HomeMy WebLinkAbout930987.tiff 1 HARKINS & MICHELMAN
DANIEL M. HARKINS, ESQ. STATE BAR NO. 117671
2 2301 DuPont Drive, Suite 410
Irvine, California 92715
3 (714) 553-1800
4 BORCHARD & WILLOUGHBY, P. C.
MICHAEL D. BORCHARD, ESQ. STATE BAR NO. 132984
5 MICHAEL L. WILLOUGHBY, ESQ. STATE BAR NO. 100483
4695 MacArthur Court, Suite 1150
6 Newport Beach, California 92660
(714) 644-6161
7
Attorneys for Plaintiffs Francis M.
8 Loustalet, as Treasurer of Weld
County, Colorado, and Board of County
9 Commissioners of Weld County, Colorado
10
11 UNITED STATES DISTRICT COURT
12 FOR THE CENTRAL DISTRICT OF CALIFORNIA
13
14 FRANCIS M. LOUSTALET, an ) CASE NO. CV-92-7628-RJK(Ex)
individual , as Treasurer of
15 Weld County, Colorado, and ) FIRST AMENDED COMPLAINT FOR
BOARD OF COUNTY COMMISSIONERS ) CONSPIRACY TO VIOLATE AND
16 OF WELD COUNTY, COLORADO, ) VIOLATION OF FEDERAL SECURITIES
LAWS; VIOLATION OF RACKETEERING
17 Plaintiffs, ) INFLUENCED CORRUPT
ORGANIZATIONS ACT; COMMON LAW
18 vs. ) FRAUD AND DECEIT AND CONSPIRACY
TO COMMIT FRAUD AND DECEIT;
19 REFCO, INC. , a New York ) VIOLATION OF COLORADO
corporation, et al. , ) SECURITIES ACT; NEGLIGENCE;
20 ) BREACH OF FIDUCIARY DUTY; AND
Defendants . ) AIDING AND ABETTING VIOLATION
21 ) OF FEDERAL SECURITIES LAWS
22 ) DEMAND FOR JURY TRIAL
23
24
25 Plaintiffs Francis M. Loustalet, as Treasurer of Weld
26 County, Colorado, and Board of County Commissioners of Weld
27 County, Colorado, for their claims herein, aver as follows:
28
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1 PARTIES, JURISDICTION AND VENUE
2
3 1. Plaintiff Loustalet is, and at all times relevant
4 herein was, the Treasurer for Weld County, Colorado, a Home Rule
5 Charter county duly organized and existing under the laws of the
6 State of Colorado. Plaintiff Board is the Board of County
7 Commissioners of Weld County, Colorado. Plaintiffs Loustalet
8 and Board (hereinafter "plaintiffs" or "Weld County") are
9 authorized to bring this action under Colorado law.
10
11 2 . Plaintiffs are informed and believe, and on that
12 basis aver, that Steven D. Wymer ("Wymer") is and, at all times
13 relevant herein, was an individual doing business under the laws
14 of the State of California, and that Wymer is the sole or
15 majority owner of Capital Asset Management Corporation ( "CAMC") ,
16 a Colorado corporation, Institutional Treasury Management, Inc.
17 ("ITM") , a Florida corporation, and Denman & Company ("Denman") ,
18 a California corporation. (CAMC, Denman and ITM and any other
19 companies owned and controlled by Wymer and used to transact
20 business for plaintiffs' account are collectively referred to
21 herein as the "Wymer Companies" . )
22
23 3 . CAMC is, and at all times relevant herein was,
24 registered as an investment advisor under the Federal Investment
25 Advisors Act of 1940, as amended (the "Advisors Act") , 15 U.S.C.
26 Sec. 80b-1.
27
28 4 . Denman and ITM are, and at all times relevant
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i herein were, registered as investment advisors under the
2 Advisors Act, and licensed as investment advisors under Sec.
3 25230 of the California Corporate Securities Act.
4
5 5. Plaintiffs are informed and believe, and on that
6 basis aver, that defendant Refco, Inc. is, and at all relevant
7 times herein was, a corporation organized under the laws of the
8 State of New York or Delaware with its principal place of
9 business in New York.
10
11 6 . Plaintiffs are informed and believe, and on that
12 basis aver, that defendant Refco Capital Corporation ("Refco
13 Capital") is, and at all relevant times herein was, a
14 corporation organized under the laws of the State of New York or
15 Delaware with its principal place of business in New York .
16 Refco Capital Corporation is engaged in the business of
17 providing financing for affiliated parties and customers .
18
19 7 . Plaintiffs are informed and believe, and on that
20 basis aver, that defendant Refco Securities, Inc. ("Refco
21 Securities") is, and at all relevant times herein was, a
22 corporation organized under the laws of the State of New York or
23 Delaware with its principal place of business in New York and is
24 a wholly owned subsidiary of Refco, Inc. Plaintiffs are further
25 informed and believe, and on that basis aver, that Refco
26 Securities is a broker-dealer registered under the Federal
27 Securities Exchange Act of 1934 (the "1934 Act") , 15 U.S .C. Sec.
28 78a-78ii, is a member firm of the National Association of
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1 Securities Dealers, Inc. (the "NASD" ) and is licensed to sell
2 securities under the Exchange Act and the constitution and rules
3 of the NASD. Refco Securities also is licensed to and is doing
4 business in the State of California.
5
6 8 . Plaintiffs are informed and believe, and on that
7 basis aver, that defendant Refco Group, Ltd. is, and at all
8 relevant times herein was, an entity organized under the laws of
9 the State of New York with its principal place of business in
10 New York. Plaintiffs are further informed and believe, and on
11 that basis aver, that Refco Group, Ltd. is the parent of Refco
12 Securities, Refco Capital , and Refco, Inc. (All four Ref co
13 defendants are hereinafter collectively referred to as the
14 "Refco Entities" or the "Refco Defendants") .
15
16 9 . Plaintiffs are informed and believe, and on that
17 basis aver, that at all times relevant herein, Refco Capital,
18 Refco Securities, Refco Group, Ltd. , and Refco, Inc. , and each
19 of them, were the instrumentality and alter ego of each other,
20 and that the actions of each of them alleged herein were carried
21 out under each others ' direction and control and for each
22 others ' personal benefit, and that in law and in equity the
23 actions and omissions of each of them alleged herein should be
24 deemed the actions and omissions of each other.
25
26 10. Plaintiffs are informed and believe, and on that
27 basis aver, that defendant First Interstate Bank of Denver, N.A.
28 ("FIB") is, and at all relevant times herein was, a bank with a
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1 charter issued under the laws of the United States, doing
2 business in the State of Colorado, and with its principal place
3 of business in Denver, Colorado. Plaintiffs are further
4 informed and believe, and on that basis aver, that FIB is , and
5 at all relevant times herein was, permitted to sell securities
6 under the 1934 Act subject to its provisions and the applicable
7 regulations.
8
9 11. Plaintiffs are informed and believe, and on that
10 basis aver, that defendant Security Pacific National Trust
11 Company (NY) ("Security Pacific") was, at all relevant times
12 herein, a subsidiary of a national banking association with its
13 principal place of business in New York. Plaintiffs are further
14 informed and believe, and on that basis aver, that Security
15 Pacific is permitted to sell securities under the 1934 Act
16 subject to its provisions and the applicable regulations.
17
18 12 . Plaintiffs are informed and believe, and on that
19 basis aver, that defendant Kimberly Goodman ("Goodman") was at
20 all relevant times herein a citizen of the State of New Jersey
21 and an employee of the Refco Entities. Plaintiffs are further
22 informed and believe, and on that basis aver, that at all
23 relevant times herein, defendant Goodman was employed by the
24 Refco Entities as an account executive and in that capacity
25 defendant Goodman conducted trades in the government securities
26 market on behalf of Wymer' s investment advisor clients.
27
28 13 . Plaintiffs are informed and believe, and on that
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1 basis aver, that defendant Susan Renton ("Renton" ) is an
2 individual who, at all relevant times, was an employee of FIB.
