Class-Action Lawsuit Charges Great Western With Tricking Patrons : Banking: Investors say thrift duped them into transferring money from CDs to mutual funds. Company denies wrongdoing.
A group of Southern Californians filed a federal class-action lawsuit against Great Western Bank on Thursday, charging the thrift with tricking unsophisticated customers, most of them elderly, into taking money out of federally insured certificates of deposit and investing it in Great Western’s uninsured mutual funds.
According to the complaint, employees on the banking side used personal account information to tip off salespeople in Great Western’s securities affiliate as to when customers’ CD’s were expiring so they could be encouraged to shift into mutual funds. Tellers or other banking employees got small cash bonuses for referrals, the complaint says.
Securities salespeople worked from printed scripts designed to deceive customers about the nature of the investments or assuage their fears about the possibility of losing their principal, said Pasadena attorney Michael Linfield, one of the plaintiffs’ lawyers.
Great Western denies any deception and notes that all its mutual fund customers are required to sign documents acknowledging that they know the funds are not federally insured and that their principal could shrink.
“We’re aware of Great Western’s good name, and the idea that we would besmirch that good name in any way is absolutely idiotic,” said Jacques Clafin, spokesman for the Chatsworth-based thrift.
The class-action suit, filed in U.S. District Court in Los Angeles, parallels a state lawsuit filed late last year involving 24 Great Western customers. The allegations in both suits are similar, but the class-action suit was filed in federal court because the attorneys believe that such litigation has a better chance of success there, Linfield said.
One of the federal plaintiffs is Roy Stephenson of Los Angeles, a Great Western customer for more than 20 years who kept virtually all his assets in savings accounts, checking accounts and certificates of deposit, according to the complaint.
Stephenson was misled into investing $15,000 in a U.S. government bond mutual fund by a Great Western securities salesman who told him that “the only way he would lose money is if the United States went bankrupt,” the complaint says. He lost $1,500 by the time he closed out the account less than three months later, according to the complaint.
“We had an absolutely dreadful bond market last year,” Great Western’s Clafin said. “I think that goes a long way toward explaining why the suit was brought.”
The Great Western fund most often sold to the plaintiffs in the federal suit--the Sierra U.S. Government Bond Fund--had a total return of minus 5.9% in 1994, as rising market interest rates eroded the value of its holdings.
Over the five years ended in 1994, the fund had an average yearly return of 6%. Overall, the fund was rated in the bottom 20% of bond funds in The Times’ annual mutual fund listing for 1994.
The attorneys estimated the potential size of the class at 10,000--the number of Great Western customers who may have invested in mutual funds in the mistaken belief that they were safe, government-insured depositary investments. They said it is impossible to determine the amount of losses until they have located all the potential plaintiffs.
Similar lawsuits against other banks have sprung up elsewhere, notably in Florida, where investors sued NationsBank and First Union Bank. Some allegations are reminiscent of those brought against Lincoln Savings & Loan, the Irvine-based thrift whose collapse ruined investors who had bought securities there, thinking they were insured bank products. Former Lincoln chief Charles H. Keating Jr. in is prison after being convicted on securities fraud charges.
