Water Agency Recovers Most of Lost Investment : Settlement: Three Valleys district ends its 7-year-old case out of court for $1.28 million plus broker’s fees.

Seven years after losing $1.5 million in investments, the Three Valleys Water District has reached an out-of-court settlement to recover most of the money.

“Except for (recovering) legal costs, this places the district in almost the same position as when we originally invested the money,” said Muriel F. O’Brien, board president of the Claremont-based water district.

The agreement, formally concluded last week, calls for the brokerage firm of Smith Barney Shearson to pay $1.28 million plus $107,000 in broker’s fees. The water district was unable to recover an estimated $150,000 in legal fees from its lawsuit against the firm.

“We doggedly pursued this case for seven years,” O’Brien said. “The settlement gives me great satisfaction because the taxpayer was naturally suspicious of Three Valleys. Now the taxpayer can be assured of the return of a substantial portion of the money.”

A spokesman for Shearson said the company would not comment on the settlement.

In 1986, the water district invested $1.5 million with E.F. Hutton, one of several companies that were bought in a series of mergers that resulted in the current firm of Smith Barney Shearson.

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Water district officials maintained that the broker handling their account followed an investment strategy in direct violation of the wishes of the district, and as a result the money was lost.

In response, in 1989 federal regulators barred for life from the securities business two San Fernando Valley brothers, William E. Parodi Sr. of Woodland Hills and Frederick W. Parodi of Canoga Park. The two E.F. Hutton brokers were accused of bilking the water district and several other Southern California governmental entities, including the city of San Marino, out of a total of $8 million.

The U.S. Securities and Exchange Commission concluded that the Parodi brothers engaged in “excessive and unsuitable trading.”

The Three Valleys settlement was reached after a daylong mediation session last month in San Diego where retired Federal Judge J. Lawrence Irving presided. By last Thursday, the water board and the brokerage firm had formally concluded their agreement to settle.

Over the years in the Three Valleys district, the lost investments has been a heated political issue during elections for the water district’s board.

Three Valleys is a member of the Metropolitan Water District of Southern California and supplies water to public and private water companies that serve the eastern San Gabriel Valley.

The district encompasses the communities of Glendora, La Verne, San Dimas, Claremont, Pomona, Diamond Bar, West Covina, Rowland Heights, Walnut and Covina.

A similar lawsuit on behalf of San Marino, Lawndale, Palmdale and its redevelopment agency is still pending. It attempts to recover investments lost by the Parodi brothers in the late 1980s.

The water district settlement, San Marino City Manager Keith R. Till said, appears “to be favorable to our situation, but it remains to be seen.”