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E. F. Hutton Returns Fee Portion of Civic Funds Lost in Speculative Investments

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. Inc., one of two brokerage firms they say cost them millions of dollars in speculative securities investments.

Officials there said Hutton explained in a letter that the money represents 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 also has received more than $100,000 from the firm.

And to Bellflower, Hutton has agreed to return $78,000 of the $290,000 it lost, City Atty. Maurice O'Shea said. Negotiations to regain the total loss have reached an impasse, O'Shea said, so that city now plans to take legal action against the firm.

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

The money was invested in government bonds purchased "on margin," a practice whereby investors in essence borrow money to augment their deposits. Trading on margin can be lucrative when the bonds increase in value, but is costly to investors when the securities' 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 William E. Parodi of Woodland Hills, who handled the accounts, was allowed to resign 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 recovery of more than $8 million that they say was lost in the speculative investments.

Palmdale City Manager Robert Toone said his city and its redevelopment agency lost about $3.4 million in the margin investments. He declined to say if Palmdale had received any money back from Hutton.

Maywood Lost $93,500

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

David Aleshire, Lawndale city attorney, said 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.

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