Investors sue fund managers, local bank for fraud
by Peter Burke
Apr 04, 2013 | 4244 views | 0 0 comments | 16 16 recommendations | email to a friend | print

 

 



A group of 20 investors has filed a $5.1 million lawsuit against a Scotts Valley investment company that faces criminal charges from the FBI, alleging that a prominent local bank assisted the company in securities fraud.  

Filed March 21 in U.S. District Court for the Northern District of California, the suit claims investment adviser John Geringer and two partners, Chris Luck and Keith Rode, ran a Ponzi scheme under the Scotts Valley company they owned called GLR Capital Management.

The suit claims they were helped by Chuck Maffia, a vice president of Santa Cruz County Bank in Scotts Valley, and alleges that the bank aided and abetted fraud, conspired to commit fraud, aided and abetted a breach of fiduciary duty, misrepresented the investment and violated the Securities Act.

It also claims GLR conspired to commit fraud and violated the Securities Act.

The plaintiffs claim more than $5.1 million in losses.

Among the plaintiffs are eight Scotts Valley residents and a dozen others who live in Santa Cruz, Los Gatos, Lompoc, Bishop and South Carolina.

Geringer, Luck and Rode already face criminal charges from the FBI, which claims that they defrauded 90 investors of $60 million between 2003 and 2012.

The FBI did not name Maffia or Santa Cruz County Bank in the criminal charges filed Dec. 20.

In addition to naming the 20 investors who are taking part in the legal action, the suit details the amount of money each invested with GLR.

The suit describes each investor’s situation and explains how each one was solicited by Geringer and Luck to invest in the fund.

According to testimony included in the suit, Maffia was listed as a reference on GLR marketing materials and spoke with many of the investors, recommending the fund as a “safe, conservative investment vehicle that had never sustained any losses.”

The suit claims Maffia oversaw GLR’s accounts at Santa Cruz County Bank and would have known fraud was being committed.

It also claims that GLR’s actual investments were different from those reported in marketing materials.

According to the suit, Geringer told investors that nearly 75 percent of the fund was invested in public equities on the S&P 100 and 500, NASDAQ and Dow Jones indices.

Instead, at least $29 million of the $60 million purportedly raised — was invested in two private technology companies, of which Luck was a board member, the suit claims. Other money was used to pay Geringer, Luck and Rode and repay investors who withdrew their money from the fund, in the fashion of a Ponzi scheme.

The suit also claims that GLR falsified account statements and tax documents to show gains of 17 percent to 25 percent each year from 2003 to 2011. The fund actually lost money each year and entirely pulled out of the markets in 2009, according to the suit.

The president and CEO of Santa Cruz County Bank, David V. Heald, said the bank accepts no responsibility for the actions of GLR. He said Maffia remains a bank employee.

“We sympathize with the individuals and families who suffered a loss with GLR. It is an extremely unfortunate situation,” Heald wrote in an email to the Press-Banner on Tuesday, April 2. “Santa Cruz County Bank and our employees are in no way at fault or responsible for any wrongdoing or loss in this matter.”

Heald said the bank’s practice was not to comment further on outstanding litigation.

The suit was filed by a Burlingame law firm, Cotchett, Pitre & McCarthy LLP.

According to Phil Gregory, a member of the firm, most of the 20 investors did not know each other but joined together as plaintiffs.

“They contacted us — some of them did,” Gregory said. “Others heard about the suit and contacted us.”

Gregory said GLR and the bank have until April 22 to respond to the complaint.

“A defendant like Geringer will be encouraged to cooperate (in the investigation), because cooperation with the victim is viewed favorably when the matter comes up (in court),” Gregory said.

Gregory said he was notified that Geringer was served with the suit on Monday, April 1.

To comment, email editor Peter Burke at peter@pressbanner.com, call 438-2500 or post a comment at www.pressbanner.com.

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