3
4 14 . Plaintiffs are informed and believe, and on that
5 basis aver, that defendant Steen Ronlov ("Ronlov") is, and at
6 all relevant times herein was, an individual doing business in
7 Colorado and was employed by Denman, ITM and CAMC. Plaintiffs
8 are further informed and believe, and on that basis aver, that
9 at all relevant times herein Ronlov held an ownership interest
10 in CAMC, Denman and/or ITM.
11
12 15. Plaintiffs are ignorant of the true names and
13 capacities of defendants sued herein as Does 1 through 100,
14 inclusive, and therefore sue these defendants by such fictitious
15 names. Plaintiffs will amend this complaint to allege their
16 true names and capacities when ascertained. Plaintiffs are
17 informed and believe, and on that basis allege, that each of
18 such fictitiously named defendants is in some manner connected
19 with the matters herein alleged and is liable to plaintiffs
20 therefor.
21
22 16. At all relevant times herein, defendants, and
23 each of them, were the actual and ostensible agents, servants,
24 employees, partners, joint venturers, alter egos and co-
25 conspirators of each other and were acting on behalf of such
26 joint venture and partnership and within the course and scope of
27 said agency, employment and conspiracy in performing the acts
28 set forth in this Complaint. In addition, defendants ' acts, as
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1 hereinafter averred, were engaged in with the full authorization
2 and ratification of each other and each of them.
3
4 17 . The controversy between the parties resulting in
5 the claims for relief set forth in this Complaint involves sums
6 in excess of $4 . 35 million.
7
8 18 . This Court has jurisdiction pursuant to Section
9 27 of the Securities Exchange Act of 1934 , 15 U.S.C. § 78aa, the
10 Racketeer Influenced Corrupt Organizations Act ("RICO") , 18
11 U.S .C. § 1964 (c) , and 28 U.S. C. § 1331, § 1337 and § 1367 .
12
13 19 . At all times mentioned herein, each of the
14 defendants regularly transacted business in California by
15 telephone, by the United States mails, or by personally
16 appearing in this judicial district.
17
18 20. Venue is proper pursuant to Section 27 of the
19 Securities Exchange Act of 1934 , 15 U.S.C. § 78aa, because all
20 of the defendants regularly transacted business in this district
21 in connection with the purchase and sale of securities and
22 pursuant to 18 U.S. C. §§ 1965 (a) and (b) because all defendants
23 transact affairs in this judicial district. In addition, venue
24 is predicated upon Section 1391 of the Judicial Code, 28 U.S .C.
25 §1391 (b) , in that plaintiffs ' claims arose in this district in
26 that the transactions and occurrences giving rise to this action
27 occurred, in substantial part, in this district and a portion of
28 the scheme and course of conduct set forth below were carried
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1 out within this district.
2
3 THE NATURE OF THE FRAUDULENT SCHEME
4
5 21. This action arises from a massive conspiracy by
6 Wymer, his registered investment advisory firms, and Ronlov to
7 defraud investors that spanned over four years and resulted in
8 the theft of over $100 million from nineteen (19) different
9 investors. Weld County was one of the victims, and it lost its
10 entire $4 . 35 million investment in the fraudulent scheme.
11
12 22 . The implementation of the scheme was as follows.
13 Wymer, as an investment advisor, would obtain the trust,
14 confidence and funds of his various clients, including
15 plaintiffs, and induce them to turn over their investment
16 accounts to him for management through his registered investment
17 advisory firms, Denman, ITM or CAMC. Wymer then opened up or
18 pretended to open up accounts at Security Pacific and/or the
19 Refco Entities for his clients. For his services, Wymer
20 received a base fee and an additional "performance fee" based on
21 a percentage of his clients' investment gains. However, most of
22 the investment "gains" earned by Wymer' s clients were
23 fraudulent, in that they were based on fictitious transactions
24 that never took place. To create false investment gains, Wymer,
25 with the knowledge and active participation of the Refco
26 Entities, created fraudulent confirmation statements about
27 fictitious trades, manipulated the price at which actual trades
28 were made, and covered up actual trading losses with his
-8-
1 personal funds or those of his other clients. Wymer, again with
2 the knowing complicity of Refco, regularly commingled funds and
3 securities of his investment advisor clients with his personal
4 funds, with those of companies he controlled, and with those of
5 his other clients . Wymer misappropriated these customer funds
6 and securities for his benefit and the benefit of his
7 accomplices, including Ronlov, and to cover losses incurred on
8 "legitimate" trades for other clients. Refco permitted Wymer to
9 trade the customer accounts at Refco in a fraudulent manner and
10 to exercise total discretion over customers ' funds and
11 securities in a legally impermissible manner and without
12 receiving the necessary authorizations from the customers.
13 Wymer, with Refco ' s knowledge and acquiescence, sent fraudulent
14 monthly account statements to his clients which detailed the
15 false trades and false gains, thereby lulling those clients into
16 a sense of security that their investments were safe and
17 profitable. Wymer' s clients were-never-able to discover the
18 fictitious and fraudulent trades, because they did not receive
19 confirmations and account statements from the Refco Entities,
20 and thus were unable to compare their actual account statements
21 with those created by Wymer. The scheme also went undetected
22 because Refco sent false and fraudulent audit confirmations to
23 the auditors of certain Wymer customers.
24
25 23 . Plaintiffs are informed and believe, and on that
26 basis aver, that defendant Ronlov knowingly conspired with Wymer
27 to defraud Wymer's clients, including plaintiffs, by cooperating
28 with and assisting Wymer in unlawful, illegal and unauthorized
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1 trading utilizing the funds and securities of customers of Wymer
2 and the Wymer Companies. Among other things, Ronlov altered
3 indentures of trust for certain Wymer clients (the Iowa Trust
4 and the Investment Trust of Colorado ("ITC") ) for the purpose of
5 illegally trading options or government securities at two
6 broker/dealers, the profits of which were transferred to
7 accounts for the personal benefit of Wymer and Ronlov. In order
8 to prevent detection of the scheme, Wymer and Ronlov arranged
9 that communications purportedly with the clients actually would
10 be with Ronlov, by altering the Indentures of Trust to show
11 Ronlov to be the Trust Administrator for each Trust. Funds for
12 the trusts were deposited into bank accounts for the benefit of
13 Wymer and Ronlov. Plaintiffs are further informed and believe,
14 and on that basis aver, that Ronlov and/or Wymer wire-
15 transferred some or all of these funds and the profits created
16 on trading on the credit of ITC and the Iowa Trust into
17 commingled capital accounts at FIB and/or the Refco Entities,
18 where such funds were used in fraudulent purchases and sales of
19 securities and/or to make distributions to other investment
20 advisor clients in an attempt to conceal the fraudulent
21 activities of Wymer.
22
23 24 . FIB' s role was at the heart of Wymer' s fraudulent
24 scheme. In particular, FIB negligently, carelessly and
25 recklessly allowed Wymer to commingle his clients' funds and
26 securities with his personal or companies ' funds and securities
27 or those of his other clients by, among other things, allowing
28 Wymer unfettered discretion to deposit into and withdraw from a
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1 single omnibus account known at FIB as the "Denman Cities
2 Account. " In so doing, FIB disregarded wire transfer
3 instructions which explicitly indicated that deposits were being
4 made for the benefit or credit of a specific Wymer client.
5 Moreover, FIB belatedly acknowledged the impropriety of its
6 previous actions when it finally of its own volition established
7 separate accounts or subaccounts for certain of Wymer' s clients.
