to a lawsuit alleging that Great Western Financial Corp. improperly induced customers to switch from insured deposits to mutual funds. Monday's ruling clears the way for as many as 60,000 customers in 14 California counties to jointly sue the bank's brokerage unit for investment losses. One plaintiff's attorney said the customers - who bought securities during the three years ended April 13, 1995 - may have lost a combined $90 million. Though the sum at stake is relatively modest for an institution with the resources of Great Western, the development is clearly a blow to the thrift's image. Great Western has built a reputation as a savvy brokerage player by introducing droves of retail customers to mutual funds and other alternative investments. Reached for comment Tuesday, officials of the Chatsworth, Calif., thrift denied the plaintiffs' allegations, as they have since customer lawsuits first surfaced in the wake of the 1994 market downturn. The ruling by Judge Irving Hill of the U.S. District Court for the Central District of California "represents no finding of guilt," said Great Western spokesman Jacques Clafin. "We remain confident that the litigation ultimately will demonstrate that Great Western Financial Services acted in good faith," he said. Mr. Clafin added that Great Western currently does not plan to appeal the case, "but I can't anticipate the exact strategy." "Motions to decertify or limit the class are not uncommon as discovery progresses," he added. He said a settlement conference is planned for late December. Industry observers said the case merits close attention. "If the allegations are true, it's a black mark to bank sales practices," observed Geoffrey H. Bobroff, a mutual fund consultant based in East Greenwich, R.I. An adverse ruling for Great Western would "add fuel to regulators wanting to make sure investors are protected, and invite more litigants to bring actions." The case "will draw attention by the medium-size and smaller banks that have floated along without being fully cognizant of the risks of having a securities business," added F. Ronald O'Keefe, partner in the Cleveland law firm of Hahn Loeser & Parks. The suit, Pinney v. Great Western, was originally brought on behalf of six plaintiffs. It alleges that the thrift's brokerage unit cajoled unsophisticated investors into switching from certificates of deposit into mutual funds without adequately disclosing their risks. "We're alleging a massive scheme to defraud elderly savers," said Michael Linfield, an attorney in Pasadena, Calif., who will be a co-counsel for the plaintiffs in the class action. The plaintiffs allege that Great Western deceived customers by representing that its mutual funds were safe, federally insured, or backed by the assets of the $42 billion-asset thrift itself. "What makes the case unique is that we have the (sales) scripts and former brokers testifying" that they were trained to conceal that they were selling mutual funds, Mr. Linfield said. However, the Great Western spokesman took issue with the allegations. Mr. Clafin said that the company has long made clear disclosures of investment risks to its brokerage clients. "The claims are demonstrably untrue, because all the plaintiffs except one signed a plain-English one-page disclosure form," he said. In addition, the company disavows knowledge and responsibility for a sales script cited by the plaintiffs' attorneys as evidence of deceptive practices. "This was a rogue script, and it was never sanctioned by Great Western Financial Securities," said Mr. Clafin. "To this day, we have never been able to determine its origin, or whether it was relied upon in conducting a transaction." The final impact of the class action will only be known after litigation is complete or the case is settled, observers pointed out. "A lot of people have used aggressive sales practices to convince first- time buyers from time immemorial, so much of it will depend on the actual facts and not allegations," Mr. Bobroff said.
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