DALLAS -- Nine mutual funds, an investor, and six financing corporations have asked a federal judge to award them more than $150 million in damages and fees for losses connected with a Texas jail securities fraud and conspiracy case.
In a motion filed last week in Houston's federal district court, the plaintiffs asked that Judge Simeon T. Lake enter a final judgment upholding a recent jury award for up to $84 million in punitive and actual damages as well as interest and attorneys' fees.
Last month, a federal jury in Houston found that the Keck, Mahin & Cate law firm conspired with a Houston jail developer, N-Group Securities, and a Houston jail contractor, H.A. Lott, to fraudulently market bonds to build six private prisons in rural Texas.
As a result, jury members awarded what is believed to be a record amount in a U.S. municipal securities fraud case to the nine mutual funds, to an investor who purchased jail bonds, and to the Texas jail financing corporations involved in the sale.
The judge now is expected to decide whether to uphold part or all of the award within the next few months.
"I am convinced he will enter judgment. The only question is bow much," said Ken Wynne, attorney for T. Rowe Price, one of the companies that invested in the bonds.
Wynne said the plaintiffs have asked for about $151 million in damages and fees, including 10% interest compounded daily since 1989 when the bonds were sold.
"The date of injury was 1989 because that's when the bondholders purchased the worthless bonds," said Kathy Patrick, a Houston attorney for the investor plaintiffs. "The stream of income did not exist and never would."
In the deals, the underwriter, Drexel Burnham Lambert, and its counsel, former Texas Gov. Mark White, an attorney in the Houston office of Keck, Mahin &Cate, worked with N-Group and its principals and the contractor to market more than $70 million in revenue bonds in 1989.
However, the jury found that they violated both state and federal securiries laws by not disclosing material facts to investors. That included the disclosure that the jails were not built to meet state standards and could not be used by Texas at that time.
Five of the six jails stood empty until 1992 when the state bought them for $345 million and then converted them to minimum-security facilities after court roadblocks were cleared.
The defendants in the case plan to use the state's purchase of the jails and the subsequent payment to bondholders as one argument for reducing the damage award, sources said.
The plaintiff,s motion "does not recognize the $36 million credit from the sale of the jails to Texas," said David Peden, attorney for the jail contractor, H.A. Lott.
Peden said he plans to respond to the motion by the court deadline in early December and also expects to seek complete exoneration for the contractor after a final judgment is made in the case. "Not one person testified that Lott was part of a conspiracy to defraud," Peden said.
David Milberg, a spokesman for Keel Mahin &Cate, said the Chicagobased law firm was keeping its options open, but had few comments beyond that. "We think that the plaintiffs, by trying this thing in the media, have placed a lot of misinformation," he said. "We are waiting for the judicial process to wind down."
Attorneys said they expect that Judge Lake will hold a hearing in the next few months after defendants' motions are due in early December and before entering a final judgment. "I don't anticipate a ruling until February or March," Patrick said.
In the motion for judgment, the plaintiffs asked that the judge rule in favor of the following $68 million in jury awards to the nine mutual funds and one individual investor:
* Allstate Municipal Income Opportunities Trust, $2 million.
* Allstate Municipal Income Opportunities Trust II, $4.24 million.
* Allstate Municipal Income Opportunities Trust II, $1.99 million.
* Roy G. Andersen, $2.54 million.
* Apex Municipal Fund, $10 million.
* Franklin Tax Free High Yield Fund, $28.28 million.
* Merrill Lynch High Income Municipal Bond Fund, $3.16 million.
* Municipal High Income Fund, $4.03 million.
* Stein Roe Municipal Trust, $7.88 million.
* T. Rowe Price Tax-Free High Yield Fund, $4 million.
In addition, plaintiffs asked the judge to uphold the $11 million in damages to the six jail financing corporations in the Texas counties of Angelina, Falls, LaSalle, Swisher, San Saba, and Pecos.
When punitive damages, fees, and interest costs are added, the amount requested exceeds $150 million.