Even Blue Bloods Saw Red Ink in Baron Stock Fraud

Royal standing couldn't protect a Scottish duke and other high-class investors from criminal brokers.
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If it's true that death is the great equalizer, then perhaps securities fraud deserves to place a close second.

Consider as proof a list filed amid the reams of papers that make up Case No. 96-8813A at the

U.S. Bankruptcy Court for the Southern District of New York

in lower Manhattan.

It's a list of those who claim they lost money to infamous bucket shop

A.R. Baron

and evidence that, if nothing else, investment fraud has no sense of

noblesse oblige

.

"If you are a victim of securities fraud, don't be embarrassed," says Eric Dinallo, who was the chief prosecutor in the A.R. Baron criminal case and now is chief of the New York Attorney General's Office investor protection bureau. Speaking to a group of investors earlier this month, he said, "Fraudsters prey on successful people because they feel a certain amount of confidence."

The Baron boys were no different.

At first blush, the claims document reads like the register for an international black-tie charity ball:

New York University

, newsprint manufacturer

Parsons & Whittemore

, race-car builder

Lola Cars International

, British printing press firm

Vanguard Engineering

, Hong Kong horse-racing personality

Keith Hsu

and Michael J. Morris, founder and former co-chairman of

Joshua Morris

children's book publishers, now a unit of

Reader's Digest

(RDA)

.

Some of the individuals carry titles of peerage. These include Sir Antony Pilkington, a British industrialist, and George Iain Murray, the 10th Duke of Atholl, one of the wealthiest men in Scotland who lived in a home called Blair Castle with a ballroom and wooded estate and had his own private army.

But this is no social register, and being on it hasn't imparted much in the way of bragging rights to those who are. Aside from standing in polite society, those on this list share another common distinction: All are now attempting to recoup what amounts to millions of dollars in investment losses from A.R. Baron, which was shut down in 1996 and forced into bankruptcy. Twelve Baron brokers and executives pleaded guilty in 1998 to fraud charges.

Now, investors who used the brokerage may finally begin recovering some of their losses. A bankruptcy court decision last month clears the way for payments to begin as early as the next few weeks, says James Giddens, the Baron bankruptcy trustee.

The bankruptcy court approved a settlement with

Bear Stearns

, Baron's clearing firm. The settlement calls for Bear Stearns to pay $34 million in the Baron bankruptcy.

Those doubting the rich-suckers theory need look no further than the list of Baron bankruptcy claimants and stop at the Duke of Atholl.

The duke, whose personal wealth in 1994 was estimated by the British paper

The Guardian

at 150 million pounds (the equivalent of about $225 million U.S. dollars) -- or just shy of the wealth of the

Queen of England

that year -- got involved with A.R. Baron through a timeworn technique.

He received a cold call, at his castle, from a Baron official.

The initial pitch was alluring, says Lynn Petts, the duke's accountant in London. The Baron salesman invited the duke to invest in a biomedical company that was seeking a cure for cancer.

"His Grace," as the duke was formally known, took the bait.

"Like all things, they start off with a very modest investment. They were hustlers, and hustlers can be very persuasive," Petts says. "They latched on to a number of investors in the U.K. They sort of pushed it, and pushed it and pushed it."

Eventually, the brokers even talked the duke into investing $2.5 million in A.R. Baron itself. He lost it all.

One Baron broker who called the duke on the phone was Roman Okin, one of the firm's top executives, who later pleaded guilty to fraud. Another, former Baron president Andrew Bressman, also has pleaded guilty to securities fraud and is awaiting sentencing.

The duke, who was 6 feet 3 inches tall and nicknamed "Wee Iain," died of a stroke at 64 in February 1996. Some of his 80-member army of Highlanders were pallbearers at his funeral, according to British press reports. Even they weren't protection from the A.R. Baron financial assault.

Petts since has filed a claim in the bankruptcy proceeding on behalf of the duke's estate. "A.R. Baron adopted what can only be described as bullying tactics on an unwell and clearly unsophisticated investor," she wrote to the bankruptcy trustee.

His Grace was by no means alone.

Of investors, employees and vendors who lost money to Baron, 550 have filed more than $100 million in bankruptcy claims.

Return addresses for the claimants stretch from Sydney, Australia, to County Wicklow, Ireland, to London and back to New York.

"There does seem to be this worldwide web of fraud," says Derek Adler, a lawyer with

Hughes Hubbard and Reed

, the bankruptcy trustee in the Baron case.

Among those with pending claims is New York University, which lost money to Baron indirectly and is seeking $730,000. The university had received a gift from Dr. Bernard Levine, a faculty member, in the form of a stock A.R. Baron traded, Giddens says.

Levine refused to comment on the matter. "I don't make my contributions public," he says.

Giddens estimated about $40 million of the claims in the bankruptcy will be accepted and says he expects to pay investors $37 million to $38 million of that amount eventually.

As for the Duke of Atholl, Petts says she hasn't held out much hope of recouping his losses, particularly since he's deceased. "We thought it very unlikely that we would be in receipt of anything," she says. "It's quite difficult, obviously, because

the duke was unable to participate in the court case."