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Pinnacle Bank director resigned over
suspected insider trading tied to Avenue deal

via Nashville Business Journal
Scott Harrison
Staff Reporter

A bank director on Pinnacle Financial Partners Inc.'s board resigned this month over alleged insider trading tied to the Nashville bank's deal to acquire competitor Avenue Financial Holdings Inc., according to a new filing with the Securities and Exchange
According to the regulatory filing by Pinnacle on April 15, a director on the executive committee of Pinnacle's board allegedly bought shares in Avenue Bank’s holding company on two separate occasions in January, while the two Nashville banks were in the midst of discussing a potential acquisition by Pinnacle.


Pinnacle's SEC filing does not name the director, and Nikki Klemmer, a spokeswoman for the bank, declined to confirm the director's identity. However, a prior regulatory filing indicates that the bank director is James Cope, whose immediate resignation was announced on April 1. The timing of Cope's departure also matches the timeline Pinnacle sketched out in Friday's filing.
Klemmer said the bank has "only had one [director] resign this year."
Multiple attempts to reach Cope for comment by phone and email Tuesday were unsuccessful.


Based on Pinnacle’s recent filing, the alleged purchases of Avenue shares occurred after the Pinnacle board had been notified of ongoing merger talks, including potential financial terms, between management at the largest Nashville-based bank (Nasdaq: PNFP) and the leadership at one of its biggest local peers, Avenue Bank (Nasdaq: AVNU).
In total, the then-Pinnacle director allegedly bought 10,179 shares of Avenue common stock in the days after Pinnacle CEO Terry Turner informed his board in early January that he was in advanced discussions with his counterparts at Avenue about a possible acquisition, according to the SEC filing by Pinnacle Bank's parent company.


The April 15 filing details information for shareholders on Pinnacle’s pending $200 million-plus acquisition of Nashville rival Avenue, which stands to create a bank with an estimated $10.8 billion assets, far and away the biggest total among lenders headquartered in Nashville.
In its filing, Pinnacle said it learned of the alleged Avenue common stock purchases by the director two months after the fact, on March 21. Pinnacle said in the filing that it believed the transactions "were in violation of certain … policies applicable to Pinnacle’s directors.”
After that, “this director resigned from the board of directors of each of Pinnacle [Financial Partners] and Pinnacle Bank,” the bank said in the filing. On April 5, “following the director’s resignation,” the Pinnacle board met and “received an oral report of Pinnacle’s legal counsel” and then reaffirmed and approved the merger agreement with Avenue.


Klemmer declined comment when asked whether the bank was aware of any formal investigations into the stock purchases. It is currently unclear whether Cope has or will come under investigation. A spokesperson for the SEC declined comment, and efforts to reach the U.S. Attorney's Office for the Middle District of Tennessee were not immediately successful. There is no indication that Cope has been charged with a crime.


"We have appropriate policies and procedures in place regarding confidentiality, and those are applicable to directors as well as associates. We believe appropriate action has been taken by the firm, and we intend to cooperate fully with any inquiry into this matter," Klemmer said.
When Cope's departure from the board at Pinnacle Financial and its subsidiary Pinnacle Bank was reported by the Nashville Post on April 4, a Pinnacle spokesperson said his departure was not planned, and that "there were no disagreements between him and the board."
Cope, an attorney in Murfreesboro who joined Pinnacle's board when the Nashville bank bought Calvary Bank in 2006, was also a member of Pinnacle’s executive committee. According to the April 1 SEC filing, Cope notified the bank's board of his resignation in writing that day.
Based on Pinnacle’s filing last Friday, the first alleged purchase of Avenue shares by the Pinnacle director occurred on Jan. 5. On that day, Pinnacle's CEO told the executive committee of Pinnacle’s board that he was discussing a possible acquisition with Avenue, according to the filing. "Possible financial terms" of the potential transaction were made available to Pinnacle board members "in advance of the meeting."


In December 2015, Turner first told his board he had attempted to contact his counterpart Ron Samuels, chairman and CEO of Avenue Bank, and Marty Dickens, a member of Avenue's board, about a possible transaction.
On Dec. 8, 2015, Turner told Samuels that "Pinnacle may be able to offer a purchase price near the top end of the $13.70 to $19.18 per share range," according to the Friday's filing.
On Jan. 6, Turner sent a letter to Avenue's board that included a non-binding offer of between $19 and $20 per share, based on details outlined in Pinnacle's April 15 filing. In the letter, Turner "highlighted the significant premium this offer represented to Avenue's public offering price from its initial public offering [$11 per share] and Avenue's then trading price."
According to Pinnacle's SEC filing, the second alleged purchase of Avenue shares by the director occurred on Jan. 11, the day that Avenue and Pinnacle entered a mutual nondisclosure and confidentiality agreement. After that, Avenue began to give Pinnacle detailed financial information to work on the potential acquisition.
Around those days in early January, Avenue stock traded hands for approximately $13.50 per share.


The two bank boards inked their deal on Jan. 28. Pinnacle's offer valued Avenue at $19.29 per share. As we reported, Pinnacle's offer was more than 40 percent higher than what Avenue shares traded at just prior to the deal’s announcement after markets closed on Jan. 28. At 2.2 times Avenue’s book, Pinnacle’s offer for Avenue is considerably higher than the median price acquiring banks have paid for other lenders across the country in the past year, according to research from Atlanta investment banking firm Banks Street Partners.
As of March 31, Pinnacle had $9.3 billion in assets, the largest total for a bank headquartered in Nashville. Over the past year, the bank has bought two other lenders in the state. It's currently mired in a legal dispute with First Tennessee Bank over hiring practices in Memphis.


On Pinnacle's policies and procedures surrounding insider trading, Klemmer, with Pinnacle, said this: "Our board is advised of the risks around misuse of material nonpublic information regarding our company and other companies that we have dealings with. As recently as October 2015, Pinnacle conducted a board training focused on compliance with insider trading laws, among other things."
"We limit access to material, nonpublic information to essential personnel or board members," she added. "We communicate clearly when information is nonpublic or material that it should remain confidential."
 



 

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