State Drops Suit Against O.C. Investment Manager

After filing a sweeping fraud lawsuit against a Newport Beach investment manager and forcing five of his partnerships into bankruptcy, state securities regulators dropped their case Wednesday and agreed to walk away from a legal morass that has entangled more than 2,000 California investors who are seeking to recoup $58 million.

The proposed settlement between the California Department of Corporations and Vincent Galewick, founder of Performance Capital Management, was filed in Los Angeles County Superior Court.

Galewick, who has denied any wrongdoing, said he felt vindicated by the settlement and now plans to focus his energies on regaining control of his company, which is under the supervision of a bankruptcy trustee.

“The state wreaked millions of dollars in damage and ended up walking away with nothing,” Galewick said. State officials stressed Wednesday that they still believe Galewick broke the law, but decided it was in the best interests of investors to step aside and allow the federal Bankruptcy Court to take over the case.

“We stand by our allegations,” said Bill McDonald, chief of enforcement at the department. “Our primary responsibility was to stop the violations of law and make sure investors were protected. We accomplished that and now [investors] are under the Bankruptcy Court’s protection.”

The department filed suit against Galewick in November 1998, alleging that he defrauded about 2,000 investors in a debt collection venture. The state accused Galewick of misleading investors, failing to disclose conflicts of interest and overcharging commissions and expenses.

In response, Galewick put his company and five affiliated partnerships--including about $58 million in investor funds--into Chapter 11 bankruptcy in December.

Under the terms of the settlement, department officials agreed to drop their suit, withdraw from the Bankruptcy Court proceedings and cease efforts to bar Galewick from working in the securities industry, according to Mark Yocca, attorney at Irvine-based Rovens, Lamb, Patch & Yocca, who represented Galewick. In return, Galewick agreed to drop any legal claims he may have against the state and pay about $650,000 in expenses incurred by a state-appointed receiver. Galewick also agreed not to seek a broker/dealer license from California for a period of one year.