Heidi Stanley, who for two decades helped build Sterling Financial into a Northwest banking powerhouse and rose to chief executive officer, accuses two subordinates of leveraging her struggle with breast cancer into a palace coup that toppled her career.
The allegations come during a critical stage of her lawsuit against the bank: Spokane County Superior Court Judge James Triplet is expected to rule this week on whether the case should be dismissed or whether Stanley can bring her discrimination complaint to a jury this summer.
The case provides a glimpse into the cutthroat culture of banking amid economic turmoil five years ago. Sterling, like many other banks, had become overloaded with bad construction and real estate loans and used a multimillion-dollar federal bailout to help raise new capital.
Sterling, acquired this spring by Oregon banking company Umpqua Holdings Inc., contends Stanley was an ineffective leader who had to be dismissed as CEO in fall 2009 if the failing bank was to qualify for the federal bailout funds and an infusion of private investment.
Stanley claims two executives hired by Sterling to help her steer the bank through the financial crisis instead betrayed her while she missed work following surgeries and rounds of chemotherapy. Referring to emails and interviews with other bank employees, she accuses Greg Seibly and Ezra Eckhardt of engineering her ouster by conspiring with Wall Street advisers Sandler O’Neill + Partners to build a bogus assertion that new investment dollars could only be had if Sterling’s board terminated “legacy management” – which included Stanley and longtime chairman Harold Gilkey, who founded the bank in the early 1980s and built it into one of the region’s leading companies.
In one private email exchange, Seibly and Eckhardt discussed that they needed to “take charge” while Stanley was out sick.
Stanley said she was unaware of what had transpired in the weeks leading up to her firing until she brought her concerns to an attorney months after board members unanimously voted she be ousted. As internal documents were disclosed, her attorney, Bob Dunn, said he pieced together what amounts to a plot and brought his findings to Stanley.
She was “beyond devastated,” he said.
“This is a professional woman who rose to the top only to be discriminated against in the most brutal way,” he said.
Sterling attorney Greg Hollon said the accusations are untrue.
“Any allegations of a ‘coup’ are desperate efforts by Ms. Stanley to try to create a case where none exists,” Hollon said. “Ms. Stanley’s allegations of discrimination are outrageous and totally without merit. Her termination had nothing to do with her cancer diagnosis, nor did it have anything to do with her gender. Indeed, Mr. Gilkey, a man without cancer, was terminated at the same time based on the same advice.”
He added: “Those changes were necessary because, according to the outside expert advisers, investors would not invest new money in Sterling if the individuals who were the ‘face’ of Sterling during its decline remained at the helm.”
In the days following the firings, Gilkey spoke with Stanley and summarized what had happened: “They (Sterling) don’t want a 70-year-old guy and a female executive with breast cancer as the face of the company. They need to know (Stanley) will be around in 10 years,” according to court documents.
Before Stanley’s firing, Sterling’s board asked former company CEO William Zuppe to conduct a review of Stanley. He interviewed other Sterling managers including Seibly and Eckhardt.
Zuppe reported that Stanley, who climbed her way through Sterling’s ranks for 24 years and once was recognized by the industry as one of banking’s leading female executives, “was ineffective as CEO of (Sterling Savings Bank) long before she was diagnosed, and that the bank could and must move forward without Ms. Stanley at the helm.”
Zuppe had supported Stanley’s ascension as his successor in 2008, the same time banks began reeling from the real estate bust.
Dunn described Zuppe’s role as dubious.
Stanley replaced Zuppe in 2008 as chief executive. It was Zuppe, Dunn said, who led Sterling during the critical years just before the bank’s failure. He spearheaded the bank’s aggressive loan practices, including signing off on Sterling’s foray into Southern California construction lending that devastated its balance sheet. In the wake of that failure, Dunn said, Stanley was left with the task of saving Sterling.
When Sterling received a cease-and-desist letter from federal banking regulators in 2009, Stanley as CEO shared the letter with Seibly and Eckhardt.
Instead of helping her, she said, they initiated their own talks with Sandler O’Neill and formulated a takeover strategy.
Dunn said everyone wanted to blame others for the bank’s freefall and a weakened Stanley was an easy target.
Gilkey is expected to testify that Seibly and Eckhardt acted above their pay grade by holding talks with Sandler O’Neill and other Wall Street advisers behind Stanley’s back.
The “termination of legacy management” plan worked, Dunn said. But he said Seibly and Eckhardt illegally employed discrimination and dishonesty as a tactic.
Dunn said there were no specific investors who said they wouldn’t put money into Sterling if Stanley remained in charge. In essence, he said, Seibly, Eckhardt and a Wall Street agent misled the board.
“We asked: ‘Who are the investors?’ No answer. We asked again: ‘Who are they?’ They said there were no specific investors, but rather it was their belief that that was the flavor of Wall Street at the time when it comes to legacy management,” Dunn said.
Stanley initially sought about $7.8 million when she sued in 2012. Today, she seeks more than $12 million.
In the aftermath of her firing, Stanley went to work for her family’s Spokane business, Empire Bolt and Screw.
Sterling’s board members said the firing of Stanley during the tumult of 2009 had nothing to do with cancer. A common refrain in their sworn statements filed in the case reflects concern for Stanley’s health, plus a belief that the bank needed new leadership to attract recapitalization.
“With respect to Ms. Stanley’s termination, the only time Ms. Stanley’s cancer was even mentioned was in connection with the directors expressing personal concern that a termination would be difficult for her given that she was already dealing with her illness and treatment,” wrote board member Dianne E. Spires, an accounting executive from Oregon, in supporting Sterling’s insistence that Stanley’s discrimination claim is without merit.
Seibly and Eckhardt were widely credited with leading Sterling back to stability, which preserved 2,500 jobs, including more than 500 in Spokane. Their leadership ultimately ushered the $2 billion sale of the bank to Umpqua.
Seibly has since moved to Portland, where he is now president of consumer banking for Umpqua. He earned $2.2 million in salary and benefits during 2012 as CEO of Sterling. Eckhardt is an executive vice president for Umpqua based in Spokane. He earned $1.4 million in 2012 as chief operating officer of Sterling.
Spires wrote that she voted to fire Stanley with other board members on the advice of Wall Street adviser Sandler O’Neill + Partners.
“I felt it was my duty to keep the bank going forward and that recapitalization was necessary for the bank to survive,” she wrote.
Sterling first netted about $300 million in U.S. Treasury bailout funds under the Troubled Asset Relief Program.
Then, after Seibly supplanted Stanley as CEO and Eckhardt became second in command, groups of private equity investors sunk another $400 million into Sterling, including about $140 million each from Warburg Pincus Partners and Thomas H. Lee Partners. Other groups and individuals also invested.
Court documents disclose that Sandler O’Neill’s payday included $15 million for linking Sterling to the private equity groups, and then another $6 million for advising the bank’s sale to Umpqua.