8 Renton was the FIB employee principally responsible for
9 overseeing and handling Wymer' s trading and other activities at
10 FIB.
11
12 25 . Security Pacific also was integral to the success
13 of Wymer' s overall scheme. Among other things, Security Pacific
14 (1) received for deposit into a Denman account at Security
15 Pacific, and permitted withdrawals into other Wymer controlled
16 accounts at Refco, funds designated for plaintiffs and other
17 Wymer investment advisor clients without segregatingthese funds
18 into separate custodial accounts as required by applicable law,
19 (2) permitted Wymer to commingle funds and securities of his
20 clients with those of other clients or Wymer' s companies, (3)
21 allowed Wymer and the Wymer Companies freely to wire transfer
22 funds to and from the Denman Security Pacific account to other
23 Denman and Wymer accounts, ignoring wire transfer instructions
24 which reflected that the funds were for the benefit of an
25 account of a specific client, including plaintiffs, and
26 (4) failed to respond to audit confirmation requests received by
27 Security Pacific with respect to certain of Wymer' s clients by
28 advising the respective auditors or the clients that the
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1 purported accounts did not exist.
2
3 26. Essential to the success of this fraudulent
4 scheme, as well as its remaining undetected for over four years,
5 was defendants ' participation and knowing, willing, reckless
6 and/or negligent conduct.
7
8 FIRST CLAIM FOR RELIEF
9 (CONSPIRACY TO VIOLATE AND VIOLATION OF THE SECURITIES
10 EXCHANGE ACT OF 1934 SECTION 10 (b) AND RULE 10b-5
11 AGAINST DEFENDANTS KIMBERLY GOODMAN, THE REFCO DEFENDANTS
12 AND STEEN RONLOV)
13
14 27 . Plaintiffs reaver and incorporate herein by
15 reference, as if set out in full, each and every averment
16 contained in paragraphs 1 through 26, inclusive.
17
18 28 . In January 1990, at the urging of Ronlov,
19 plaintiffs entered into an investment management agreement with
20 CAMC, under which CAMC would provide investment advice to
21 plaintiffs on the purchase and sale of U.S. government
22 securities for plaintiffs ' account ("Management Agreement I") .
23 Trading and investing for plaintiffs ' account was to be limited
24 to those U.S. government securities investments permitted for
25 Weld County under Colorado law. CAMC would be permitted to
26 place direct orders on plaintiffs' behalf only if specifically
27 authorized to do so. Plaintiffs ' funds and securities were to
28 be maintained in a separate, segregated custodial account at a
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1 Federal Reserve bank or other financial institution permitted to
2 act as a custodian for investment accounts of counties under
3 Colorado law. Ronlov represented to plaintiffs that Wymer was
4 an extremely successful investment advisor who managed over $1
5 billion in assets and represented many other governmental
6 entities across the country.
7
8 29 . Ronlov and Wymer also represented that Wymer was
9 a qualified investment advisor with expertise in the area of
10 government securities . Throughout their relationship, Wymer,
11 Ronlov and the Wymer Companies provided investment advice to
12 plaintiffs on an ongoing basis. At all times during the
13 existence of this investment advisory relationship, Wymer,
14 Ronlov and the Wymer Companies represented that plaintiffs '
15 funds and securities were being maintained in a separate,
16 segregated custodial account with a third-party broker, bank or
17 other financial institution.
18
19 30. In January 1991, again at Ronlov's and Wymer' s
20 specific urging, plaintiffs entered into a second investment
21 management agreement with Denman, under which Denman would
22 provide investment advice to plaintiffs on the purchase and sale
23 of U.S. government securities for plaintiffs ' account on terms
24 substantially the same as in Management Agreement I ("Management
25 Agreement II") .
26
27 31. Unbeknownst to plaintiffs, rather than providing
28 investment advisory services, Wymer and Ronlov, as is detailed
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1 herein, were conspiring with defendants to engage in a massive
2 fraudulent scheme designed to deceive and defraud plaintiffs out
3 of their entire investment.
4
5 32 . Wymer, Ronlov and the Wymer Companies, conspiring
6 with the defendants, defrauded numerous investment advisor
7 clients into believing that their money was being held at third
8 party financial institutions where it was earning a positive
9 rate of return when in reality the money and securities were
10 being commingled, profits were falsely created by bogus trading
11 confirmations, and the majority of the funds had been
12 misappropriated.
13
14 33 . Plaintiffs are informed and believe, and on that
15 basis aver, that in furtherance of this scheme, the Wymer
16 Companies marketed themselves as an investment advisor group
17 that functioned as a group with respect to the servicing and
18 handling of over $1 billion in assets entrusted to Wymer.
19 Specifically, Wymer, Ronlov, and the Wymer Companies would act
20 as the investment advisors, and the other defendants would
21 provide trading and/or financial services to Wymer, Ronlov and
22 their investment advisor clients.
23
24 34 . Plaintiffs are further informed and believe, and
25 on that basis aver, that in furtherance of this scheme, Ronlov
26 caused Weld County to receive false and fraudulent monthly
27 statements that overstated the amount of money and securities in
28 its Denman/CAMC account.
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1
2 35 . In connection with establishing the investment
3 advisory relationship in January 1990 , Ronlov represented to
4 plaintiffs that plaintiffs ' funds would be directly transferred
5 to and held in a custodial account in plaintiffs ' name at
6 Security Pacific. In January 1991, Ronlov represented to
7 plaintiffs that plaintiffs ' funds would be directly transferred
8 to and held in a custodial account in plaintiffs ' name at
9 Citibank N.A. In reliance upon these and other representations
10 by Ronlov, plaintiffs wire-transferred to the Security Pacific
11 account $4 million in January 1990. At plaintiffs ' request, $4
12 million was returned to Weld County in December 1990, but
13 plaintiffs thereafter reinvested with Ronlov by wire-
14 transferring to the Citibank account $4 . 35 million in January
15 1991. Unbeknownst to plaintiffs, the account numbers provided
16 by Ronlov were actually the numbers of Denman accounts, so that
17 the funds were actually transferred--into Denman accounts at
18 Security Pacific and Citibank. Ronlov then provided plaintiffs
19 with forged and fictitious account statements which purported to
20 show the receipt of $4 million into a custody account in
21 plaintiffs ' name at Security Pacific and then $4 . 35 million into
22 a custody account in plaintiffs ' name at Citibank.
23
24 36. Plaintiffs are informed and believe, and on that
25 basis aver, that beginning sometime in 1987 , and continuing
26 through 1991, Wymer conspired with defendants to engage in a
27 fraudulent scheme and artifice designed to misappropriate the
28 funds of plaintiffs and/or other investment advisor clients who
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Aidsag ..k a at{; dsvas.'.. ` i 4e.r="tmita. ....0h":4
1 had deposited funds with Wymer (collectively "CLIENTS") . This
2 course of conduct in furtherance of the conspiracy includes,
3 without limitation,
4
5 (a) falsely representing to CLIENTS that Wymer' s and
6 the Wymer Companies ' first priority was to maintain
7 and improve the financial stability of their
8 investment advisor clients by maximizing profits and
9 minimizing risks;
10
11 (b) falsely representing that monthly reports sent to
12 CLIENTS would include all transactions on CLIENTS '
13 behalf;
14
15 (c) falsely representing that plaintiffs ' initial
16 deposits of funds were being transferred directly into
17 a separate custodial account with Security Pacific and
18 then at Citibank N.A. ;
19
20 (d) falsely representing to CLIENTS that purchases
21 and sales of securities had been made for their.
