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Oct. 5, 2001 – Jeffrey Prosser's Virgin Islands Community Bank filed a $50 million lawsuit against Chase Manhattan Bank on Thursday, effectively scuttling his bid to purchase Chase’s assets in the territory.
The lawsuit, filed on Thursday in U.S. District Court on St. Croix, alleges that Chase acted fraudulently and had misrepresented itself.
Prosser had written to JPMorgan Chase, the bank's parent company, in New York on Aug. 29 informing its officials of his intention to file the suit.
Prosser accused Chase of having "attempted to sell assets that were otherwise unmarketable to avoid the Virgin Islands Plant Closing Act," causing VICB to invest "in excess of $5 million in the aborted transaction and to forgo opportunities to expand its business to the islands of St. Thomas and St. John."
The deal between the two banks "can be considered to be dead at this point," VICB President Michael Dow said Thursday night.
No Chase representatives in the Virgin Islands or in New York could be reached Thursday night. The Source could not confirm whether Chase had filed a suit against Prosser or his bank in New York on Thursday. Dow said he was unaware of such a move but that a suit and countersuit situation wouldn’t be unusual in a "matter of this kind."
The VICB lawsuit alleges that Chase misrepresented itself in the deal when it initially failed to disclose information about a pending $25 million class-action lawsuit. In his August letter to Chase, Prosser said that after entering into a contract with the New York-based company, VICB uncovered information regarding Chase’s operations in the Virgin Islands that were "contrary to representations made by Chase which were material to the transaction …"
Chase, Prosser wrote, caused him to "expend millions of dollars in good faith pursuit of the transaction that could not be closed," including paying $2 million upon signing the contract.
The main problem, according to Dow, was a pending multimillion-dollar, class-action lawsuit against Chase Bank and Chase Agency Services, a bank subsidiary that sells mortgage insurance. Had the deal been completed, VICB would have been liable for any damages awarded in the case.
"It would be downright foolish for us to close on a deal when the seller is being sued in a class-action suit," Dow said. "That really is the crux of the whole thing — that class-action lawsuit."
In a story in early August about the delay in the deal between the two banks, The Source reported that if VICB had to assume Chase Agency Services liabilities, meaning the potential $25 million lawsuit, it could become a basis for Prosser to pull out of the planned deal without being forced to pay Chase a substantial penalty for negotiating in bad faith.
Dow, however, said VICB was "ready and willing to close."
Prosser in his Aug. 29 letter to Chase alleged that the company was illegally selling insurance through Chase Agency Services. That, he said, in turn, negatively affected Chase local branches' current and future earnings, the valuation of loans to be acquired in the deal, and the "value and goodwill" of Chase Agency Services.
Even after VICB learned of the class-action suit, Prosser said, Chase failed to provide requested information.
"The Chase acts demonstrate an ongoing deceptive pattern of conduct that persisted from the negotiations through this day with the intent of drawing the purchaser into a precarious position," Prosser wrote Chase officials in August. "That may have been part of the plan, scheme and design of Chase’s undisclosed motive."
A month ago, VICB received an extension to Dec. 7 from the Federal Deposit Insurance Corp. to complete the purchase of the territory's Chase Bank assets. It was the second such extension granted by the FDIC to acquire the seven V.I. branches of the New York-based Chase Bank. The initial deadline of May 7 had been extended at VICB's request to Sept. 7. Chase and VICB entered into negotiations in 1999.
The VIBC lawsuit, filed by St. Croix attorney Joel Holt, states that the proposed deal had an international aspect, in that the parties had contracted for V.I. Community Bank to purchase from Chase "its bank branches and certain other assets including its insurance business in the Virgin Islands and the British Virgin Islands."
In his Aug. 29 letter, Prosser wrote that as a pre-contract condition, "Chase required the purchaser to enter into confidentiality agreements that precluded all contact with the government of the British Virgin Islands." Further, he charged that Chase "failed to disclose its own closedown problems with the B.V.I. government, which created for the purchaser an unknown hostile environment in the B.V.I."
Prosser founded V.I. Community Bank on Dec. 30, 1994. The bank operates only on St. Croix, where it has three branches with some $78 million in assets. Chase in the U.S. Virgin Islands has four branches on St. Thomas, two on St. Croix and one on St. John. According to the FDIC, had the Chase acquisition gone through, VICB would have had assets of about $500 million.
Prosser also claimed that Chase failed to disclose that another Chase subsidiary, Chase Trade, was adversely affected by a World Trade Organization decision that effectively outlawed foreign sales corporations in the territory. The WTO action, Prosser said, negative affected the value of the deal.
Molly Morris contributed to this report.

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