Judge stays SBM trial

NEW ULM – A trial for a five-party lawsuit involving the sale of SBM investment certificates has been stayed in part in Brown County District Court.

In an order filed Aug. 21, Judge Robert A. Docherty wrote that he granted in part, the defendants’ motion to stay proceedings for a trial scheduled to begin March 4, 2014, pending final determination of bankruptcy proceedings for SBM Certificate Company, SBM Financial, LLC, Debtors; Case No. 13-17282-TJC (Bankr. D. Md).

(Lawsuit pretrial) discovery will continue pursuant to the Court’s Scheduling Order of Feb. 4, 2013. The Court will consider discovery deadlines that become impractical or unworkable as a result of the SBM bankruptcy proceedings.

Earlier this month, Docherty took the case under advisement after a motion hearing in the case involving Lester W. Reinarts, Timothy Carlblom, Randy Domeier, the estate of Lillian Kolbe, and Randy T. Kraus vs. Laurie A. Braulick, et al. and Paul Wesselmann, et. al.

The complaint alleges negligence, breach of fiduciary duty, negligent misrepresentation, fraud and violation of securities regulations, according to court documents.

A lawsuit filed in February 2012 by the Farrish Johnson Law Office in Mankato seeks more than $50,000 in damages and related costs. 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 sold April 27, 2001, according to the complaint.

“We’re obviously disappointed (with the stay) because it throws the length of the lawsuit in limbo,” said Farrish Johnson attorney Matthew D. Lutz. “But we understand the ruling and abide by it.”

Chicago attorney David Baugh, representing Braulick, who requested the stay, said he was “pleased with the order and the recognition by the Court that the primary cause of investor losses were events that occurred within SBM.”

“The Court recognizes there is a connection between bankruptcy proceedings and investors’ claims and they’re directly tied to the conduct of SBM,” Baugh said. “There is no reason my clients knew or should have known of any impropriety of events. We intend to fully defend our clients and remain steadfast that the claims in the complaint are without merit.”

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 fame-amount certificates held by more than 2,000 investors, according to court documents.

SBM’s financial difficulties are explained in greater detail in Securities and Exchange Commission (SEC) v. Lawbaugh, 359 F. Supp. 2d 418 (D. Md. 2005) and SEC v. SBM Inv. Certificates, 2007 WL 60988 (D. Md. 2007), according to a memorandum in the Aug. 21 Brown County District Court Order.

“It appears likely that some of the funds owed on the certificates will be paid to the Plaintiffs through the bankruptcy proceedings,” the memo read. “It is not clear how much the Plaintiffs will be able to recover in that proceeding. According to the Plaintiffs, the latest filing by SBM in the bankruptcy case indicates its total assets are roughly 48 percent of the amounts it owes on certificates it has issued.”

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

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