The New Jersey School Boards Association Insurance Group is suing its former investment counselor and the firm he worked for in an effort to reclaim approximately $2 million that it alleges was lost through fraudulent investment practices.
The suit, filed Jan. 3 in U.S. District Court in Newark, names as co-defendants Dean Witter Reynolds Inc., a New York City-based investment firm, and Daniel A. Druz, a former vice president and manager of the company’s Princeton, N.J., office.
The suit charges that between October 1985 and June 1987, Mr. Druz put money into long-term investments and “stock-index options” in violation of guidelines laid down by the New Jersey State Investment Council.
It also alleges that Mr. Druz “deliberately concealed from the trustees that he was trading ‘speculative investments ... with the group’s money.”
Stock-index options essentially allow an investor to “bet” against the general movement of the market.
In addition, lawyers for the fund contend that Mr. Druz engaged in “churning,” or trading the account excessively, in order to generate higher commissions.
Losses Put at 9 Percent
Mr. Druz, who is a member of the New Jersey bar and also a former employee of the New Jersey School Boards Association, should have been aware that the investments were made in violation of state reg8ulations, the suit contends.
The insurance group says it deposited a total of $7.3 million and lost nearly 9 percent on its investments through May of 1987.
“The good news is that it wasn’t enough to put us under; we’re still here,” said Alan Thornton, director of the insurance group. “For the record, we’re solid. When you have losses of this magnitude, that’s the question people always ask.”
Mr. Thornton said the group’s investments since he became director have been shifted to certificates of deposit and that those funds made a profit of approximately $491,000 last year.
Fund ‘Broke Even’
According to Mr. Druz, who presently is employed by an investment firm in Melville, N.Y., the “portfolio broke even during the time I was with it.”
He called the insurance group’s lawsuit “ludicrous” and predicted that it would “probably be dismissed within a month or so.”
“I don’t think that there’s a single point [the insurance group will] be able to substantiate in any way,” he said.
Mr. Druz speculated that the suit had been filed in response to a $7-million slander suit he filed against the njsba and two of its officials some months ago. Mr. Thornton confirmed that papers were served in that suit last week.
The insurance group, which is legally separate from the njsba, provides fire, automobile, general-liability, workman’s-compensation, and property-damage coverage for 180 of the state’s more than 600 school boards.
Mr. Thornton said school districts would be the ultimate victims of the alleged improprieties.
“The money lost could have been returned to the districts,” he said. “Certain school districts would have been able to buy computers or textbooks for the children” with it.
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