The state Department of Banking is scouring the banking world for a buyer of Darien-based Circle Trust Co. after the Connecticut Superior Court named Banking Commissioner John P. Burke receiver of the institution. Burke declared the trust company “unsafe and unsound” to continue operations and filed a petition with the court on Sept. 30 to put Circle Trust into regulatory receivership.
“We’ve been actively looking [for a buyer],” said department spokesman James Heckman. The department has engaged a selling agent for the assets of the institution and will name a new owner as soon as a buyer has been identified.
So far, Circle Trust has appointed Fiduciary Counselors of Washington, D.C., an independent fiduciary, to manage the Trust Advisors Stable Value Plus Fund, a fund previously managed by Circle Trust. According to the Department of Banking’s Web site, Fiduciary Counselors has filed a voluntary petition for the fund under Chapter 11 of the U.S. Bankruptcy Code. According to the fiduciary, the bankruptcy proceeding provides the best vehicle for protecting the interests of the investors in and creditors of the fund through an orderly and equitable process for resolving outstanding issues.
The trust company, which describes itself on its Web site as an institution that provides extensive investment management, trust, custody and administrative services to corporations, sponsors and administrators of defined contribution retirement plans, community banks and charitable foundations and endowments, was placed into receivership after a Department of Banking investigation.
The action was necessary because Circle Trust’s capital had fallen below the $2 million minimum required by Connecticut law. The trust bank had been under increased regulatory scrutiny since 2003, according to the Department of Banking. The institution made efforts to recapitalize, but could not recover.
“They spent more money than they were taking in and some of their investments were not profitable,” Heckman said.
Earlier this year, the Department of Banking concluded an investigation of the institution’s former president and chairman and their handling of mutual funds. Questions arose concerning former President and Chief Operating Officer Michelle Montano’s and former Chairman and Chief Executive Officer Louis P. Celentano’s facilitation of market timing of mutual funds. According to the documents, “Mutual funds are meant to be long-term investments; however, traders try to trade in and out of funds in order to take advantage of inefficiencies in the way the funds set their net asset values. This practice is known as market timing and, if done effectively, it captures an arbitrage profit.”
The two were given an order to cease and desist, a notice of intent to fine and a notice of right to a hearing.
‘Bit of a Tweak’
The current management team, which is headed by President and Chief Executive Officer Douglas Graham, came onboard two years ago to try to save the ailing company, according to Graham.
“There was some ill-advised investment activity that basically left Â… issues,” Graham said.
The team has been working with the regulators ever since. The institution’s clients have been strong, but are working with Circle Trust under relatively short-term contracts, according to Graham.
“The clients have a fair bit of freedom and we’re helping them go where they want to go,” he said.
Placing a financial institution into receivership is not as common as outright failing a bank, according to Lindsay Pinkham, senior vice president and secretary of the Connecticut Bankers Association. That is likely because banks tend to fail more than trust companies, he said.
“It’s a little bit of a tweak,” Pinkham said.
The Department of Banking is not classifying Circle Trust as failing because it is still in operation. Whether it will fail depends entirely on the buyer of the institution, according to Heckman.
The last bank to fail in Connecticut was Stamford-based Connecticut Bank of Commerce three years ago. Its assets and insured deposits were transferred to Hudson United Bank of Mahwah, N.J. Before that bank failed, there had not been a failure since 1996, when the Fairfield First Bank and Trust Co. failed and its assets were transferred to the Norwalk Savings Society. Since 1989, there have been 43 bank failures in Connecticut, 31 of which were state-chartered institutions.
Circle Trust remains in operation, with the Department of Banking overseeing operations, and still has sufficient operating staff, so customers can call the bank directly with any questions about their accounts. The DOB expects the bank’s operations to continue throughout the receivership period. The length of the receivership is different in every case, Heckman said, adding that the department also expects the transfer of customers’ accounts upon the sale of the business to go smoothly.
Circle Trust Co. operates its main office at One Thorndal Circle in Darien and has an office in Rutland, Vt., which is primarily for trust processing services for other bank clients. The institution was originally known as Columbus Circle Trust Co. and was founded in 1995 in Stamford. It began to use Circle Trust Co. as its name in 1999 and relocated to Darien earlier this year. Circle Trust is not a deposit bank but a trust company providing trust and custodial services to banks and third-party administrators, not-for-profits and high-net-worth individuals.
Burke has engaged Howard Siegel of the international law firm Brown Rudnick as counsel and advisor for the court-appointed receivership. The commissioner, in his capacity as the receiver, is charged with marshaling the assets.