Insurer to Pay Bulk of $900K Settlement in Nebraska Fraud Case

By | July 23, 2009

A group of more than 200 investors who believe they were defrauded by their Nebraska-based brokers will share roughly $900,000 in a settlement with one of their brokers’ former employers. The company’s insurer,Quanta Specialty Lines Insurance Co., will pay most of that amount.

But this latest settlement, approved by a federal judge, is a relatively small part of the legal battle being waged by former clients of Rebecca Engle and Brian Schuster.

Engle and Schuster have pleaded not guilty to eight felony counts of securities fraud. Several lawsuits and arbitration claims have been filed against them and their former employers accusing Engle and Schuster of improperly selling risky investments.

Court documents filed in the lawsuits and criminal complaints say investors were defrauded out of at least $20 million.

Most of the investors involved in the arbitration or lawsuits wanted conservative, stable investments with little risk because they were nearing retirement age or were already retired when they got involved with Engle and Schuster. They say the brokers instead invested their money in high-risk enterprises in Florida and never fully explained the risks.

Engle and Schuster, a former Nebraska football player, worked together in Nebraska City at times between 2000 and 2007. The brokers were affiliated with at least three different companies – Capital Growth Financial LLC, Wachovia Securities LLC and VSR Financial Services Inc. – during those years.

The investments at issue were sold when Engle and Schuster worked for Capital Growth.

The class-action settlement that gained preliminary approval is between the investors and Capital Growth along with two of the firm’s former executives, Alan and Michael Jacobs. Florida attorney Neil Baritz, who represents the defunct Capital Growth and the Jacobses, did not immediately respond to a message.

The settlement terms were listed as confidential in U.S. District Court in Nebraska. But a copy of the settlement was filed in a related case in Florida, where Capital Growth was trying to collect from its insurer, Quanta Specialty Lines Insurance Co.

According to those court documents, Quanta will pay $646,160 to the class-action plaintiffs and another $93,840 to a specific investor who won an arbitration claim against Capital Growth. Separately, the Jacobses will pay $170,000 in a different arbitration claim.

Quanta also agreed to pay $230,000 in legal fees related to the defense of Capital Growth and the Jacobses.

This settlement does not represent the end of the case because several other defendants in the class-action lawsuit have not settled or admitted wrongdoing. And resolving some of the lawsuits or arbitration claims only generates additional litigation. For example, a May settlement with VSR gave investors the right to sue that company’s insurer, AIG, in an effort to collect $10.3 million.

“This is a very small piece of the overall puzzle,” said J.L. Spray, one of the attorneys representing the investors.

The investors say Engle and Schuster sold securities in two Florida companies, American Capital Corp. and Royal Palm. According to court documents, Engle and Schuster described the companies in glowing terms, but they were actually high-risk investments.

Both companies were bought by PrimEdge Inc., and Schuster became president and chief executive of PrimEdge.

PrimEdge appears to be out of business

Topics Lawsuits Carriers Florida Fraud Nebraska

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