Dean Witter Reynolds has reached a settlement with the Kansas securities commissioner's office on charges that fraud and misrepresentation by the brokerage firm's Lawrence office caused several of its clients to lose money on their investments.
Doug Mays, the state securities commissioner, said that as a result of the settlement his office has canceled an administrative hearing on the charges, which was scheduled to begin Monday in Topeka.
Mays and John Lungstrum, a Lawrence attorney representing Charles Haverty, a Dean Witter stockbroker who was named in the complaint, declined to discuss specific terms of the settlement agreement until it is approved by Dean Witter's legal staff.
"We've reached a settlement in principle which hasn't been fully committed to paper," Mays said Thursday afternoon.
HOWEVER, MAYS has said that because the action against Dean Witter was administrative in nature, the sanctions that might have been imposed on Dean Witter as the result of a hearing would be limited to fines, censures and suspensions or revocations of the firm or its brokers' trading licenses. The securities commissioner's office has no authority to direct a brokerage to make restitution to its clients, Mays has said.
The administrative hearing had been scheduled after the securities commissioner's staff leveled charges of misconduct against Dean Witter last year. Mays said the charges grew out of complaints filed by former clients of the brokerage firm's local office who said they were fraudulently solicited to invest in a high-risk stock-option scheme.
THE COMMISSIONER'S staff charged that clients who owned 17 brokerage accounts, representing a net investment of $1,831,011, lost at least $435,113 as the result of wrongdoing by the firm. The staff also charged that transactions directed by Haverty on those accounts generated $531,430 in commission income, an amount the staff claimed was excessive.
Dean Witter, Haverty and Stephen Hill, manager of the local brokerage office, have consistently denied the charges. Tom Carpenter, the former branch manager in Dean Witter's Kansas City office, also was named in the complaint.
Mays said he had expected the hearing to last six to eight weeks. John Brookens, a retired district court judge from Westmoreland, had been appointed hearing officer and was to have made a recommendation to Mays on the validity of the staff complaint.
THE ADMINISTRATIVE complaint against the Lawrence Dean Witter office was one of two actions filed against the brokerage firm alleging fraud and misrepresentation. A 1985 lawsuit, filed by six Dean Witter investors whose accounts were among the 17 analyzed by the state securities commissioner, was resolved late last year in arbitration.
An arbitration panel, which heard evidence presented by the investors, awarded two of the investors $77,000 in actual damages and about $35,000 in expenses. Together, the six investors had sought $1.5 million in actual damages and $12.5 million in punitive damages.
Todd Thompson, a Lawrence attorney who represented those six investors, said his clients decided against appealing the arbitration panel's ruling.