22 account;
23
24 (e) creating and delivering to CLIENTS false account
25 statements designed to mislead and deceive CLIENTS
26 with respect to the value of their accounts and
27 location of their funds and securities by
28 misrepresenting and overstating the amount of funds
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1 and securities held on CLIENTS ' behalf;
2
3 (f) failing to cause account statements to be sent
4 directly to CLIENTS in compliance with applicable NASD
5 and SEC regulations for the purpose of deceiving
6 CLIENTS with respect to the value of their accounts;
7
8 (g) causing the Refco Defendants not to send CLIENTS
9 their monthly account statements ;
10
11 (h) making material misrepresentations and omitting
12 material facts with respect to the value and type of
13 securities being purchased for CLIENTS ' accounts;
14
15 (i) improperly using and commingling plaintiffs'
16 funds and securities with funds and securities of
17 other investment advisor clients;
18
19 (j ) improperly using and commingling CLIENTS ' funds
20 and securities with the funds and securities of
21 Wymer' s personal account and the account of the Wymer
22 Companies;
23
24 (k) knowingly transferring plaintiffs ' funds and
25 securities to or from Wymer' s account or the account
26 of other Wymer investment advisory clients without
27 disclosing these facts to plaintiffs in writing before
28 the transactions were completed;
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1
2 (1) creating and delivering false account
3 applications to banks, broker-dealers and other
4 financial institutions ;
5
6 (m) creating and delivering false trading
7 authorizations to broker-dealers;
8
9 (n) falsely and fraudulently forging signatures on
10 account applications, trading authorizations, and
11 other related agreements;
12
13 (o) failing to segregate or identify plaintiffs '
14 funds and securities in an account separate and apart
15 from those of Wymer and the Wymer Companies and the
16 accounts of other investment advisor clients as
17 required under the 1934 Act and Advisors Act;
18
19 (p) engaging in the unauthorized purchase and sale of
20 securities for CLIENTS ' accounts; and
21
22 (q) hypothecating and rehypothecating plaintiffs '
23 fully paid for securities in violation of the 1934
24 Act.
25
26 37 . Plaintiffs ' purchases and sales of government
27 securities through defendants during 1990 and 1991 constitute a
28 purchase of a security under Section 10 (b) of the Securities
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I Exchange Act of 1934 and Rule 10b-5 .
2
3 38 . Plaintiffs are informed and believe, and on that
4 basis aver, that the Refco Defendants are "control persons"
5 within the meaning of § 20 (a) of the 1934 Act.
6
7 39 . By virtue of the conduct described above,
8 defendants have violated Section 10 (b) of the Securities
9 Exchange Act of 1934 , 15 U.S.C. § 78 (j ) , and rule 10b-5
10 promulgated thereon, 17 CFR 240. 10b-5.
11
12 40 . Plaintiffs are informed and believe, and on that
13 basis aver, that defendants intentionally, recklessly and
14 fraudulently engaged in the above course of conduct for the
15 purpose of deceiving and defrauding plaintiffs.
16
17 41. Plaintiffs relied on-these-misrepresentations
18 regarding the use, whereabouts and value of their account, the
19 trading activities conducted on their behalf, the profitability
20 of those trades, misstatements regarding investment of
21 plaintiffs ' funds and on the material omissions of fact in
22 failing to disclose fictitious trading on their behalf, and did
23 so reasonably as plaintiffs had no way of knowing, and could not
24 discover through the exercise of reasonable diligence the
25 falsity of the representations and the existence of the material
26 misrepresentations and omissions.
27
28 42 . In conducting the purchase and sale of government
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1 securities on behalf of CLIENTS, defendants made use of
2 interstate instrumentalities, including telecommunications, the
3 Federal Wire Book Entry System and the United States mails, and
4 committed fraudulent acts in furtherance of their manipulative
5 and deceptive device and scheme and artifice to defraud, and in
6 furtherance of a scheme to acquire money or property through
7 untrue statements of material fact and intentional omissions of
8 material fact.
9
10 43 . As a direct and proximate consequence of
11 defendants ' conspiracy to violate and violations of Section
12 10 (b) of the Securities Exchange Act of 1934 and Rule 10b-5,
13 plaintiffs have incurred costs, expended sums of money, and
14 suffered damages, and will continue to incur costs, expend sums
15 of money and suffer damages all in an amount presently
16 unascertained but in excess of $4 . 35 million.
17
18 SECOND CLAIM FOR RELIEF
19 (VIOLATIONS OF RICO, 18 U.S.C. §§ 1962 (a) , (c) AND (d) AGAINST
20 DEFENDANTS KIMBERLY GOODMAN,
21 THE REFCO DEFENDANTS AND STEEN RONLOV)
22
23 44 . Plaintiffs reaver and incorporate herein by this
24 reference, as if set out in full , each and every averment
25 contained in paragraphs 1 through 43 hereof, inclusive.
26
27 45 . Defendants are persons, as defined in 18 U.S .C.
28 § 1962 (3) .
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2 46 . Plaintiffs are informed and believe, and on that
3 basis aver, that the defendants have acquired or attempted to
4 acquire the majority of the funds being held in CLIENTS '
5 accounts , have received valuable gifts purchased with funds in
6 CLIENTS ' accounts, or received commissions and fees through a
7 pattern of racketeering activity, in violation of 18 U.S. C.
8 §§ 1962 (a) , (c) and (d) .
9
10 47 . The pattern of racketeering activity through
ii which defendants have acquired or maintained their interest in a
12 portion of CLIENTS ' accounts consists of offenses involving
13 fraud indictable under 18 U.S.C. § 1341 and 18 U.S.C. § 1343 ,
14 money laundering indictable under 18 U.S.C. § 1956 and/or. §
15 1957 , and offenses involving fraud in the purchase and sale of
16 securities under Section 10 (b) of the Securities Exchange Act of
17 1934 .
18
19 48 . Plaintiffs are informed and believe, and on that
20 basis aver, that Wymer, Denman, ITM, CAMC, Ronlov, Goodman and
21 the Refco Defendants were associated in fact to unjustly enrich
22 themselves by means of fraud in circumvention of the Federal
23 wire and mail fraud acts, Federal money laundering acts and the
24 1934 Act.
25
26 49 . Plaintiffs are informed and believe, and on that
27 basis aver, that defendants, and each of them, have violated the
28 RICO Statute, 18 U.S .C. § 1962 (a) in that they received income
-21-
1 derived directly or indirectly from activities referred to in
2 the preceding paragraphs, and used and invested portions of that
3 income in the operations of the enterprises engaged in
4 activities which affected interstate commerce.
5
6 50 . Plaintiffs are informed and believe, and on that
7 basis aver, that defendants, and each of them, have violated the
8 RICO Statute, 18 U.S . C. § 1962 (c) in that they are either
9 employed by, affiliated with, or members of the associated in
10 fact enterprise and/or the Wymer/Denman/ITM/CAMC/Ronlov
11 enterprise. As such, defendants engaged in and participated,
12 directly or indirectly, in the conduct of the enterprises'
13 affairs through a pattern of racketeering activity.
14
15 51. Plaintiffs are informed and believe, and on that
16 basis aver, that defendants, and each of them, have violated the
17 RICO statute, 18 U.S.C. § 1962 (d) , in that they have knowingly
18 and willfully conspired to violate §§ 1962 (a) and/or 1962 (c) .
19
20 52 . Plaintiffs are informed and believe, and on that
21 basis aver, that defendants benefitted from the racketeering
22 activity of the enterprises by receiving fees, commissions,
23 profits and other income generated by the fraudulent purchase
24 and sale of securities and by obtaining use of the hundreds of
25 millions of dollars invested by CLIENTS.
26
27 53 . In the course of their continuing efforts to
28 defraud CLIENTS of the funds being held in their accounts,
-22-
1 defendants committed at least two predicate acts of racketeering
2 activity as defined in 18 U.S .C. § 1961 (1) .
3
4 54 . Among the predicate acts committed by defendants
5 was the unlawful use of interstate wires and the United States
6 mails to distribute false and misleading statements to CLIENTS
7 regarding the whereabouts, the account balance and the existence
8 of CLIENTS ' funds being held in separate, segregated custodial
9 accounts. Defendants conspired to devise a scheme to deceive
10 and defraud CLIENTS out of cash and securities that were
11 purportedly being held in their account and misled CLIENTS with
12 respect to the existence of the securities and cash in their
13 accounts and these false statements were part of the scheme.
14
15 55. Among the predicate acts committed by defendants
16 was the unlawful use of interstate wires and the United States
17 mails to distribute false and misleading statements regarding
18 the type and quantity of trading activity for CLIENTS ' accounts.
19 Defendants conspired to devise a scheme to deceive and defraud
20 CLIENTS out of cash and securities being held in their
21 investment accounts and misled CLIENTS with respect to the
22 existence of the securities and cash in their accounts and these
23 false statements were part of the scheme.
