Orange County's largest brokerage firm and one of its brokers have been ordered to pay $1.55 million to a Montana millionaire for losses he suffered after the 1987 stock market crash.
The award against Cruttenden Roth Inc. and broker Richard Adler was handed down last month by a panel of arbitrators from the National Assn. of Securities Dealers.
Cruttenden has filed a petition challenging the award with the U.S. District Court. A hearing is scheduled for Feb. 26.
The judgment comes after a long dispute between Cruttenden and its former customer, Mel F. Pervais, who had a $3.4-million investment with the firm.
Pervais reportedly lost $1.1 million after Adler began buying speculative securities and "churning," or excessively trading, Pervais' account in the late 1980s, generating $20,000 in extra fees, according to a wire service account.
Cruttenden vehemently disputes the charges.
"Our customer back in 1987 experienced some losses. That was unfortunate. But we didn't do anything wrong," said the company's chief financial officer, Edward J. Hall, who joined the firm earlier this year.
Even if it is forced to pay such an award, Hall said, Cruttenden has "adequate reserves." Cruttenden reportedly had $20 million in revenue last year.
Pervais' lawyer, Frederick Phillips of San Diego, refused to comment on the case, saying settlement negotiations between Pervais and Cruttenden were pending.
"An award against both the firm and the broker suggests generally that the firm didn't do its job of properly supervising its broker," said Fred Roberts, former chairman of the board of commissioners for the NASD.
This year, Cruttenden underwrote $1.37 billion of stock offerings for Orange County companies, compared with $377 million last year. The firm took several companies public this year, including Touchstone Software Corp., a Huntington Beach computer products maker.
In 1991, Cruttenden paid a $650,000 out-of-court settlement in a case involving convicted swindler Michael E. Parker and his Parker Automotive Corp. of Irvine.
Adler remains on the board of directors at Cruttenden and still owns a stake in the firm.