Investors sue Las Vegas broker in fund scandal

Kevin Rademacher

Tuesday, Jan. 6, 2004 | 11 a.m.

Two investors have filed a class-action lawsuit seeking damages from Las Vegas resident Daniel G. Calugar and his firm, Security Brokerage Inc., who last month were accused by the Securities and Exchange Commission in an alleged $175 million mutual fund fraud scheme.

The lawsuit, which lists investors Marvin Kaplan and James Pignitore as plaintiffs, seeks class action status on behalf of all investors in certain mutual funds managed by Alliance Capital Management and Massachusetts Financial Services. Those investors were harmed by improper trades made by Calugar through Security Brokerage, said the new lawsuit, which was filed last week in U.S. District Court in Las Vegas.

On Dec. 23, the Securities and Exchange Commission filed a lawsuit alleging that Calugar committed securities fraud by using his firm to execute improper trades in and out of the Alliance and Massachusets Financial mutual funds.

The SEC lawsuit said Calugar made $175 million in profit through $400 million to $500 million in "late" and "market timing" trades.

The class action lawsuit said Calugar's scheme "distorted prices" for the mutual funds' investors.

"These defendants employed devices, schemes and artifices to defraud and a course of conduct and scheme ... to unlawfully divert millions of dollars, at least, from (mutual fund) investors," the new lawsuit said.

The lawsuit was filed by the New York firm Milberg Weiss Bershad Hynes & Lerach LLP, which specializes in class-action fraud lawsuits. Earlier this week, the firm filed a suit on behalf of U.S. investors against Parmalat, the Italian food company facing a multibillion-dollar accounting scandal.

The lawsuit demands a jury trial and asks for compensatory and punitive damages.

Colin Murray, a San Diego-based attorney representing Calugar, said he had not been served with a copy of the new lawsuit and could not comment.

Separately, a hearing scheduled for Monday on the SEC's request for a permanent injunction against Calugar was delayed.

Nicolas Morgan, senior trial counsel for the SEC, said that a temporary restraining order, which on Dec. 23 froze the assets of Calugar and Security Brokerage Inc., will remain in place until the new hearing, where the commission will seek a permanent injunction, disgorgement of ill-gotten gains and monetary penalties against Calugar

Morgan added that the new lawsuit should not affect the SEC's case.

"It ought to proceed independently of ours," he said, adding that, given the dollar-value of the alleged fraud, he was not surprised by the class-action claim.

"I'm sure we haven't heard the last of it," Morgan said.

Federal regulators sought the temporary restraining order after learning that on Dec. 18 Calugar had transferred $50 million of the proceeds of his alleged scheme out of Massachusets Financial Services, an SEC statement said.

Despite that move, Morgan said the SEC does not consider Calugar a flight risk at this point.

"He seems to be talking to us," he said. "His lawyers are taking our calls."

Morgan said it appears that Calugar, or entities controlled by him, were the only clients of Security Brokerage.

"The issue is that the sole client, or almost the sole client, was himself," he said. Asked what other information was available about Calugar's background or the history of his firm, Morgan had few answers.

"I don't really know that I really know the answers to those questions," he said.

Calugar's firm, which had an office at 3960 Howard Hughes Parkway in midtown Las Vegas, was incorporated in 1996 as the Calugar Corporation, documents on file with the National Association of Securities Dealers said. The name was changed to Security Brokerage in 1998. Calls to the office, which still bear the Security Brokerage name, could not be connected. A month ago, a recorded message indicated that the firm had shut down.

His corporate neighbors in an office building on Howard Hughes Parkway, who declined to be identified, said they never saw any traffic in and out of the seventh-floor Security Brokerage office.

Nevada Securities Division records showed that the company had no history of disciplinary action and that it voluntarily terminated its broker license on October.

The company asked the SEC to terminate its license in September.

The SEC indicated that Calugar was an attorney. Records indicate that he is not licensed in Nevada. The website for the Georgia state bar indicate that he was admitted to the bar in that state in 1979 and that his license was retired.