Investment Bank Settles Parker Suit : Finance: Cruttenden & Co. had been accused of misleading those who invested in Costa Mesa maker of equipment for cleaning auto engines, whose stock is now worthless.
Investment bank Cruttenden & Co., accused of misleading investors in a stock deal, has agreed to settle out of court for $650,000.
The dispute began in 1990 when Cruttenden, based in Irvine, helped find more than three dozen wealthy people from the San Francisco Bay Area to invest $5.3 million in Parker Automotive Corp. Parker Auto, a small, publicly held Costa Mesa concern, made equipment for cleaning car engines.
But Parker Auto lied to the investors, some of them contend in a lawsuit: Despite glowing promises, the company was in deep trouble and its checks were bouncing even as it was selling the stock.
According to court documents, Parker Auto even delayed payment of some of the $371,000 in fees it owed to Cruttenden for handling the stock offering.
Parker Auto filed for bankruptcy less than a year later, and its assets were sold off. The stock is now worthless.
Chairman Michael E. Parker last year admitted to deception while running the company. He pleaded guilty to hiding Parker Auto’s troubled finances from his bankers to obtain a $2-million line of credit from Home Bank of Signal Hill.
He is serving 11 years in federal prison for another bank fraud. An accountant hired by Parker Auto’s subsequent owner later concluded that the company’s books had been “cooked.”
Several dozen investors--including heirs of the Levi Strauss blue jeans fortune--who sank a total of $3.5 million into the company sued Parker Auto and its top officers, Cruttenden, national accounting firm Ernst & Young and Timothy L. Strader, a prominent Orange County developer and a Parker Auto director who was also briefly president of the company.
In their lawsuit, filed in 1991 in Orange County Superior Court, the investors said Cruttenden knew--or at least should have known--about Parker Auto’s troubles, especially because, as a broker, Cruttenden made a market in Parker Auto’s stock. (A brokerage makes a market in an over-the-counter stock by keeping shares on hand to sell and by agreeing to buy shares at the publicly quoted price. This guarantees that investors can always buy or sell a particular stock.)
A lawyer for Cruttenden said the investment bank was not aware of any alleged financial chicanery at Parker Auto. Further, said lawyer said Gregory P. Lindstrom, Cruttenden was not required to know what kind of shape Parker Auto was in: The stock offering, he said, was a private sale to wealthy, presumably sophisticated investors--with professional advisers--who took the risk on themselves.
“We say their investment advisers are at fault, not us,” Lindstrom said. “But it was cheaper to settle than to face a long, expensive trial.”
If the investment banker had known that Parker Auto was a fraud, Lindstrom said, then Cruttenden Institutional Sales Director Robert S. London--also named in the lawsuit--wouldn’t have lost tens of thousands of dollars of his own money investing in Parker Auto.
Still waiting for the suit to come to trial in May are Ernst & Young and developer Strader, from whom the investors are likely to win the most money if they prevail. That’s because Strader and the accountants are said by investors’ lawyers to have the deepest pockets of any of the remaining defendants.
The rest of the defendants are the imprisoned Michael Parker, former Chief Financial Officer Eric A. McAfee and Vice President Diane M. Parker, Michael Parker’s sister.
Stephen J. Corradi, the company’s former controller, has already settled for a “modest” sum, said Ronald Rus, one of the investors’ lawyers.
