An arbitration panel of the Municipal Securities Rulemaking Board has ordered A.G. Edwards & Sons Inc. and a former salesman to pay $99,000 to an investor who purchased $1.1 million to taxable municipal bonds backed by the failed Executive Life Insurance Co.
The investor, Crawford Maxson, charged that former A.G. Edwards salesman Jamie Solow misrepresented the quality of the bonds at the time of purchase in 1990.
The taxable municipals are backed by guaranteed investment contracts of the failed insurer, Executive Life, a subsidiary of First Executive Corp., which was seized by California insurance regulators in April 1991. The seizure came after First Executive Corp. filed for Chapter 11 bankruptcy protection that same year.
Officials at A.G. Edwards declined to comment on the MSRB action.
The investor purchased $535,000 of the $300 million of Southeast Texas Housing Finance Corp. 8.6% securitized multifamily housing revenue bonds, Series 1986A, due Sept. 1, 1996, and dated Aug. 25, 1986; $90,000 of the $150 million of Louisiana Housing Finance Authority 8.61% securitized multifamily housing revenue bonds, Series 1986A, due Aug. 1, 1996, and dated July 31, 1986; and $100,000 of the $300 million of Adams County, Colo., Industrial Development Authority 9% industrial development revenue bonds, Series 1986A, due Nov. 1, 1996, dated Nov. 25, 1986.
The investor also bought $300,000 of the $200 million of El Paso, Tex., Housing Finance Corp. 8.88% securitized multifamily housing revenue bonds, Series 1986A, due Oct.15, 1996, and dated Oct. 15, 1986, and $90,000 of the $400 million of Memphis Health, Education, and Housing Facilities Board 8.68% multifamily housing revenue bonds, Series 1986A, due Sept. 15, 1996, and dated Sept. 15, 1996.
After hearing testimony from the three parties in the case, the MSRB arbitration panel ordered A.G. Edwards to pay $79,000 to Mr. Maxson. Mr. Solow was ordered to pay $20,000, including $5,000 in legal fees. A counterclaim by A.G. Edwards against the investor was denied.
Last month, an MSRB arbitration panel ordered Prudential Securities Inc. and a former broker to pay about $460,000 to another investor who purchased Executive Life bonds through the firm.
The investor in the Prudential case charged that the firm and its broker at that time, Ray Tucker, violated the antifraud provisions of the federal securities law when Mr. Tucker sold bonds to the investor in December 1989.
The dispute involved purchases of taxable bonds issued by the Louisiana Agricultural Finance Authority and the Louisiana Housing Finance Agency in 1986.
The investor bought $170,000 of the $150 million of the agricultural finance authority's 8.80% securitized agricultural revenue bonds, due Oct. 1, 1996, and $300,000 of the $150 million of the housing finance agency's 8.61% securitized multifamily housing revenue bonds, due Aug. 1, 1986.
The investor, reported to be a municipality, was not identified and the arbitration panel's report did not provide additional information about the case.
In previous cases, the MSRB has held Merrill Lynch & Co. and Van Kampen Merritt Inc. liable for losses that an Illinois bank suffered in connection with the purchase of bonds backed by Executive Life.
The guaranteed investment contracts, known as muni GICs, were marketed as a place to park idle bond proceeds until the funds were needed to carry out the purchases of bond issues. Problems with bonds backed by the contracts arose after California insurance regulators sought to have the claims of bondholders subordinated to those of Executive Life insurance policyholders.