24
25 56. Among the predicate acts committed by defendants
26 was the unlawful use of interstate wires and the United States
27 mails to distribute false and misleading confirmation statements
28 indicating that nonexistent repurchase transactions had been
-23-
1 made for CLIENTS ' accounts. Defendants conspired to devise a
2 scheme to deceive and defraud CLIENTS out of cash and securities
3 being held in their accounts and misled CLIENTS with respect to
4 the existence of the securities and cash in their accounts and
5 these false statements were part of the scheme.
6
7 57 . Among the predicate acts committed by defendants
8 was the unlawful use of interstate wires and the United States
9 mails to distribute false and misleading account statements to
10 CLIENTS that concealed the fact that Wymer was commingling their
11 cash and securities with his personal accounts and the Wymer
12 Companies ' accounts and accounts of other Wymer investment
13 advisor clients in violation of the Advisors Act and of the
14 Management Agreements between CAMC, Denman and plaintiffs.
15 Defendants conspired to devise a scheme to deceive and defraud
16 CLIENTS out of cash and securities being held in their accounts
17 and misled CLIENTS with respect to the existence of the
18 securities and cash in their accounts and these false statements
19 were part of the scheme.
20
21 58 . Among the predicate acts committed by defendants
22 was the unlawful use of interstate wires and the United States
23 mails to distribute false and misleading statements that
24 concealed that fact that Wymer and the Wymer Companies were
25 engaging in the unauthorized purchase and sale of securities for
26 CLIENTS ' accounts in violation of the Advisors Act, the 1934 Act
27 and the Management Agreements between CAMC, Denman and
28 plaintiffs. Defendants conspired to devise a scheme to deceive
-24-
1 and defraud CLIENTS out of cash and securities being held in
2 their accounts and misled CLIENTS with respect to the existence
3 of the securities and cash in their accounts and these false
4 statements were part of the scheme.
5
6 59 . Each of the predicate acts were related to and in
7 furtherance of defendants ' conspiracy to deceive and defraud
8 CLIENTS out of the cash and securities being held in their
9 accounts and to generate commissions and fees. As such, they
10 constitute a "pattern of racketeering activity" within the
11 meaning of 18 U.S .C. § 1961 (5) .
12
13 60. Plaintiffs have been injured in their business
14 and property by reason of these violations of 18 U.S.C. §§
15 1962 (a) , 1962 (c) and 1962 (d) , and therefore have a cause of
16 action pursuant to 18 U.S.C. § 1964 (c) .
17
18 61. By reason of the foregoing, plaintiffs have
19 suffered damages in excess of $4 . 35 million.
20
21 62 . Plaintiffs are entitled to relief pursuant to 18
22. U.S. C. § 1964 (c) equal to three times the damages they have
23 sustained plus the costs of this suit, including reasonable
24 attorneys ' fees.
25
26
27
28
-25-
1 THIRD CLAIM FOR RELIEF
2 (FRAUD AND DECEIT AND CONSPIRACY TO COMMIT FRAUD AND DECEIT
3 AGAINST DEFENDANT STEEN RONLOV)
4
5 63 . Plaintiffs reaver and incorporate herein by
6 reference, as if set out in full, each and every averment
7 contained in paragraphs 1 through 59 hereof, inclusive.
8
9 64 . As set forth in detail above, Wymer and Ronlov
10 engaged in a fraudulent scheme to deceive and defraud CLIENTS
11 out of the cash and securities that were being held in their
12 accounts with the Wymer Companies. This conduct includes,
13 without limitation:
14
15 (a) falsely representing to CLIENTS that Wymer' s and
16 the Wymer Companies' first priority was to maintain
17 and improve the financial stability of their
18 investment advisor clients by maximizing profits and
19 minimizing risks;
20
21 (b) falsely representing that monthly reports sent to
22 CLIENTS would include all transactions on CLIENTS '
23 behalf;
24
25 (c) falsely representing that plaintiffs' initial
26 deposits of funds were being transferred directly into
27 separate custodial accounts with Security Pacific and
28 Citibank N.A. ;
-26-
1
2 (d) falsely representing to CLIENTS that purchases
3 and sales of securities had been made for their
4 accounts ;
5
6 (e) creating and delivering to CLIENTS false account
7 statements designed to mislead and deceive CLIENTS
8 with respect to the value of their accounts and
9 location of their funds and securities by
10 misrepresenting and overstating the amount of funds
11 and securities held on CLIENTS ' behalf;
12
13 (f) failing to cause account statements to be sent
14 directly to CLIENTS in compliance with applicable NASD
15 and SEC regulations for the purpose of deceiving
16 CLIENTS with respect to the value of their accounts;
17
18 (g) causing the Refco Defendants not to send CLIENTS
19 their monthly account statements;
20
21 (h) making material misrepresentations and omitting
22 material facts with respect to the value and type of
23 securities purportedly being purchased for CLIENTS '
24 accounts ;
25
26 (i) improperly using and commingling plaintiffs '
27 funds and securities with funds and securities of
28 other investment advisor clients;
-27-
1
2 (j ) improperly using and commingling CLIENTS ' funds
3 and securities with the funds and securities of
4 Wymer' s personal account and the account of the Wymer
5 Companies;
6
7 (k) knowingly selling securities or purchasing
8 securities directly from CLIENTS ' accounts to Wymer' s
9 account or the account of other Wymer investment
10 advisor clients without disclosing these facts to
11 CLIENTS in writing before the transactions were
12 completed;
13
14 (1) creating and delivering false account
15 applications to banks, broker-dealers and other
16 financial institutions;
17
18 (m) creating and delivering false trading
19 authorizations to broker-dealers;
20
21 (n) falsely and fraudulently forging signatures on
22 account applications, trading authorizations, and
23 other related agreements;
24
25 (o) failing to segregate or identify CLIENTS ' funds
26 and securities in an account separate and apart from
27 those of Wymer and the Wymer Companies and the
28 accounts of other investment advisor clients as
-28-
•I
1 required under the 1934 Act and Advisors Act;
2
3 (p) engaging in the unauthorized purchase and sale of
4 securities for CLIENTS ' accounts ; and
5
6 (q) improperly hypothecating and rehypothecating
7 CLIENTS ' fully paid for securities in violation of the
8 1934 Act.
9
10 65. Plaintiffs are informed and believe, and on that
11 basis aver, that Ronlov knew his representations were false at
12 the time they were made and intentionally made material
13 omissions of facts. Moreover, plaintiffs are further informed
14 and believe, and on that basis aver, that Ronlov made the false
15 representations and material omissions of facts with the intent
16 that plaintiffs rely on them.
17
18 66. In reliance on Ronlov' s false representations and
19 material omissions of facts, plaintiffs delivered funds to
20 Wymer' s companies and permitted Wymer, Ronlov and their
21 companies to engage in trading activities on their behalf. At
22 the time Ronlov made these false representations and material
23 omissions of facts, and at the time of plaintiffs ' reliance on
24 them, plaintiffs were ignorant of the falsity of those
25 representations and material omissions of facts and reasonably
26 relied upon them. Plaintiffs could not in the exercise of
27 reasonable diligence have discovered the falsity of those
28 representations.
-29-
1
2 67 . Had plaintiffs known the true facts that their
3 cash and securities were not being held in separate, segregated
4 custodial accounts , that their funds were being commingled with
5 Wymer' s and Ronlov' s personal and business funds, that false and
6 misleading information about the trading activity on plaintiffs '
7 account was being disseminated, that plaintiffs ' account balance
8 as represented by Ronlov was false and inaccurate, that Wymer
9 and Ronlov were forging customer agreements and trading
10 authorizations, and that Wymer and Ronlov were engaging in the
11 unauthorized purchase and sale of securities on plaintiffs '
12 behalf, plaintiffs would not have delivered any funds to Ronlov,
13 Wymer or their companies and would have discontinued their
14 investment advisor relationship with CAMC/Denman immediately.
