Sterling Trust Penalized in Punitive Stage

Linda P. Campbell, Star-Telegram Dozens of retirees who lost their savings in a fraudulent investment scheme can collect at least $5.8 million in damages from the trust company that held their accounts, a Tarrant County jury decided this week.

After deliberating for a week, jurors decided Tuesday that Waco-based Sterling Trust Co. breached its legal duty to protect account-holders who had been deceived by their broker. Jurors also said Sterling did not commit securities fraud but aided the broker, Norman Cornelius, in violating Texas securities law.

The 69 plaintiffs, not all of them Sterling account holders, claimed damages of $7 million from investing in Cornelius' real estate investment companies. Jurors assessed damages for most of the plaintiffs, primarily those who held accounts with Sterling. It was not immediately clear how much each plaintiff would receive.

Because the jury said the trust company acted with malice in failing to protect account holders, the jurors will now determine whether punitive damages are warranted. The punitive damages phase of the long-running trial begins Monday in Judge Tom Lowe's 236th District Court.

Yesterday, attorneys for the plaintiffs and Sterling were still sorting out the complex verdict, which involved 21 questions and ran 93 pages.

After the liability verdict was announced late Tuesday, Sterling attorneys Elizabeth Kellow and Brent Brown said they would not comment until after the punitive damages phase.

Plaintiffs attorneys Rickey Brantley and Tom Farrier also said little about the verdict, but they called $5.8 million a conservative estimate of the damages awarded.

"Things could go considerably higher," Farrier said yesterday.

Among other things, the jury found that securities fraud was committed by Cornelius and other defendants, some of whom have settled with the plaintiffs. Damages were assessed for some plaintiffs based on those claims.

Cornelius ran his real estate development companies, known collectively as Avalon, while working for a brokerage firm, Sunpoint Securities.

Cornelius died last year, and his estate is believed to be worth only a few thousand dollars. But plaintiffs attorneys said the judgment against Cornelius, the now-bankrupt Sunpoint Securities and Sunpoint owner Van Lewis "will be at least equal to the judgment against Sterling."

The suit, filed in 1997, involved 69 investors who lost a total of $4 million that they put into Avalon, which built homes in places such as Fort Worth's posh Mira Vista development and in Southlake, North Richland Hills, Hurst and Arlington.

The investors said they didn't know their money was at risk until the Securities and Exchange Commission sued Cornelius in 1997, accusing him of selling unregistered securities, improperly mixing funds from his various companies and diverting investors' money to personal use.

Cornelius settled with the SEC in 1998. He did not admit wrongdoing but was permanently barred from selling securities. A court-appointed receiver has been selling Avalon's property.

Sterling Trust held accounts for about half the plaintiffs from 1994 to 1997. The investors claimed Sterling should be held liable because it gave Cornelius broad authority to sign up clients for the trust company and helped create an atmosphere in which abuse could occur.

But Sterling insisted it neither controlled Cornelius nor knew what he was doing.

Jurors rejected some of the plaintiffs' claims against the trust company, such as that Cornelius was acting on behalf of the firm and that Sterling knew he was withholding information about the risks of investing in Avalon.

The verdict was 11-2. In an unusual move, both sides agreed to have 13 jurors decide the case, instead of the customary 12, because an alternate juror had sat through the entire six weeks of testimony and arguments.

Copyright 2000 Star-Telegram, Inc.
Record Number: 1023059