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Case Gives Insight Into Investor, Broker Disputes : Finance: Retiree has filed a federal lawsuit after most of her $1-million inheritance was lost in high-risk ventures.


SANTA ANA — When her stockbroker talked, Jean W. Jacobs listened. And now she says she is sorry she did.

Jacobs, 76, has always lived simply. In October, 1985, she inherited $1 million from her sister. She continued living in her modest mobile home in a trailer park in Santa Ana and entrusted the money to a local stockbroker, Joseph J. Squillaciotti, to invest.

Seven years later, Jacobs still lives in the same Kona Kai trailer park. But a substantial amount of her inheritance is gone, she says.

In a federal lawsuit in Los Angeles, the retired secretary and her two sons accuse Squillaciotti's brokerage, Bateman Eichler, Hill Richards Inc., and its parent company, Kemper Securities Group Inc., of fraud, deceit, misrepresentation and racketeering.

Jacobs alleges that Squillaciotti squandered her inheritance in high-risk investments--including a stake in an ill-fated Santa Ana jazz bar and restaurant--for his own personal gain.

"I'm devastated," Jacobs said. "I really am. I trusted him."

A soft-spoken divorcee, she offers little elaboration during an interview. She is embarrassed and feels that she has been hoodwinked. She lives on Social Security and her remaining retirement savings.

The brokerage and its Chicago-based parent company are contesting the lawsuit. Kemper Securities has filed a motion to move the case from the federal court to securities arbitration proceedings, said Ellen Resnick, a spokeswoman for Kemper.

"There are always two sides to a story," Resnick added. "We will tell ours in the appropriate hearing."

Squillaciotti, who now works in Bateman Eichler's Anaheim office, said that even though he wasn't sued, his attorney has advised him not to comment.

Industry regulators at the National Assn. of Securities Dealers and the Securities and Exchange Commission say Squillaciotti, a senior vice president who has worked at the firm since 1981, does not have a disciplinary record.

The Jacobs case provides one of the few insights into the numerous disputes that investors have with brokers. Most differences are settled privately through binding arbitration, which many brokers require as part of their initial contracts. Arbitration has been particularly popular since 1987, when the U.S. Supreme Court upheld its use to settle these battles.

The number of disputes submitted for binding arbitration to the National Assn. of Securities Dealers, one of the industry's regulators and its biggest arbitrator, totaled 4,150 last year, a 44% increase over the 2,886 disputes submitted in 1987. Nine other organizations also act as arbiters.

But Bateman Eichler has not yet produced a binding agreement signed by Jacobs, and her lawyers wanted to take the case to federal court because they believe she would get a full hearing and because the company would face punitive damages.

Her case is "sort of like an investor's nightmare," said Greg Tosi, one of her attorneys. "She was taken advantage of."

Tosi said that Jacobs is a woman with little financial savvy who trusted her broker completely. Her dying sister, Marion Breuninger, had advised her in a letter in 1985 to avoid all risky investments with the inheritance money.

In early 1987, Jacobs said she decided to entrust her money to Squillaciotti, whom her son Paul, a 32-year-old nurse at a psychiatric hospital, met at an investment seminar.

Jean Jacobs said that she spoke with Squillaciotti infrequently, about once a year through 1991. Instead, Paul Jacobs stayed in monthly contact with Squillaciotti. But Paul Jacobs said he didn't know that the investments that Squillaciotti chose were inappropriate, and he said that Squillaciotti constantly reassured him that the souring investments would recover.

"I felt like he had become a friend and he knew what he was doing," said Paul Jacobs. "He also worked at a major brokerage house, and we thought they knew what he was doing."

Squillaciotti lost the money in speculative deals including so-called junk bonds, real estate limited partnerships and a stake in a Santa Ana jazz bar and restaurant in which Squillaciotti was the managing general partner, the lawsuit alleges.

Since December, Tosi and attorney Joel Siegal have tried to track down Jacobs' money.

"We believe all the money is gone," said Siegal, who specializes in securities fraud. "It's an outrage. She is a simple person, and she doesn't need to be a partner in a jazz bar."

They believe at least $50,000 was invested in the nightclub, called the Courthouse Restaurant and Bar. Squillaciotti urged Jacobs to invest in the jazz bar, "omitting that it was not a sanctioned investment," Tosi said. The broker then began asking for more money, saying her investment would be lost otherwise, the lawyer said.

The restaurant went under in 1990, forcing a change in ownership, Jacobs' attorneys say. Even without a recession, investments in restaurants are often considered risky, according to Tosi.

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