Smithtown Bancorp exec turns "informant": lawsuit

NEW YORK (Reuters) - An unidentified executive at Smithtown Bancorp Inc is an "informant" in an investigation of fraud allegations against the New York bank's chief executive, Bradley Rock, according to a lawsuit filed on Thursday.

The lawsuit on behalf of the bank's biggest shareholder in 2009, real estate investor Robert Toussie, alleges that Rock -- chairman of the American Bankers Association from October 2007 to November 2008 -- misrepresented the bank's financial health and concealed its distress.

A spokeswoman for Rock and the bank on New York's Long Island said it was company policy not to comment on pending litigation.

The lawsuit names as defendants the bank, which ended 2009 with $2.63 billion of assets, as well as Rock and his son Bradley Rock Jr., a loan officer at the bank.

Toussie, an investor in New York City real estate for the past 30 years, is seeking $100 million in punitive damages and $10 million in compensatory damages, the complaint filed in New York State Supreme Court in Brooklyn said.

"Only through the recent cooperation of a senior bank executive who wishes to remain anonymous at this time (the 'informant'), has plaintiff learned the true extent of defendants' plot to defraud both investors and federal regulators," the complaint said.

"Plaintiff has learned, through the informant, that defendants' chicanery involved, among other things, pressuring appraisers to withhold bad news about the bank's deteriorating loan portfolio until after the end of the financial reporting quarter," the complaint said.

The lawsuit joins others against Smithtown that followed a February report in The Wall Street Journal that the bank was struggling under the weight of soured real estate loans in the faltering economy.

In January, bank regulators demanded changes to the bank's risk management and lending policies, according to public records of the Federal Deposit Insurance Corp.

"The informant intends to speak to regulators shortly," said Scott Balber, a lawyer at Chadbourne & Parke LLP who represents Toussie, in a phone interview. "I cannot disclose any more information. He spoke to us voluntarily."

Balber said that his client had numerous conversations with Rock and that last year, Toussie was the bank's largest single individual shareholder. He said that during 2008 and 2009, Toussie made 250 purchases of stock.

"In its public disclosures and during dozens of telephone conversations directly between Rock and plaintiff, defendants painted a rosy picture of the bank's performance, depicting the bank as one of the best-managed, safest and most financially sound institutions in the United States," the complaint said.

"However, Rock's and SBI's statements were wholly fictitious, designed to hide, among other things, a deeply insolvent and irresponsibly underwritten loan portfolio," the lawsuit alleged.

Smithtown shares closed on Thursday up 25 cents at $5.33 on the Nasdaq.

The case is Toussie v Smithtown Bancorp Inc et al, New York State Supreme Court, Kings County, No. 500161/2010.

(Reporting by Grant McCool; editing by Carol Bishopric)