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PairGain Investor Sues Firm Over Loss

TIMES STAFF WRITER

A thorny financial problem has worsened for officials at PairGain Technologies Inc. as a lawsuit by a company shareholder blames directors and executives for failing to prevent a financial advisor from losing $15.9 million of the company’s money.

The suit, filed Jan. 10 in Orange County Superior Court, accuses PairGain officials of “breach of fiduciary duty, abuse of control, gross mismanagement and reckless breach of duty” in connection with the loss.

PairGain officials, who disclosed the loss last month, have blamed it on unauthorized trading of securities by the company’s financial advisor, Capital Insight, a Beverly Hills investment firm run by brash broker S. Jay Goldinger. That firm shut down last month amid revelations that other companies had suffered similar losses.

The suit, filed by Hannah Kogut, a New York resident and PairGain shareholder, names as defendants Charles S. Strauch, chief executive of PairGain; two of the company’s founders; members of the board of directors; and Goldinger.

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PairGain spokeswoman Kim Gower said the suit “has no merit, and we will defend it vigorously.” The company was presented with the suit Tuesday, she said, as PairGain’s board of directors met to discuss findings of an internal investigation of the loss.

Gower said a full report on the investigation is expected next week. Company officials have previously said they are considering filing a lawsuit and possibly a criminal complaint against Capital Insight and Goldinger.

In her suit against company officials, Kogut alleges that the investigation is a cover-up and that the loss was the result of “a conspiracy” in which company executives knowingly granted Goldinger “unlimited discretion in the investment techniques to be utilized in managing PairGain’s cash.”

PairGain has maintained that Goldinger disobeyed orders to adhere to a conservative investment strategy of buying and holding treasury notes.

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The suit describes Goldinger as “a 42-year-old, high-living” financier, a “compulsive gambler” and the target of previous suits by clients and the Securities and Exchange Commission. Goldinger could not be reached for comment.

The suit accuses PairGain officials of overlooking Goldinger’s history and failing to heed warnings that he was engaging in risky trading practices.

The suit was filed by Milberg Weiss Bershad Hynes & Lerach, a San Diego law firm widely known for representing clients in shareholder suits. Kogut’s suit seeks to force PairGain officials to compensate the company for the loss.

In the suit, Kogut also accuses Strauch of a conflict of interest because he had a personal account with Goldinger.

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PairGain, based in Tustin, makes telecommunications equipment and has been among the country’s fastest-growing companies in recent years.


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