County awarded $213,000 in suit over investments

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By AJ Vicens

A district judge awarded Jefferson County more than $213,000 after ruling that investments made by former treasurer Mark Paschall were unlawful.

The county sued Ohio-based Capital Securities of America Inc. in 2007 after two of its brokers sold then-Treasurer Mark Paschall four collateralized mortgage obligations worth more than $114 million.

CMOs are a type of investment that pools multiple mortgages to provide investors with pre-determined payouts. According to Colorado law, county governments can only invest in obligations that are rated in the highest rating category by any nationally recognized rating organization. These investments apparently were not, and the county sued the brokers and the securities company.

Jefferson County District Judge Christopher Munch awarded the county only the commissions that the two brokers — Adam Alves and Jerry Manning — made for brokering the deal.

"At its heart, this is about the unlawful investment of public funds," Deputy District Attorney Eric Butler argued during the lawsuit's closing arguments May 12.

Butler said in an interview after the trial that Munch awarded the county $213,576 plus interest, so the total could climb to more than $250,000.

Based on the complicated legal theory the county used to calculate damages when it presented its case, the county could have been awarded more than $50 million in damages from Capital Securities of America and the two brokers. That logic would have relied on the judge awarding the county the principal balance of all the obligations combined at the time of sale, but the judge found that theory out of line.

The county later sold the obligations it purchased but alleged that the initial sale never should have happened and was unlawful.

"The judge ruled that because the county didn't actually lose any money on the sales, ($50 million in damages) would be wholly disproportionate," Butler said.

Scott Sandberg, one of the attorneys representing the two brokers, said his clients are waiting for the formal written order from the judge before deciding if they'll appeal. He declined to comment on any other aspect of the case.

Butler said the county could also decide to appeal the judge's ruling, but he wouldn't speculate on what the county would decide to do.

Butler would not comment on why the county did not take legal action against Paschall since he made the investments. "The county has not filed any sort of claim against Mr. Paschall," Butler said.

Paschall made the investments during a time he was accused of offering a subordinate a $25,000 pre-tax bonus on the condition that she split it with him. Shortly after leaving office in January 2007, Paschall was charged with attempted theft and compensation for past official behavior. A jury acquitted him of theft in February 2008 but deadlocked on the second charge. A second jury acquitted him on that charge in August 2008.

Contact AJ Vicens at aj@evergreenco.com, and check www.columbinecourier.com for updates and breaking news.