Securities Firm Shut as Audit Questions Data

ESM Government Securities Inc., a $1-billion securities dealer, and three related firms were closed Monday after an audit disclosed that ESM was “unable to meet its financial obligations.”

“They ceased to do business this morning,” said attorney William Cagney, who was hired as special counsel to represent the securities dealer Friday.

Some 20 to 30 institutions, mostly savings and loan associations and municipal or county governments, bought more than $1 billion of Ginnie Maes, U.S. Treasury bills and other unregistered government securities from ESM, Cagney said.

The company had been headed since Nov. 23, 1984, by Ron Ewton, who Cagney said has been missing since early February. The other principal of the company, Allan Novick, died of a heart attack last Nov. 23.

“Until early February, Ewton ran it. After that, they merely had an office staff,” Cagney said. “That was how these problems came to light.”

Cagney said it was too early to determine how much investors may lose.

Expects Substantial Losses

One investor, American Savings & Loan Assn., based in Miami, said it was informed by ESM that it might suffer “substantial” losses in repurchase agreements that it entered into last May and June.

The S&L; is not related to Stockton-based American Savings & Loan, a wholly owned subsidiary of Financial Corp. of America, Irvine.

Officials of the Miami S&L; were told that some collateral held by ESM may not be returned to the firm when the transactions mature.

“We are confident that, even if we are not to recover any of the securities belonging to us, American Savings will remain in sound financial condition,” Chairman Morris Broad said.