PairGain Says Unauthorized Trades Led to Loss

In a case that could further rock the already shaky corporate money management world, PairGain Technologies Inc. said Friday that the broker managing one of its investment accounts has lost $15.9 million through unauthorized trading activity.

Charles Strauch, chief executive of the fast-growing Tustin-based telecommunications company, stressed that the loss came from investment funds rather than operating cash and will not jeopardize the company or result in layoffs or other belt-tightening actions.

“In fact,” he said in an interview Friday evening, “we expect that even after accounting for this loss we will post a profit for 1995.”

PairGain executives declined to discuss the kind of unauthorized investments that led to the loss, but said the broker handling the trades violated written policy limiting investments to U.S. Treasury notes.

“We know he was familiar with the policy because he helped us review it when it was first approved by the board in October, 1994,” Strauch said.

Strauch refused to identify the money management firm or the broker or brokers involved, citing an ongoing internal investigation. PairGain has notified Nasdaq market officials.

If the culprit turns out to be investments in derivatives--securities whose value is linked to an underlying market index--the PairGain case would become one of several that have exploded in recent years.

In the largest derivative loss on record, Orange County’s treasurer’s office lost $1.7 billion in 1994, resulting in the county government declaring bankruptcy almost one year ago. And Procter & Gamble Co. is suing Bankers Trust over a nearly $200-million loss the company claims it incurred because of unauthorized derivatives trading by the New York-based bank’s money management department.