CHICAGO - The Iowa Trust has sued an associate of Steven Wymer, the investment adviser charged last year with mishandling the trust's funds, alleging that he used the money to generate profits of $525,000 with a secret investment account.

The suit, filed in U.S. District Court in Colorado earlier this month, charges that Steen Ronlov, a Denver resident, participated in creating and managing a covert Iowa Trust account with Yamaichi International Inc. from August to December 1991. The account was established to trade options on U.S. Treasury securities, according to Anuradha Vaitheswaran, an Iowa assistant attorney general representing the Iowa Trust.

Mr. Ronlov and his attorney could not be reached for comment.

The suit claims that Mr. Ronlov used the trust's money for the options trading and that he and Mr. Wymer pocketed the profits. Mr. Wymer was not named because the attorney general's office determined that Mr. Ronlov was the "primary player." Ms. Vaitheswaran said.

The Iowa Trust consists of 88 communities that pooled their cash in an investment account handled by Institutional Treasury Management, an Irvine, Calif., firm that was owned by Mr. Wymer.

The suit says Mr. Ronlov and Mr. Wymer told Yamaichi that "the Iowa Trust's credit and assets stood behind the Iowa Trust secret account." Both men "essentially used the Iowa Trust name for their benefit," Ms. Vaitheswaran said.

Mr. Ronlov operated a Denver company called ITM Marketing Inc., which performed marketing duties for Institutional Treasury Management. Mr. Ronlov was actively involved in establishing the investment management relationship between the Iowa Trust and Institutional Treasury Management in January 1990, the suit says.

In December 1991. the Securities and Exchange Commission charged Institutional Treasury Management with fraud after determining that $76 million was missing from the Iowa Trust's account.

The Iowa attorney general's office had filed suit to recover the money from various banks in Colorado and California where Institutional Treasury Management had accounts. The office has so far recovered $43 million from Jefferson Bank & Trust in Lakewood, Colo.

However, a federal judge placed the funds in escrow until the bank can complete its appeal. In July, the federal appeals court in Denver granted a request by Iowa Trust attorneys to expedite the appeal of the decision, which is expected in January or February.

The latest suit charges Mr. Ronlov with two counts of fraud under a Securities and Exchange Act rule and two counts of "knowing participation in the breach of fiduciary duties." The last two counts were filed because of Mr. Ronlov's failure to disclose to the trust the existence of the account and its profits, Ms. Vaitheswaran said.

Though the Iowa Trust "may have lost money" on some of the options trades, Ms. Vaitheswaran said the attorney general's office is concerned only with the net profit of the account, which was $525,000.

Ms. Vaitheswaran said the exact amount of the trust funds used for the trades was not known because the account balance fluctuated from day to day.

Walter Garnsey Jr., an attorney whose firm represents the Iowa Trust in Colorado, said the profits from the trades were then funneled into a bank account at Bankers Trust of Des Moines.

Bankers Trust, which was also the trust's legitimate banker, served as a "conduit" for the flow of funds from Yamaichi to other accounts held by Mr. Wymer and Mr. Ronlov, Mr. Garnsey said.

Except for $2,000 which was left in the Bankers Trust account, Iowa Trust attorneys have identified some funds that were sent to other banks, including two in Colorado, Mr. Garnsey added. He said attorneys were still trying to determine the fate of remaining funds.

The Securities and Exchange Commission on June 11 barred Mr. Wymer from the securities business in a settlement of a lawsuit the agency filed in December. Mr. Wymer neither admitted nor denied charges in the settlement.

So far, only Marshalltown. Iowa, has been downgraded because of the Iowa Trust scandal. Moody's Investors Service demoted its bonds from to A from Aa in February.

Earlier this summer, the Iowa Finance Authority sold $12.1 million of unrated revenue bonds to tide over seven localities hit by the Iowa Trust scandal.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.