15
16 68 . As a direct and proximate result of Ronlov' s
17 fraud and deceit, plaintiffs have incurred costs, expended sums
18 of money, and suffered damages, and will continue to incur
19 costs, expend sums of money and suffer damages all in an amount
20 presently unascertained, but in excess of $4 . 35 million.
21
22 69 . The aforementioned conduct of Ronlov constitutes
23 a fraudulent scheme carried out by the use of intentional
24 misrepresentations and deceit with the intention on his part of
25 depriving plaintiffs of property or legal rights or otherwise
26 causing injury, and was despicable conduct that subjected
27 plaintiffs to unjust hardship and injury and was in conscious
28 disregard of plaintiffs ' rights, sufficient to justify an award
-30-
1 of exemplary and punitive damages.
2
3 FOURTH CLAIM FOR RELIEF
4 (NEGLIGENCE AND BREACH OF FIDUCIARY DUTY
5 AGAINST DEFENDANT STEEN RONLOV)
6
7 70. Plaintiffs reaver and incorporate herein by
8 reference, as if set out in full, each and every averment.
9 contained in paragraphs 1 through 59 , and 64 through 67 hereof,
10 inclusive.
11
12 71. At all times relevant herein, Ronlov owed
13 plaintiffs a duty to perform all acts required of him in a
14 reasonable and competent manner comparable to the level of skill
15 of other professionals in his field. By virtue of Ronlov' s
16 status as an investment advisor, Ronlov also owed plaintiffs a
17 fiduciary duty.
18
19 72 . Plaintiffs are informed and believe, and on that
20 basis aver, that during 1990 and 1991 Wymer, through the
21 investment advisory companies he owned or controlled, conducted
22 thousands of securities transactions, and that the majority of
23 these trades were conducted through Wymer's corporate and
24 personal trading accounts, rather than for the separate accounts
25 of Wymer' s investment advisor clients. Plaintiffs are further
26 informed and believe, and on that basis aver, that Wymer
27 continually transferred and commingled plaintiffs ' funds and
28 securities with funds and securities in Wymer' s and the Wymer
-31-
1 Companies ' trading accounts and in the accounts of other
2 investment advisory clients of Wymer, in direct violation of
3 applicable provisions of the 1934 Act, the Advisors Act and NASD
4 regulations. Ronlov was aware or, through the exercise of
5 reasonable diligence, should have been aware that these
6 transactions for Wymer' s personal and corporate trading accounts
7 were being made with funds and securities that had been
8 misappropriated from Wymer customer accounts . At no time did
9 Ronlov inform plaintiffs of the improper and illegal trading
10 activities or take any action to bring those activities to a
11 halt.
12
13 73 . Plaintiffs are informed and believe, and on that
14 basis aver, that at all times relevant herein Ronlov was aware
15 of the requirement that the funds and securities of investment
16 advisory clients were to be kept in separate custodial accounts
17 in the clients' names at brokers or at banks or other financial
18 institutions and that the funds and securities of each client
19 had to be individually identified and segregated from those of
20 the broker, the investment advisor and other clients of the
21 investment advisor. Plaintiffs are further informed and
22 believe, and on that basis aver, that Ronlov was, or through the
23 exercise of reasonable diligence should have been aware that
24 Wymer and the Wymer Companies commingled their own funds with
25 those of their clients and failed to maintain separate custodial
26 accounts for each client, and that, notwithstanding such
27 knowledge, Ronlov failed and refused to notify the SEC, the NASD
28 or plaintiffs of these activities or otherwise take action to
-32-
I stop them.
2
3 74 . By his acts and omissions averred above, Ronlov
4 negligently, recklessly and carelessly performed the acts
5 required of him and breached the fiduciary duty he owed to
6 plaintiffs.
7
8 75 . As a direct and proximate consequence of
9 defendant' s negligence and breach of fiduciary duty, as averred
10 above, plaintiffs have been damaged in an amount not presently
11 known, but believed to be in excess of $4 . 35 million.
12
13 76 . The aforementioned conduct of Ronlov in breaching
14 his fiduciary duty was carried out with the intention on his
15 part of depriving plaintiffs of property or legal rights or
16 otherwise causing injury, and was despicable conduct that
17 subjected plaintiffs to unjust hardship and injury and was in
18 conscious disregard of plaintiffs' rights, sufficient to justify
19 an award of exemplary and punitive damages.
20
21 FIFTH CLAIM FOR RELIEF
22 (NEGLIGENCE AGAINST DEFENDANTS FIRST INTERSTATE BANK OF DENVER
23 AND SUSAN RENTON)
24
25 77 . Plaintiffs reaver and incorporate herein by
26 reference, as if set out in full , each and every averment
27 contained in paragraphs 1 through 59 hereof, inclusive.
28
-33-
1 78 . Plaintiffs are informed and believe and thereon
2 aver that Wymer opened, maintained and utilized a trading
3 account at FIB in the name of Denman, through which purchases
4 and sales of securities were executed and offset with customer
5 funds. Plaintiffs are further informed and believe and thereon
6 aver that Wymer opened, maintained and utilized various capital
7 accounts at FIB which contained customer funds which were used
8 to execute and offset purchases and sales of securities in the
9 Denman trading account.
10
11 79 . Plaintiffs are informed and believe and thereon
12 aver that in 1988, Wymer opened at least two capital accounts at
13 FIB, one in his personal name (FIB No. 1) and another FIB
14 account which Wymer informed FIB would contain the funds of
15 customers of Denman and Wymer. (FIB No. 2) . Plaintiffs are
16 further informed and believe and thereon allege that from 1988
17 through mid-1991, Wymer instructed FIB officers and employees to
18 receive wire transfers of Wymer, Denman, ITM and CAMC customer
19 funds into and out of FIB No. 2 and to use this account for
20 debits and credits for trades in the account established by
21 Wymer as the Denman trading account. Plaintiffs are further
22 informed and believe and thereon aver that Wymer later began
23 wire-transferring customer funds into his personal account (FIB
24 No. 1) . Plaintiffs are further informed and believe and thereon
25 aver that FIB personnel, including but not limited to Renton,
26 knew or recklessly failed to discover that Wymer was wire
27 transferring funds of customers into his personal account (FIB
28 No. 1) . Among other things, FIB and Renton ignored wire
-34-
1 transfer instructions that expressly indicated that funds or
2 securities were being received by FIB for the benefit of a
3 specific Wymer client. Plaintiffs are further informed and
4 believe and thereon aver that Wymer instructed FIB personnel,
5 including but not limited to Renton, to use FIB No. 1 for debits
6 and credits for trades in the Denman trading account.
7 Plaintiffs are further informed and believe and thereon allege
8 that in November 1991, upon the advent of an investigation by
9 the Securities and Exchange Commission into Wymer's activities,
10 Wymer opened up a new account at FIB entitled the Securities
11 Clearing account (FIB No. 3) through which Wymer executed
12 transactions with Wymer, Denman, ITM and CAMC customer funds and
13 continued to debit and credit trades in the Denman trading
14 account, now utilizing FIB No. 3 .
15
16 80. Plaintiffs are further informed and believe and
17 thereon aver that FIB opened, maintained or utilized trading
18 accounts at FIB in the name of Wymer' s clients, which trading
19 accounts were opened, maintained and utilized without the
20 authorization or consent of the clients.
21
22 81. Plaintiffs are further informed and believe and
23 thereon aver that as a part of the scheme to defraud CLIENTS,
24 Wymer, by and through the FIB accounts, commingled his clients'
25 funds and securities with his personal or company funds and
26 securities and those of his other clients.
27
28 82 . Plaintiffs are further informed and believe and
-35-
1 thereon aver that as part of the scheme to defraud customers
2 Wymer, by and through the FIB accounts, engaged in trade "mark-
3 ups" , that is, Wymer purchased securities from FIB and then
4 instructed FIB to sell the same securities to one or more of
5 Wymer, Denman, ITM or CAMC ' s customers at a higher price (above
6 the market price) , the difference being placed in the commingled
7 FIB Account Nos. 1 through 3 .
8
9 83 . Plaintiffs are informed and believe and thereon
10 aver that in doing the things averred herein, FIB, by and
11 through its employees, negligently, carelessly or recklessly
12 permitted Wymer, ITM, Denman and CAMC, to misappropriate the
13 funds of plaintiffs and other customers of Wymer, Denman, ITM
14 and CAMC, and secured for itself substantial commissions and
15 fees as a result of the trading and other activities Wymer
16 undertook at FIB.
