Judge awards $36.8 million to investors in Santa Rosa Ponzi scheme

A Marin County judge awarded $36.8 million in damages Thursday to 34 families defrauded by a defunct Santa Rosa financial services firm whose founder is serving a 10-year prison sentence.

The ruling represents a remarkable victory for investors in AGA Financial, who for years had been told there was little hope they would recoup any of their millions of dollars in losses.

AGA, which collapsed in 2008, was not the target of Thursday’s decision. Instead, Judge Roy Chernus ordered the company that gave AGA owners Gary Armitage and Jeffrey Guidi access to employees at Fireman’s Fund Insurance to pay the damages.

“I feel comforted today, somewhat, knowing we don’t have to worry about scraping pennies together,” said Lynda Howerton, who lost her Petaluma home and horses because of investment losses she and her husband suffered.

Larry Howerton worked for Fireman’s Fund for years and sunk the couple’s life savings into investments that Armitage assured them were safe, she said. The couple lost their entire $1.2 million when the recession exposed the risky real estate investments Armitage had put their money into as part of a massive Ponzi scheme.

Chernus awarded the Howertons $928,204. When combined with a previous settlement, the couple, like other plaintiffs, will recoup their entire original investment plus the returns they would have enjoyed if the money had been invested properly.

‘A long, hard battle’

Plaintiff’s attorney Val Hornstein of San Francisco said he’s been working for six years to help investors who suffered “heart-wrenching” losses.

“It was a long, hard battle, but it’s extremely gratifying to see that clients are going to be getting the award the court made today,” Hornstein said.

The judge had previously found that the company that organized retirement planning workshops for Fireman’s Fund employees, Successful Money Management Systems Inc., failed to protect employees from investing with “bad apples” like AGA Financial.

SMMS Inc. is now owned by massive financial services firm ING North America Insurance Corp., which the judge found liable for the damages.

The judge ruled Fireman’s Fund itself “has not done anything wrong” and can recoup from ING the $7.5 million the Novato-based company paid as a settlement to the plaintiffs in 2012, plus interest.

Thursday’s ruling brought nearly to a close a yearlong trial that attorneys said was one of the longest in Marin County history. The hearing focused on damages to the 47 individual plaintiffs in the case, most of whom lived in Marin and Sonoma counties and many of whom attended the hearing.

Calculating compensation

The judge had previously held a two-week hearing aimed at determining what would be fair compensation for people who lost their investments years ago because of poor advice.

While compensation was difficult to compute, the judge said he had an obligation to try to arrive at levels that were “fair and reasonable.”

“I don’t know what the plaintiffs would have had the investment advisers placed their investments as they should have been placed,” Chernus said. “Not only don’t I know, I think it’s fair to say absolutely no one could know.”

But he said he found that plaintiff’s financial experts has used reasonable models to calculate what investors would have received if their money had been placed in diversified investments that tracked historical investment returns over the relevant time frames.

Millions in damages

One by one, the judge awarded each plaintiff the entire amount they requested, ranging from $260,233 to $3.1 million. The average award was $1.1 million.

When the $36.8 million in damages is added to the $7.5 million that Fireman’s Fund already paid out to plaintiffs to settle the case, the plaintiffs will have received $44.3 million in total. Plaintiffs were not awarded attorneys fees, which means legal counsel will have to be paid out of the award.

Hornstein declined to say how much the attorneys in the case will receive, calling it privileged information. He said he needed “a small army” of attorneys to handle the case because of its size and complexity.

After the hearing, about two dozen investors gathered outside the Marin County Superior Court. They smiled and hugged one another and applauded as the attorneys explained to them what happens next.

The judge’s ruling was tentative and won’t be final until after additional argument and briefing, which is expected to wrap up by December.

Phony investments

Fireman’s Fund retiree David Koehn of Novato said the AGA fraud was remarkable because the investments weren’t just risky, they were flat-out phony.

“They showed you just the tip of the iceberg, and below the iceberg, in this case, was nothing,” said Koehn, who was awarded $1.4 million.

While most plaintiffs were buoyed by the ruling, their enthusiasm was tempered by the knowledge that ING has vowed to appeal.

“The attorneys have told us not to expect to get anything for two years,” said Paul Hough, a retired Fireman’s Fund actuary.

Hough, an actuary who retired at age 55 after a 32-year career with Fireman’s Fund, was awarded $2.3 million Thursday. He is one of many plaintiffs compensated not just for their investment losses, but for money they would have earned had they not been induced to retire early based on rosy financial promises made by Armitage and Guidi, Hough said.

Hough was awarded $780,000 in damages for seven additional years he said he would have worked had he been given proper financial advice.

Demise of AGA

AGA collapsed in 2008 after the investments its clients had been placed in turned out to be highly risky real estate deals put together by a Redding ex-con named James Koenig, who is now serving a 43-year prison sentence.

The scheme bilked more than 2,000 people - many of them North Coast retirees - out of at least $250 million, according to prosecutors.

Armitage, a Healdsburg native, is serving a 10-year prison sentence. Guidi struck a plea deal with prosecutors calling for him to cooperate with the investigation, pay restitution of nearly $300,000 to victims and give up his broker’s license for three years.

Many of the victims have applied for restitution through a state fund that may grant them up to $50,000 each, far less than the hundreds of thousands many lost.

You can reach Staff Writer ?Kevin McCallum at 521-5207 ?or kevin.mccallum@press? On Twitter ?@srcitybeat.

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