FOR THE RECORD (January 20, 1996): Clarification: The PaineWebber broker involved in a U.S. Secutiries and Exchange Commission settlement no longer works for the firm. A story in Friday’s paper did not make that clear.
More than 2,000 Washington investors will be among the beneficiaries of a $302.5 million settlement announced Thursday with PaineWebber Group Inc. in connection with charges the firm sold risky limited partnerships over a six-year period.
Some of those victimized were from Spokane, among them a couple in their late 80s that was looking for conservative, income-producing investments.
The Securities and Exchange Commission charged PaineWebber, the nation’s fourth-largest brokerage firm, with breaking federal fraud and record-keeping laws and failing to properly supervise its brokers. PaineWebber agreed to the SEC censure but did not admit or deny wrongdoing.
Many of the investors in the more than $3 billion of limited partnerships, which lost an estimated $300 million between 1986 and 1992, were retirees seeking conservative investments. PaineWebber brokers who were the biggest sellers were rewarded with vacations in Monte Carlo or Vail, Colo., free dinners or VCRs, the SEC said.
The huge settlement resolves investigations by the SEC and state securities regulators as well as two private class action lawsuits against the firm. SEC continues to investigate individual current and former PaineWebber brokers, including one in Spokane.
PaineWebber becomes the latest Wall Street firm to pay out millions of dollars to investors burned in the real estate and energy deals. Prudential Securities Inc. has paid out about $1.5 billion to settle charges it misled investors in the sale of its limited partnerships.
The bulk of PaineWebber’s settlement, $292 million, goes to settle claims from investors; $120 million of this amount already has been paid and another $7.5 million will be paid by 1997. The settlement also includes $125 million to resolve two private class-action lawsuits and creation of a $40 million investor claims fund.
In addition, PaineWebber will pay a $5 million civil penalty to the Securities and Exchange Commission and make payments of $5 million to 45 state securities regulators to resolve their investigations, regulators said in interviews.
Washington will receive $92,223.
“We think this package is significant,” said Colleen Mahoney, the SEC’s deputy enforcement director. “It will help investors recover their losses.”
Deborah Bortner, securities administrator in the Washington Department of Financial Institutions, said the amounts returned to investors will vary depending on the type of partnership they purchased.
Some partnerships are worth only pennies on the dollar, she said, while others have produced returns in excess of the principal invested.
“There’s enough money in the pool that people should get a fair settlement,” said Bortner, who chaired a panel of state regulators who reviewed the SEC negotiations with PaineWebber.
One Miami-based PaineWebber broker already has been barred from the industry, said Robert Burson, an SEC attorney who handled the case.
Bortner said the Spokane broker involved, whom she declined to name until the SEC completes its investigation, has already been the target of state enforcement action for other securities violations.
The SEC said the Spokane broker not only purchased limited partnership interests on behalf of his clients, he opened margin accounts that sustained significant losses as a result of unauthorized trading.
PaineWebber’s Seattle branch manager, who was responsible for oversight of the Spokane branch, should have identified these irregularities, the SEC said.
Donald Marron, PaineWebber’s chairman and chief executive, said a goal of the settlement was “to do everything we can to ensure that similar issues do not recur.”