Bank Shareholders Say Venezuelan Takeover Cost Them $27M


Law360, Miami(June 5, 2024, 10:03 PM EDT)

Shareholders in a small Miami bank told jurors Wednesday that board members working for the Venezuelan government had taken control of the bank and cost shareholders $27 million by engaging with the sanctioned Venezuelan government.

In opening statements in federal court in Miami, Diego Pérez Ara, who represents shareholders Bancor Group Inc. and Stichting Particulier Fonds Franeker, told jurors that the Eastern National Bank board members’ decision to open accounts with the state-owned Banco de Venezuela in 2016 led to two consent orders from the U.S. Office of the Comptroller of the Currency, which Pérez described as “the second-worst thing that can happen to a bank,” aside from a liquidation.

Since then, the bank has closed three of its four branches, laid off 30% of its workforce and has half the assets it did before agents of the Venezuelan government took control, according to Pérez.

“Those consent orders have caused massive damages to the bank,” Pérez said. “There’s a clear moment in time that determined the fate of the bank, and that was opening the Banco de Venezuela accounts.”

Pérez said it began with Gabina Rodriguez, an attorney who took control of Eastern National Bank when she was appointed as receiver of Corpofin CA, the ultimate parent company of the bank. She then stacked the board with people Pérez called “Venezuelan government agents.”

Pérez said that at the time the Eastern National Bank board members were opening Banco de Venezuela accounts, Citibank, a bank much larger than the small Miami bank, had decided to close its Banco de Venezuela accounts because of the risks involved in dealing with a bank owned by a sanctioned state.

Pérez said Jack Lantz, the compliance officer of the bank, was the only one who objected, saying in a September 2016 memorandum to Rodriguez that “it is very reasonable that if we do not satisfactorily manage the risks, I believe the OCC response would be a consent order or worse.”

The first consent order was issued in 2018, followed by another in 2020 that Pérez said is still in place today.

In the defense’s opening, Gary Davidson, who represents Rodriguez and the other board members, said “very little of what transpired at Eastern National Bank had to do with the Venezuelan government.”

He pointed out that the two plaintiffs combined, Bancor and Franeker, collectively own fewer than 100 shares in the bank, out of approximately 100 million shares of Eastern National Bank stock. Both Bancor and Franeker are controlled by Venezuelan-American businessman Juan Santaella, who had originally owned the bank.

“Mr. Juan Santaella has been obsessed with only one thing: getting back control of Eastern National Bank,” Davidson said.

Davidson explained that this began during the Venezuelan financial crisis of 1994, when several banks failed and were taken over by the government. The Venezuelan equivalent of the U.S. Federal Deposit Insurance Corp. stepped in to protect the deposits of Bancor, which was a bank at the time, and to remove Santaella, according to Davidson.

Bancor’s parent company was Corpofin, which also owned Mercorp NV, which in turn owns the majority of shares in Eastern National Bank. Rodriguez was appointed by the Venezuelan government to oversee Corpofin and took control of Mercorp as well, according to Davidson.

“She’s a private lawyer at this point, but she’s been appointed as an overseer of this company, not to profit from it, but to make sure it is running correctly and doing the right thing,” Davidson said.

He said his team will prove that Rodriguez and the other board members never received any extra compensation and that they reasonably believed their business judgments were in the best interests of Eastern National Bank.

The trial resumes on Monday morning with testimony from the first witnesses.

Bancor and Franeker filed the suit against the bank’s leadership in January 2022, claiming the directors allowed the bank to sidestep U.S. penalties in order to benefit the Venezuelan government.

The case has been marked by strife between counsel representing the warring parties, with Diaz Reus & Targ LLP attorney Michael Diaz being disqualified in April 2023 after a magistrate judge determined that he had an attorney-client relationship with the bank’s beneficial owner between 1996 and 1998.

The directors hit back with their own disqualification bid against plaintiffs’ counsel León Cosgrove Jiménez LLP over alleged misuse of privileged documents, but that request was denied.

Last month, U.S. District Judge Darrin P. Gayles denied a bid by the plaintiffs to sanction Diaz Reus lawyers over allegations that they delayed an October 2023 trial date.

Bancor and Stichting Particulier are represented by Derek E. León, Diego Pérez Ara and Gregory S. Carter of León Cosgrove Jiménez LLP.

The board of directors is represented by Gary E. Davidson, Evan J. Stroman, Brant C. Hadaway, Javier Coronado and Ibrahim Amir of Diaz Reus LLP.

The case is Bancor Group Inc. v. Rodriguez et al., case number 1:22-cv-20201, in the U.S. District Court for the Southern District of Florida.