Santa Rosa Couple's Class-Action Suit Settled for $98.5 Million

A $98.5 million settlement reached in Chicago in a class-action suit begun by a Santa Rosa couple could be shared by 165,000 real estate investors.

The settlement reached Monday is one of the five largest securities class-action settlements in U.S. history, according to San Rafael attorney Robert Mills, who represented David and Ilene Albert.

"I'm so glad for the part that I played in this," David Albert said Wednesday. "I'm glad for the rest of the investors. It's not often that you can take an action like this and have it turn out so well.

The defendants in the case were Chicago-based VMS Realty Partners, once a high-flying real estate syndicator, and more than 45 associates and affiliates involved in selling sophisticated real estate investments.

David Albert (left) with Robert Mills

The case took two years and produced 20 million documents that a team of attorneys, including Mills, had to warehouse in Chicago, enter into computers and analyze.

Although the Albert's started the case alone in 1989, a flood of other lawsuits soon followed. A judge eventually consolidated the suits into one case with about 30 plaintiffs, 50 defendants and 39 law firms. "I hadn't the slightest idea when I started how big this would be," Albert said. "But slowly I began to see the enormity of the thing."

The plaintiffs alleged in general that the VMS empire engaged in a pattern of deception to attract investors. The defendants, in agreeing to the settlement, did not admit wrongdoing.

The $98.5 million will be divided as follows:

As many as 165,000 shareholders will share $45 million in cash, which is already in escrow. The exact amount that each investor, including the Albert's, will receive depends upon how many respond to notices of the settlement, Mills said.

Sources close to the case estimated that if most investors respond, they will get about 15 to 30 percent of their original investment.

Most of the shareholders own stock in eight troubled VMS investment funds. Those funds will receive money, notes, real estate and other benefits worth at least $48.5 million, in a complex workout of the labyrinthine VMS empire.

The shareholders hope that with the $28.5 million infusion, the funds will be able to survive and eventually return a profit. The funds severed their ties with VMS Realty Partners last year and changed their name Banyan..

The funds' share of the $98.5 million that must be paid in the settlement is $25 million to $30 million, so they will pay out in cash about what they will receive in assets from the settlement.

Plaintiffs' attorneys will be paid $25 million, by court order.

 David Albert (left) with Robert Mills

The Albert's bought shares in VMS Mortgage Investors Fund in 1988, and by June 1989 they were concerned enough about the performance of their investment to contact Mills, who specializes in representing small investors in securities litigation.

Mills brought in the nation's leading law firm in shareholder litigation, Milberg Weiss Bershad Specthrie & Lerach of New York and San Diego.

Among the defendants in the VMS case were numerous VMS entities - partnerships, trusts, mortgage companies and others; former VMS officers, directors and trustees; Prudential-Bache Securities Inc. (now Prudential Securities, Inc.); several Xerox subsidiaries; securities brokers; real estate appraisers; accountants; and other professionals associated with the VMS operation.

Prudential-Bache was the key brokerage house marketing the VMS investments, and Xerox Corp.'s credit subsidiary was a partner-investor.

The plaintiffs alleged VMS and its associates failed to disclose to investors the riskiness of the investment, issued deceptive prospectuses, his financial problems and overvalued real estate.

They decided to settle, they said, because of the generous terms, the financial weakness of some of the defendants and the difficulty in proving fraud by the defendants in the complex transactions, among other reasons.

Defendant attorney Barry Gross in Chicago said the defendants settled because the funds' stock was depressed by the litigation and they believed it was time to move forward.

Gross said the stock value of the funds has gone up more than $40 million in the two months since it was first announce in September that a settlement was in the works.