7 banks are denied damages against swindler's stockbrokers

Brokers didn't know funds were stolen, court rules

January 14, 1999|By BLOOMBERG NEWS

NEW YORK -- A group of seven banks that lent $354 million for a bogus computer leasing scheme can't recover damages from brokerages employed by the swindler, a New York State judge ruled yesterday.

Judge Ira Gammerman, in New York State Supreme Court, granted A. G. Edwards & Sons, Prudential Securities and Smith Barney Inc.'s request to have the lenders' lawsuit thrown out.

The suit stemmed from a scheme by Edward Reiners, a former Philip Morris Cos. employee who used a fake corporate venture to trick the banks into lending money that he used to pursue risky investments.

The banks that sued included First Union National Bank, NationsBank N.A., Bank of Montreal, Corestates Bank N.A., Hitachi Credit America Corp., Creditanstalt Corporate Finance and Long-Term Credit Bank of Japan.

The suit asked for the $8 million the brokerages earned in commissions and related income from the Reiners accounts because, the banks said, they should have known the money was stolen.

But Gammerman ruled that the brokerages and their employees did nothing wrong in taking the money "in good faith and in the course of business."

"The facts alleged do not demonstrate bad faith," Gammerman said in his decision.

Reiners, who left Philip Morris in 1992, pleaded guilty in 1996 to criminal charges related to the loan fraud. He was sentenced to 17 years in prison.

In 1993, Reiners pretended that he was still a Philip Morris employee and got a computer leasing company, Nelco Ltd., to secure bank loans for ordering computer equipment. Reiners, who was vice president of the company that provided the computer equipment for Nelco, claimed that he needed it for a top-secret cigarette project overseas.

Pub Date: 1/14/99

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