Broker Ordered to Pay Investors in Hill Williams : Courts: David A. Colton is assessed $23 million in damages to 1,065 former clients who lost $90 million to failed O.C. developer. Judge cites ‘a sad, tragic tale of greed.’
Investment broker David A. Colton willfully defrauded investors in the failed Hill Williams Development Corp., helping founder Donald Hill Williams bilk investors out of $90 million, an Orange County judge has ruled.
In a scathing opinion, Superior Court Judge William F. McDonald ordered Colton to pay $23.3 million in damages to investors for failing to act prudently while serving as underwriter for several Hill Williams Development deals.
“This is a sad, tragic tale of greed and of people unwilling to take responsibility for both their acts and their failure to act,” McDonald wrote in a decision released Wednesday. “As a result, a lot of innocent people, mostly elderly, lost a lot of money.”
McDonald, who presided over the monthlong non-jury trial of Colton and others, scheduled a hearing for May 15 to determine possible punitive damages against Colton, whose actions he described as “willful and malicious.”
Whether any of the 1,065 investors will recoup their losses from this judgment is uncertain because Colton and his Irvine company, Colton Financial Inc., have declared bankruptcy. He now operates a company called Colton Capital in Irvine.
McDonald also awarded plaintiffs $15.4 million in damages from each of four former Hill Williams Development executives. McDonald found that Marvin Christensen, Richard Dickerson, Charles Rountree and Lawrence V. Dorn III, all of Orange County, “helped in maintaining the facade of an ongoing, successful business until the collapse” of Hill Williams Development in early 1993.
In a ruling last month, U.S. Bankruptcy Judge John E. Ryan ordered Anaheim Hills real estate developer Donald Hill Williams to pay $20 million to investors, many of whom are elderly Orange County residents. Ryan said that Williams attempted to cloak himself with “the red, white and blue” to hide the fact that he was a “snake-oil salesman.”
Like Colton and Colton Financial, Hill Williams Development and its founder also went bankrupt shortly after the collapse of his operation. So it is unlikely that investors will recoup much from the awards against him either.
“Our best estimate right now is that, what’s going to be collectible after attorneys’ fees is about 10 to 15 cents on the dollar,” said James Pollak of Del Mar, one of several attorneys representing the investors. “That’s not because attorney fees are so high but because the money simply is not there. It’s gone.”
What little money investors recoup will come from settlements negotiated with attorneys and accountants who worked for Hill Williams Development, Pollak said. Some brokers who arranged investments in the company’s failed ventures also have entered into settlement agreements.
Trustees appointed through U.S. Bankruptcy Court in Santa Ana also are hoping to recoup losses suffered by creditors of Hill Williams Development and a related company.
McDonald described Hill Williams Development as a fraud-ridden operation. “There is at this point no serious question that the entire operation was a classic Ponzi scheme,” McDonald wrote in his decision.
McDonald blasted former Hill Williams executives Christensen, Dickerson, Rountree and Dorn, saying that each had “all the information necessary to know . . . that things were going wrong.”
In an analogy to “The Emperor’s New Clothes,” McDonald characterized Williams as “the weaver and tailor of the nonexistent cloth. (The four executives) and Colton are the emperor’s ministers, who, out of fear of losing their high posts and all the money and prestige that goes with them, pretend to see the nonexistent cloth.”
McDonald described Colton’s involvement in the failure as “particularly egregious.”
“Colton did not just ignore what people were telling him. He was at best aware of and, at worst, actively involved in the efforts to stifle any comments about any improprieties that were going on,” the judge found.
The highly publicized failure of Hill Williams Development has generated a complex web of litigation that stretches from state court to federal court. Hundreds of investors also have entered arbitration through the National Assn. of Securities Dealers in connection with complaints filed against brokers.
In September, disgruntled investors will go to trial in Superior Court against Titan Value Equities Group Inc. in Tustin, once described as Orange County’s largest brokerage. Titan has denied any wrongdoing in the Hill Williams fiasco.
