The trustee for a failed government securities dealer has sued Security Pacific Corp. and a bank subsidiary for $477 million, claiming that they contributed to the dealer's downfall in April.
In a lawsuit filed last week in U.S. District Court in New Jersey, New York attorney Saul S. Cohen, the court-appointed bankruptcy trustee for Bevill, Bresler & Schuman Asset Management, alleged that Security Pacific and its securities-clearing unit failed to exercise their obligation to protect the holdings of Asset Management's customers.
The failed securities dealer owes about $144 million to 66 creditors, mostly banks, thrifts and municipalities.
"They're being pursued because they aided and abetted a fraud with their eyes wide open," Cohen said in an interview.
Cohen contended that Security Pacific "knew or should have known" that Asset Management was insolvent two years before its bankruptcy and yet continued to conduct securities transactions with the dealer, putting its clients' funds at risk. He also charged that the bank company's securities-clearing unit repeatedly transferred securities from one account to another without instructions from Asset Management.
Richard Warner, a Security Pacific executive vice president, said the suit was "absolutely without merit."
"It is clear that Security Pacific has been named simply because we are the only deep pockets available," Warner said. "We will defend against the suit vigorously and successfully."