery telling him “there was $10 million coming in and that everything was going to be fine.” Montgomery told the board he had great plans for the bank. Finally there was a confrontation between Montgomery and David Lujan a meeting that did not end well. Calvo was directed by the board to contact the Federal Bureau of Investigation and the office of the U.S. Attorney and advise them of questionable loans.
Hunter quoting from the May 2002 letter from Atalig accused the board of “being more concerned with selling shares of the bank at higher than market prices than watching bank operations.” Calvo quickly pointed out that the person who signed the letter is the same person who approved the sale of the bank on behalf of the CNMI on Jan. 11 2002.
Again Hunter attacked the board of directors accusing them of failure to supervise senior management as reported in the 1997 FDIC report and the May 2002 letter from Atalig. Calvo responded by saying that the line of demarcation between supervising and micromanaging was sometimes very fine.
When asked after his testimony what the bank hoped to accomplish Calvo said “We just want to get the money that Montgomery gave CNG for these two companies with very weak assets. It smells of conspiracy.”
Calvo stepped down as chairman of the board of the bank in March. He said “I am very pleased that the bank is now doing very well. We have a CEO who is doing a great job and things are getting better every day.”
At 8:30 a.m. on the third day of the trial it was revealed Bank of Saipan and CNG Financial had settled out of court late the night before. The settlement included a confidentiality clause. “The matter resolved on terms satisfactory to the parties ” Dotts said. “It is very common in settlements to place some restriction on what people say because people are always happy to settle.”
As the attorney packed boxes of evidence he said “It’s a time of congratulations whenever there is a settlement but it feels like condolences because it hurts to settle. Generally it’s the right thing to do.”
Jon Bargfrede president and chief executive officer of the bank echoed his attorney’s statement. “We are pleased to settle. We have reached a settlement which is satisfactory to both parties.”
Bargfrede said he was also pleased with a decision handed down in the Superior Court of Saipan that removed the May 28 2002 letter from Atalig from the record. “The bank always felt that the letter was politically motivated. It could have been said in one paragraph but went on for pages. It was something which should have been resolved years ago.”
According to Bargfrede the legal battles for the bank are finally winding down. “We have been through a lot but people are regaining confidence in us. Now we can go back to being a community bank.” MBJ
