The Holmes Harbor Sewer District in Washington State, four of its formercommissioners, and two bond counsel have tentatively agreed to settle with bondholdersin a lawsuit over $20 million of bonds that were sold in October 2000 to finance anoffice park, but were later found to have been illegally issued, a lawyer for thebondholders said yesterday.
"We have reached tentative settlements with most of the defendants in the lawsuit," saidDavid D. Hoff, a lawyer with Tousley Brain Stephens PLLC in Seattle who is representingthe bondholders.The tentative settlements are with the district, former commissioners Don A. Cardner andhis wife, Don Wills and his wife, Linda Zolt and Heather Ann Koch, as well as Michael W.McCall and Charles J. Tull, who served as co-bond and disclosure counsel for the bonddeal, Hoff said. The district indemnified the former commissioners and will be makingsettlement payments on their behalf, he said. The settlements would leave U.S. Trust &Co., the trustee for the bond issue; Prudential Securities Inc., Wedbush MorganSecurities Inc., the two broker-dealers that sold the bonds; and Terry Martin, thedeveloper, as defendants in the lawsuit.
Hoff said he expects to file the proposed settlements with Washington state court JudgeAlan Hancock in January for approval. Hoff would not comment on the total amount ofmoney to be paid under the settlements, but one source said that it will probably be aseven figure number, over $1 million.
Hoff disclosed the settlements during a teleconference hearing with Hancock and lawyersrepresenting the defendants on Monday to discuss whether the trial of the bondholders inthe case should be bifurcated. While bondholders asked the judge to consider firsttrying bondholder claims against either U.S. Trust , or U.S. Trust and the two broker-dealers, the firms urged that all of the charges in the case be heard at once.
Hancock ruled Monday that the trial, which is scheduled to start on Aug. 10, 2004, willbe conducted in two phases, Hoff and others said. The first phase will be to hearbondholder charges against the defendants who have not settled the charges. Defendantsare expected to be U.S. Trust, Prudential, Wedbush and Martin. Martin is facing criminaland civil charges that Justice Department and Securities and Exchange Commission filedagainst him and other parties to the bond financing in August.
Hancock's ruling was a victory for the bondholders. "We are pleased with the rulingbecause it means that the trial will be handled with more efficiency and less chance ofjuror confusion," Hoff said. "Our concern was that the jury was going to be confused ifwe had our main claims and then their cross claims. This will simplify things."
The bondholders will not be involved in the second phase of the trial. Hancock said thesecond phase of the trial would be to hear the cross- or counterclaims that U.S. Trust,Prudential, and Wedbush have filed against Martin and other parties to the bondfinancing.
Meanwhile, Martin and three other defendants in the SEC's civil suit over the bondfinancing have asked Judge John C. Coughenour, a federal judge in Seattle to delayaction on the SEC suit until the criminal proceedings are completed. John H. White, whowas to arrange private financing for the project, filed the motion. White was joined byMartin, J. David Smith, Martin's attorney in the bond deal, and Edward L. Tezak, acolleague of White's. The SEC did not oppose the motion. Coughenour has scheduled astatus conference for Dec. 2 to discuss the motion and is expected to rule on it by Dec.5.
The Justice Department has filed 20 counts of conspiracy, securities fraud and wirefraud against Martin, Smith, White and Tezak. The SEC has filed securities fraud chargesagainst those four, as well as McCall, Tull, Ibis Securities, the now-defunctunderwriter, Ibis principals Kenneth Martin and George Tamura, and Signal Mortgage Inc.,a mortgage broker partly owned by White and two of Terry Martin's companies.
Martin apparently pushed the bond financing after having failed to obtain privatefinancing. Soon after the bonds were issued, the Washington state auditor found thedistrict violated state laws and the bonds were illegally issued because the office parkwould not be located in the district's jurisdiction.