Judge takes SBM certificate case under advisement

NEW ULM – Brown County District Court Judge Robert Docherty took motions under advisement Monday, during a lawsuit hearing involving the sale of SBM investment certificates.

The motion hearing involved five court files that allege negligence, break of fiduciary duty, negligent misrepresentation, fraud and violation of securities regulations, according to the complaint.

A lawsuit filed in Brown County District Court in February 2012 by the Farrish Johnson Law Office of Mankato sought more than $50,000 in damages and related costs, naming Lester W. Reinarts of Sleepy Eye vs. Laurie A. Braulick and Alan F. Roeser, representatives of Investment & Insurance Services of New Ulm.

The lawsuit alleged that SBM Certificate Company failed to pay the surrender value and unpaid interest owed on five-, seven- and 10-year certificates with listed interest rates of 7.1, 7.9, 8.0 and 8.25 percent interest rates for certificates sold on April 27, 2001, according to the complaint.

An earlier federal lawsuit alleged SBM Certificate Company and several other firms owned or controlled by Eric M. Westbury of Silver Spring, Md., did not maintain minimum cash or qualified investment reserves to cover $33 million in face-amount certificates held by more than 2,000 investors, according to court documents.

On March 7, 2011, SBM Financial Group, LLC, announced a settlement in U.S. District Court, Maryland District, consenting to various undertakings, including but not limited to engaging an independent compliant and accounting consultant.

SBM Certificate Company filed for Chapter 11 bankruptcy on April 26, 2013, then converted the petition to Chapter 7 on June 17, 2013.

On Monday, attorney David Baugh, representing Braulick, requested by phone a stay of proceedings (ruling by the court in civil and criminal procedure, halting further legal process).

“SBM is in bankruptcy now, which is a separate, substantial issue that will directly affect this case,” Baugh said. “The claimants say SBM Certificates are worth much less than the purchase price. That’s speculation, which the court should avoid. We want a stay until the bankruptcy court case is over.”

Mankato attorney Matthew D. Lutz of Farrish Johnson said a $990,000 trust bond request would help prevent the Westbury from making a “double recovery – being paid twice,” in the case.

“This is a fact-based claim brought against SBM who has not acknowledged to participate,” Lutz said.

Baugh argued that the misappropriation and other allegations the plaintiff’s claim can’t be calculated and creating a trust fund is speculation.

Docherty said he would review the case and issue a decision on the motion requests as soon as possible.

(Fritz Busch can be e-mailed at fbusch@nujournal.com).

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