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E.F. Hutton Repays Fees to District, San Marino

December 20, 1987|MARY BARBER | Times Staff Writer

San Marino and the Three Valleys Municipal Water District have each received more than $100,000 from E. F. Hutton & Co., one of two brokerage firms they say cost them millions of dollars in speculative securities investments.

Local officials said Hutton explained in a letter that the money represented the amount the firm received in brokerage fees during the time it handled their accounts. The letter said the money was not an admission of guilt and had "no strings attached," the officials said.

The South Bay city of Lawndale has also received more than $100,000 from the firm.

Hutton and First Investment Securities Inc., based in Little Rock, Ark., invested the cities' and water company's money in government bonds that fell sharply in 1986, causing severe losses. City and water company officials claim the investments violated regulations and were unauthorized.

Bought 'On Margin'

The bonds were purchased "on margin," a practice whereby investors borrow money to buy securities worth more than the actual cash they put up. Trading on margin can be lucrative when the securities increase in value but is costly to investors when their value decreases.

Steve Nelson, a spokesman for Hutton in New York, could not be reached for comment but told The Times in an earlier interview that the firm received proper authorization for all investments made. Nelson has said that William E. Parodi of Woodland Hills, who handled the accounts, resigned from the company in March and took many of the accounts to First Investment Securities. Neither First Investment nor Parodi could be reached for comment.

San Marino City Manager John Nowak said the City Council "intends to go after full recovery" from Hutton.

The losses were discovered after books were audited last summer. San Marino lost about $2 million and received $106,000 last week from Hutton. The water district, which serves several cities in the East San Gabriel Valley, lost about $1.5 million and received about $104,000. Lawndale lost an estimated $1.68 million and received about $107,000.

The two cities are joining Maywood and Palmdale to sue the brokerage firms and Parodi for more than $8 million that they say was lost in the speculative investments.

Palmdale City Manager Robert Toone said the city and its Redevelopment Agency lost about $3.4 million in the margin investments. He refused to say if the city had received any money from Hutton.

Maywood City Manager Leonard Locher said the city lost $93,500 through its investments with First Investment Securities, the only company that had its account.

David Aleshire, Lawndale's city attorney, said that Rutan and Tucker, the Orange County law firm where he works, plans to file the lawsuit in January. He said he does not yet know if damages will be sought in addition to full restitution of the investments.

In the complex suit, the water district will sue only Hutton, which carried the district's account until September, and Maywood will sue only First Investment Securities, Aleshire said.

He said he does not know if the suit also will name Ray Wood, who was fired as city treasurer in San Marino when the margin investments were discovered in October. Wood, a veteran financial manager for many cities, including Palmdale and Lawndale, has said he did not know the transactions were illegal when he made them in September, 1986. He called it an "error in judgment" and officials of the three cities said they believe Wood did not profit from the transactions.

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