Chimicles & Tikellis LLP, a national class-action law firm with an office in Montgomery County, filed the suit in 2012 on behalf of Southeastern Pennsylvania Transportation Authority and other Orrstown shareholders.
It alleges the Shippensburg-based company incorrectly accounted for bad loans in some reports it issued between 2010 and 2012, misleading SEPTA and others who invested in it.
The suit has gone back and forth in federal court for more than four years, with the court dismissing a previous version of the complaint. Legal counsel for Orrstown asked the court to also throw out a version filed earlier this year.
A judge partially granted that request Wednesday. The ruling dismissed several parts of the suit, including allegations about the involvement of firms that did auditing and underwriting for the bank and several current and former board members.
The bank’s fight, however, will continue into the new year, in part because of findings from a recent SEC investigation.
As part of Wednesday’s ruling, the court denied Orrstown’s request to throw out claims that it approved misleading statements in various reports and statements it filed between 2010 and 2012.
The court previously dismissed these allegations, citing a lack of evidence, but agreed Wednesday to look into them again in light of additional findings, including the SEC report released earlier this year.
Orrstown declined to comment on the ruling.
The SEC probe found that Orrstown did not properly disclose the troubled condition of loans from some of its largest borrowers, which were in danger of not being repaid. Orrstown ultimately agreed to pay a $1 million penalty to settle the investigation. But in doing so, it did not admit or deny the SEC’s findings.
Still, the SEC report provided enough grounds for the court to continue looking into Chimicles & Tikellis’s claim that Orrstown – along with current president and CEO Thomas Quinn, former chief credit/risk officer Jeffrey Embly and former CFO Bradley Everly – misled investors by not properly accounting for the bad loans.
Orrstown has repeatedly denied the suit’s allegations, saying in its most recent quarterly report that it intends to “vigorously defend itself against those claims.”
Wednesday’s ruling means the case will move on to a discovery phase, a time frame for which will be determined next month.
Shippensburg-based Orrstown Financial, parent company of Orrstown Bank, has roughly $1.4 billion in assets and 25 offices throughout southcentral Pennsylvania and northern Maryland. It broke ground on a new branch in Manheim Township, Lancaster County earlier this week.