17
18 84 . At all times relevant herein, defendants owed
19 plaintiffs a duty to perform all acts required of them in a
20 reasonable and competent manner comparable to the level of skill
21 of other professionals in their field. FIB was further
22 obligated to implement and enforce a reasonable system of
23 internal controls to supervise its employees.
24
25 85. Plaintiffs are informed and believe, and on that
26 basis aver, that during 1990 and 1991 defendant Wymer, through
27 the investment advisory companies he owned or controlled,
28 conducted thousands of securities transactions through FIB and
-36-
1 others, and that a substantial number of these trades were
2 conducted through Wymer' s corporate and personal trading
3 accounts, rather than for the separate accounts of Wymer' s
4 investment advisor clients. Plaintiffs are further informed and
5 believe, and on that basis aver, that Wymer continually
6 transferred and commingled plaintiffs ' funds and securities with
7 funds and securities in Wymer' s and the Wymer Companies ' trading
8 and capital accounts and in the accounts of other investment
9 advisory clients of Wymer, in direct violation of applicable
10 provisions of the 1934 Act and the Advisors Act. FIB, through
11 the exercise of reasonable diligence, should have been aware
12 that these transactions for Wymer' s personal and corporate
13 trading accounts were being made with funds and securities that
14 had been misappropriated from Wymer customers. At no time did
15 FIB inform the SEC or Wymer' s customers of the improper and
16 illegal trading activities of Wymer and the Wymer Companies.
17
18 86 . Plaintiffs are informed and believe, and on that
19 basis aver, that FIB failed to supervise the employment
20 activities of its employees, including, without limitation: (1)
21 failing to review properly their incoming and outgoing mail; (2)
22 failing to establish adequate safeguards and internal controls
23 and procedures designed to monitor and supervise the activities
24 of its employees; and (3) failing to comply with or implement
25 its existing internal procedures or controls for supervising and
26 monitoring the activities of its employees.
27
28 87 . Plaintiffs are informed and believe, and on that
-37-
1 basis aver, that in performing the acts averred above, Renton
2 was acting within the course and scope of her employment with
3 FIB, and that her acts as set forth above were ratified and
4 approved by FIB.
5
6 88 . Plaintiffs are informed and believe, and on that
7 basis aver, that at all times relevant herein FIB and Renton
8 were aware of the requirement that the funds and securities of
9 investment advisory clients of Wymer were to be kept in separate
10 custodial accounts in the clients ' names at brokers or at banks
11 or other financial institutions and that the funds and
12 securities of each client had to be individually identified and
13 segregated from those of the investment advisor and other
14 clients of the investment advisor. Plaintiffs are further
15 informed and believe, and on that basis aver, that FIB and
16 Renton were aware, or recklessly failed to discover, that Wymer
17 and the Wymer Companies commingled their funds with those of
18 their clients and failed to maintain separate custodial accounts
19 for each client, and that, notwithstanding such knowledge, FIB
20 and Renton failed and refused to notify the SEC or plaintiffs of
21 these activities.
22
23 89 . By their acts and omissions averred above,
24 defendants negligently, recklessly and carelessly performed the
25 acts required of them.
26
27 90. As a direct and proximate consequence of
28 defendants ' negligence, as averred above, plaintiffs have been
-38-
1 damaged in an amount not presently known, but in excess of $4 . 35
2 million.
3
4 SIXTH CLAIM FOR RELIEF
5 (NEGLIGENCE AGAINST DEFENDANT SECURITY PACIFIC
6 NATIONAL TRUST COMPANY [NY] )
7
8 91 . Plaintiffs reaver and incorporate herein by
9 reference, as if set out in full, each and every averment
10 contained in paragraphs 1 through 59 hereof, inclusive.
11
12 92 . Plaintiffs are informed and believe, and on that
13 basis aver, that in or about February 1989, Wymer opened an
14 account at Security Pacific in the name of Denman (the "Denman
15 Account") . At all times relevant herein, Security Pacific was
16 aware that Wymer and the Wymer Companies were engaged in the
17 business of providing investment advice to clients whose cash
18 and securities were required to be maintained in separate
19 segregated custodialized accounts.
20
21 93 . Plaintiffs are further informed and believe , and
22 on that basis aver, that Security Pacific knew or recklessly
23 failed to discover that Wymer and the Wymer Companies
24 transferred and commingled funds and/or securities of their
25 investment advisor clients to, from, and with the Denman
26 Account, the Wymer Companies' accounts at other institutions and
27 with the funds and securities of Wymer' s other investment
28 advisor clients. Wymer also used the Denman Account to fund
-39-
1 trading on Wymer 's behalf or on behalf of Wymer ' s clients.
2
3 94 . At all times relevant herein, defendant Security
4 Pacific owed plaintiffs and other Wymer clients whose funds were
5 transferred to Security Pacific a duty to perform all acts
6 required of it in a reasonable and competent manner comparable
7 to the level of skill of other banks and financial institutions
8 in the area and to comply with all applicable laws and
9 regulations.
10
11 95. Notwithstanding this duty of care, Security
12 Pacific negligently allowed plaintiffs ' funds and the funds of
13 other Wymer clients to be deposited into the Denman Account
14 rather than a custody account in the client ' s name, although the
15 wire transfer instructions indicated that the funds were for the
16 benefit of plaintiffs or other clients. Security Pacific then
17 failed to notify that client that the account number on the wire
18 transfer instructions was for a Denman account, not an account
19 in the client 's name, or that the client in fact had no account
20 at Security Pacific. Thereafter, Security Pacific negligently
21 and carelessly allowed Wymer to transfer plaintiffs ' and other
22 clients ' funds out of the Denman Account to another Wymer
23 controlled account.
24
25 96. Plaintiffs are informed and believe, and on that
26 basis aver, that at all times relevant herein, Security Pacific
27 failed to implement and maintain the necessary and proper
28 internal controls and procedures to monitor and supervise
-40-
. 4
1 account activity, including without limitation, the transfer of
2 cash to and from the Denman Account which Security Pacific knew
3 to be the account of an investment advisor, which permitted
4 Wymer to commingle client funds with those of other clients or
5 his personal or companies ' funds.
6
7 97 . Plaintiffs are informed and believe, and or. that
8 basis aver, that at all times relevant herein, Security Pacific
9 failed to implement and maintain the necessary and proper
10 internal controls and procedures to respond appropriately to
11 audit confirmation requests received on behalf of Wymer's
12 clients, which permitted Wymer to continue to conceal his theft
13 of client funds and securities from his clients.
14
15 98 . By its acts and omissions averred above, defendant
16 Security Pacific negligently, recklessly and carelessly breached
17 its duty of care to plaintiffs.
18
19 99 . As a direct and proximate consequence of
20 defendant Security Pacific' s negligence, plaintiffs have
21 incurred costs, expended sums of money, and suffered damages,
22 and will continue to incur costs, expend sums of money and
23 suffer damages, all in an amount presently unascertained, but in
24 excess of $4 . 35 million.
25
26
27
28
-41-
• /.
1 SEVENTH CLAIM FOR RELIEF
2 (AIDING AND ABETTING VIOLATIONS OF SECURITIES EXCHANGE ACT OF
3 1934 SECTION 10 (b) AND RULE 10b-5 AGAINST DEFENDANTS FIRST
4 INTERSTATE BANK OF DENVER, SUSAN RENTON, AND SECURITY PACIFIC)
5
6 100. Plaintiffs reaver and incorporate' herein by
7 reference, as if set out in full , each and every averment
8 contained in paragraphs 1 through 59 , 78 through 89, and 92
9 through 98 hereof, inclusive.
