Lawndale to Sue Brokerage Firms in Bid to Recoup Loss

Lawndale city officials have announced that they will sue two brokerage companies and the individual broker who handled a speculative securities investment in which the city lost $1.68 million.

City Atty. David J. Aleshire said in an interview Friday that the lawsuit will name E. F. Hutton & Co., First Investment Securities Inc. and broker William E. Parodi as defendants. The suit will seek to recover the city’s $1.68-million loss, he said.

After a 2 1/2-hour closed council session Thursday, Mayor Sarann Kruse announced that E. F. Hutton has offered to return to the city $106,928 in brokerage fees incurred during the ill-fated transaction.

However, Kruse said city officials believe that E. F. Hutton “has additional liability” in the case. In a statement, she said: “E. F. Hutton could have helped prevent significant losses to the public agencies by being more forthcoming with information during the period in which Mr. Parodi left E. F. Hutton.”

E. F. Hutton has refused to comment on Parodi’s departure from the firm last spring other than to say that he was “permitted to resign.”

Steve Nelson, a spokesman for E. F. Hutton in New York, said Friday that the brokerage company attributes the city’s loss to a “dramatic and unprecedented drop” in the government securities market last spring. He said less than 5% of Lawndale’s loss occurred while the city’s account was being handled by Parodi at E. F. Hutton.

Parodi left E. F. Hutton in March and arranged to take the Lawndale account with him to First Investment Securities Inc., based in Little Rock, Ark. First Investment could not be reached for comment. Parodi said Friday that he did not wish to comment on the pending litigation.

Aleshire said it has not been decided whether to name as a defendant former City Treasurer Ray Wood, who made the speculative investment for Lawndale, apparently without the necessary council approval. The council fired Wood Oct. 1.

5 Cities Lost $9 Million

Lawndale and four other Southern California municipalities lost a total of more than $9 million as a result of Wood’s investments.

Kruse said E. F. Hutton has offered to refund $106,928 in commissions charged for transactions handled by Parodi from September, 1986, to March, 1987. The letter said the money would be placed in the City of Lawndale’s account “with no strings attached,” Kruse said.

Aleshire said the city has not yet accepted the payment, but officials believe that the city can accept the money without jeopardizing its efforts to recover its losses from E. F. Hutton.

The investment firm’s letter said that “E. F. Hutton will not argue that the city’s use of such funds constitutes a settlement of the dispute . . . nor does the payment of such funds constitute an admission of wrongdoing on the part of E. F. Hutton,” Kruse said.

Aleshire said the suit would not target Lawndale’s embattled city manager, Paul Philips.

Kruse announced last week that the City Council asked Philips to resign after several closed-door sessions. The council was dissatisfied with Philips mainly because of City Hall management problems rather than the investment loss, Kruse said.

Assistant City Manager Paula Cone was named acting city manager Thursday.