Broker’s Clients Win Case

Thirteen clients of former Beverly Hills investment guru S. Jay Goldinger have been awarded $43.1 million in a marathon arbitration battle against Goldinger and the Chicago brokerage firm that handled his trades.

Goldinger, brokerage Refco Inc. and a former Refco broker were ordered by a National Futures Assn. arbitration panel to reimburse customers who lost money investing with Goldinger’s once-highflying Capital Insight Brokerage Inc.

The cumulative award, which arises out of 13 separate cases and follows an almost three-year arbitration fight, appears to be the largest of its kind.

“It took a long time, but the result was justified,” said Theodore Eppenstein, the New York attorney who represented the investors.

The investors alleged that Goldinger’s improper trading was done with the “knowledge and assistance” of Refco, which should have “detected and prevented” the activity, according to an award decision.

Refco was Goldinger’s brokerage firm, working closely with him to execute trades on behalf of clients.

Once a nationally known personality who courted publicity, Goldinger lost $100 million of his clients’ money in 1995 in a highly speculative bet on the direction of interest rates.

Goldinger pleaded guilty in 1999 to four counts of wire fraud and is serving a one-year sentence at a Los Angeles-area halfway house. He also paid a $6-million fine to the Commodity Futures Trading Commission in 1999.

Brian O’Neill, Goldinger’s attorney, said his client acknowledges that “what he had done was not right” and has sought to turn his life around.

Goldinger cooperated with the investors in their case against Refco, O’Neill said, and though he has no money to pay his former clients, he would feel good about the June 30 award against the firm.

Since the blowup of his business, Goldinger has devoted himself to feeding homeless people and spends each weekend in Hollywood and Venice distributing food to the needy, O’Neill said.

Lawyers for Refco and the firm’s onetime broker, Constantine Mitsopoulos, criticized the award and said they would seek to have it vacated in federal court.

They said Goldinger’s clients were sophisticated investors who not only were aware of their losses but also were trying to generate investment losses for tax purposes.

The investors received monthly statements from Refco detailing their losses, but “for years no one complained about this at all,” said Dennis Klejna, Refco general counsel.

“It would appear that losses is what they wanted, and losses is what they got,” Klejna said.

Walter Greenough, Mitsopoulos’ attorney, said the investors each signed at least two documents instructing Refco to explicitly follow Goldinger’s trading instructions.

“We thought that was a pretty good defense,” he said.

Goldinger traded futures and options on Treasury securities, making what were essentially highly leveraged bets on the direction of interest rates.

Goldinger apparently wagered that interest rates would rise when instead they fell steadily throughout 1995.

Refco in 1999 agreed to pay $7 million to settle charges brought by the Commodity Futures Trading Commission relating to its dealings with Goldinger.

One investor expressed satisfaction with the arbitration decision, which included compensatory and punitive damages, as well as accrued interest.

“It was a fair ruling,” said the investor who asked not to be named. “This ends the case.”

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Times staff writer Sam Kennedy contributed to this report.