10
11 101. By virtue of the conduct averred above,
12 defendants recklessly aided, abetted and assisted Wymer in the
13 wrongdoing set forth above, including his misappropriation and
14 theft of the funds and securities of his investment advisor
15 clients. Defendants ' conduct substantially assisted Wymer' s
16 violations of Section 10 (b) and Rule lob-5 to the benefit of
17 defendants .
18
19 102 . As a direct and proximate consequence of
20 defendants ' aiding and abetting violations of Section lOb of the
21 Securities Exchange Act of 1934 and Rule 10b-5 , plaintiffs have
22 incurred costs, expended sums of money, and suffered damages,
23 and will continue to incur costs, expend sums of money and
24 suffer damages all in an amount presently unascertained but in
25 excess of $4 . 35 million.
26
27
28
-42-
. x 1
1 EIGHTH CLAIM FOR RELIEF
2 (VIOLATION OF COLORADO SECURITIES ACT AGAINST DEFENDANTS
3 KIMBERLY GOODMAN, THE REFCO DEFENDANTS AND STEEN RONLOV)
4
5 103 . Plaintiffs reaver and incorporate herein by
6 reference, as if set out in full , each and every averment
7 contained in paragraphs 1 through 59 hereof, inclusive.
8
9 104 . By virtue of falsehoods, misrepresentations and
10 omissions of material fact as more particularly averred above,
11 defendants have violated § 11-51-501 of the Colorado Securities
12 Act.
13
14 105. By virtue of defendants ' violations of § 11-51-
15 501 of the Colorado Securities Act, plaintiffs are entitled
16 under § 11-51-604 of the Colorado Securities Act to recover
17 damages in an amount to be determined at trial.
18
19 WHEREFORE, plaintiffs pray for judgment in their favor
20 as follows:
21
22 On All Claims for Relief:
23
24 1. For general damages in an amount according to
25 proof at trial, but in excess of $4 . 35 million, with prejudgment
26 interest accruing thereon;
27
28 2 . For reasonable attorneys ' fees;
-43-
t. .., , - e+
1
2 3 . For costs and expenses of suit incurred herein;
3 and
4
5 4 . For such other and further relief as the court
6 may deem just and proper.
7
8 On the Third and Fourth Claims for Relief:
9
10 1. For punitive damages in an amount to be
11 determined at trial .
12
13 On the Second Claim for Relief:
14
15 1. For treble damages as provided by 18 U.S .C. g
16 1964 (c) of RICO; and
17
18 2 . For reasonable attorneys ' fees as provided by 18
19 U.S .C. g 1964 (c) of RICO.
20
21 Dated: May 3 , 1993 HARKINS & MICHELMAN
22 and
23 BORCHARD & WILLOUGHBY, P.C.
24
25 By: J -t V /
Michael L. Wil 'ou�hby
26 Attorneys For Plaintiffs Francis
M. Loustalet, as Treasurer of Weld
27 County, Colorado and Board of
County Commissioners of Weld
28 County, Colorado
-44-
1 DEMAND FOR JURY TRIAL
2
3 Plaintiffs Francis M. Loustalet, as Treasurer of Weld
4 County, Colorado, and Board of County Commissioners of Weld
5 County, Colorado hereby demand a trial by jury.
6
7 HARKINS & MICHELMAN
8 and
9 BORCHARD & WILLOUGHBY, P. C.
10
11 By: V
Michael L. Willoug bS
12 Attorneys For Plaintiffs Francis
M. Loustalet, as Treasurer of Weld
13 county, Colorado and Board of
County Commissioners of Weld
14 County, Colorado
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-45-
1 DECLARATION OF SERVICE BY MAIL
2
3 I , Ann Wade, say:
4 1 . I am and at all times herein mentioned was a
citizen of the United States and a resident of the County of
5 Orange. I am over the age of eighteen (18) years and not a
party to the within action. My business address is 4695
6 MacArthur Court, Suite 1150, Newport Beach, California 92660,
and I am employed in the office of a member of this Court at
7 whose direction the service was made.
8 2 . I am readily familiar with the normal business
practice of my employer for the collection and processing of
9 correspondence and other materials for mailing with the United
States Postal Service. In the ordinary course of business , any
10 materials designated for mailing with the United States Postal
Service and placed by me for collection in the office of my
11 employer is deposited the same day with the United States Postal
Service.
12
3 . On May 3 , 1993 , I served the within
13
14 FIRST AMENDED COMPLAINT FOR CONSPIRACY TO VIOLATE AND VIOLATION
OF FEDERAL SECURITIES LAWS ; VIOLATION OF RACKETEERING INFLUENCED
15 CORRUPT ORGANIZATIONS ACT; COMMON LAW FRAUD AND DECEIT AND
CONSPIRACY TO COMMIT FRAUD AND DECEIT; VIOLATION OF COLORADO
16 SECURITIES ACT; NEGLIGENCE; BREACH OF FIDUCIARY DUTY; AND AIDING
AND ABETTING VIOLATION OF FEDERAL SECURITIES LAWS
17
18 upon counsel named below by placing a true copy thereof in an
envelope (s) addressed as follows:
19
SEE ATTACHED SERVICE LIST
20
I sealed said envelope (s) and, following the ordinary business
21 practices of my employer, placed said sealed envelope(s) in the
office of my employer at 4695 MacArthur Court, Suite 1150,
22 Newport Beach, California 92660, for collection and mailing with
the United States Postal Service on the same date.
23
I declare under penalty of perjury under the laws of
24 the State of California that the foregoing is true and correct.
25 Executed this 3 day of May, 1993 , at Newport
Beach, California.
26
27
Ann Wade
28
-46-
T
SERVICE LIST
FRANCIS M. LOUSTALET, ET AL. V. REFCO, INC., ET AL.
USDC CASE NO. CV-92-7628-MRP (Ex)
Jack Weinberg, Esq. Joseph K. Brenner, Esq.
Graubard Mollen Horowitz Wilmer Cutler & Pickering
Pomeranz & Shapiro 2445 M Street, N.W.
600 Third Avenue Washington, D.C. 20037-1420
New York, NY 10016-1903
Mark H. Epstein, Esq. Dempsey Kenneth Mork
Munger Tolles & Olson DLO Securities, Inc.
355 South Grand Avenue, Suite 3500 9551 Wilshire Boulevard
Los Angeles, CA 90071 Beverly Hills, CA 90212
Gregory C. Ward, Esq. Wilbur L. Kipnes, Esq.
Nisen & Elliott Schnader Harrison Segal & Lewis
200 West Adams Street, Suite 2500 1600 Market Street, Suite 3600
Chicago, IL 60606 Philadelphia, PA 19103-4252
Jack P. DiCanio, Esq. Thomas P. Puccio, Esq.
McCambridge Deixler Marmaro & Goldberg Law Offices of Thomas P. Puccio
2029 Century Park East, Suite 2700 277 Park Avenue
Los Angeles, CA 90067 New York, NY 10172-003O
Martin Flumenbaum, Esq. Fred D. Heather, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison McKenna & Cuneo
1285 Avenue of the Americas 444 S. Flower Street, 8th Floor
New York, NY 10019-6064 Los Angeles, CA 90071-2909
John Fauvre, Esq. Lee E. Foreman, Esq.
Bank of America Haddon Morgan & Foreman, P.C.
Legal Department 150 East Tenth Avenue
555 South Flower, 8th Floor Denver, CO 80203
Los Angeles, CA 90071
David A. DeJute, Esq. Michael W. Reagor, Esq.
Kinsella Boesch Fujikawa & Towle Decker DeVoss & O'Malley, P.C.
1901 Avenue of the Stars, 7th Floor 2101 South Clay Street
Los Angeles, CA 90067 Denver, CO 80219
Gene G. Harter, Esq. Michael G. Rhodes, Esq.
Union Bank Square Cooley Godward Castro
445 South Figueroa Street, Suite 2400 Huddleson & Tatum
Los Angeles, CA 90071 4365 Executive Drive, #1000
San Diego, CA 92121
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