Great Western Settlement Gets Tentative OK

A federal judge Monday tentatively approved a $17.2-million settlement in two class-action suits filed against Great Western Financial Corp. by customers who claimed they were talked into making money-losing mutual fund investments and were often duped about the risk and whether they were government insured.

Some 40,000 customers bought mutual funds at Great Western from April 1992 to April 1995, and how many of them will be part of the final settlement depends on how many file claims after letters are sent out in the next few weeks.

Judge Irving Hill also has yet to decide how much of the $17.2- million package will go for legal fees.

The suits have been a public relations headache for Great Western Bank, whose Chatsworth headquarters has been picketed during annual meetings the last two years by customers, many of them elderly, who claimed they were fraudulently sold on making risky mutual fund investments.

Michael Linfield, a Pasadena attorney who is representing plaintiffs in the class-action suits, said the average Great Western customer invested $1,400 in these mutual funds, and over three years that customer lost about 10% of his or her money.

“People should be getting back a good percentage of their losses,” he said.

Great Western spokesman Ian Campbell said the settlement “is in no way an admission that the company did anything wrong.” He said that Great Western wanted to get this “time-consuming litigation behind us.”

In most instances, Linfield said, a Great Western Bank customer would be contacted by an employee of a sister company, Great Western Financial Securities, a broker-dealer unit, and told that his or her low-interest certificate of deposit or other insured account could earn a much higher return in another investment.

Many complaints came from customers who ended up investing in a bond mutual fund, which lost money.

One such customer is Helen Pinney, 76, of Long Beach, who with her husband, John, 81, had a CD at Great Western. When they went into a branch office to renew it, they were directed to another counter.

“And this fellow was selling these funds, and he gave us a fast talk and told us there was no way we could lose money unless the government goes broke,” Helen Pinney said.

So the Pinneys invested $40,000 in a government bond fund and eventually lost $6,000, she said.

Last year, a survey by the Federal Deposit Insurance Corp. showed that more than one-quarter of the banking institutions selling mutual funds and annuities were not making the most basic disclosures to customers about investment risks. The survey prompted the FDIC to toughen guidelines about disclosures made to consumers.

Since last fall, Great Western has been trying to find a buyer for its mutual fund subsidiary, Sierra Capital Management Corp., which manages $3.4 billion worth of investments.

The company’s separate broker-dealer firm has several hundred employees in California and Florida, and that unit is not being sold.

Great Western had already set up a $6-million to $8-million reserve to cover the settlement cost of its mutual funds suits. The company expects the remaining amount to be covered by its insurance policy.

Still unresolved is a separate complaint filed against Great Western by 23 customers, most of them elderly, who said they lost money in their mutual funds after being deceived into thinking they were making safe investments.

Many of these disputes will be decided by arbitration, although customers are still pursuing some complaints against Great Western in court.

One of the plaintiffs is Ruby Rosenthal, 96, who lives in Santa Monica. She invested $60,000 in Great Western’s mutual funds, and lost $8,000, Linfield said.

Great Western’s stock closed Monday at $32.125 per share, up 50 cents, on the New York Stock Exchange.