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Allegations of an elaborate investment scam have led to a massive, $223 million securities fraud verdict against the former chief executive of Continental Investment Corp., several members of his family and other connected defendants. A Dallas jury recently ordered 10 defendants to pay $127.65 million to the company and $95.18 million to a former investor, Stewart Rahr. The verdict included $171 million in punitives, with the largest hit coming against Dale Sterritt, the former chairman of CIC, at $100 million. The jury also ordered $20 million in punitives against Sterritt’s father, Richard D. Sterritt, the owner of Sterritt Properties, and $16 million in punitives against Sterritt Properties, which had been the majority owner of CIC. JUROR OUTRAGE? The verdict was linked to the jury’s outrage at the defendants, said plaintiffs’ counsel William D. Sims, of the Dallas office of Houston’s Vinson & Elkins. “In my closing statement, I called them the biggest crooks that ever walked into the courtrooms of Dallas. These defendants did everything from faking financial assets to pump up the balance sheets of CIC’s assets, to manipulating stock prices, to initiating lawsuits … to obtain court-approved judgments in hopes of lending their fraudulent activities an air of legitimacy.” But according to Dale Sterritt’s attorney, Thomas C. Barron, of Dallas, the large verdict was significantly spurred by a court decision limiting the time for trial. Each defendant, including the central defendant Dale Sterritt, he said, “was given one hour and 47 minutes to present their case. To unravel the transactions and show the legitimate business purpose for each was impossible. It was like cutting off your leg and then asking your time in the 100-yard dash.” According to the plaintiffs, the scheme began in 1991. “Continental Investment was originally a land development company that invested in real estate,” said plaintiffs’ attorney Mark E. Davidson, of New York’s Proskauer Rose L.L.P. “In 1991, the company was on its heels and had just a single piece of property,” an Atlanta rock quarry. The Sterritts took over the corporate shell of CIC in 1991 and began promoting the use of the quarry as a landfill, Mr. Davidson said. The company said in Securities and Exchange Commission filings and investment documents that it intended to develop the quarry as “a large municipal waste site near downtown Atlanta, just in time for the 1996 Olympics,” he added. But earlier, an engineering report had said that the quarry could not be used as a landfill, he noted. CIC began attracting investors, including Rahr, the owner of Kinray Inc., a Queens, N.Y.-based wholesale pharmaceutical supplier with more than $1 billion in annual sales. Rahr invested more than $12 million in CIC. “This money was used to pay for land purchased by dummy corporations”; to give out loans to dummy corporations, the Sterritts and their friends; and to buy gifts for friends, said Davidson. “The improprieties came to light in September 1998,” said Mr. Davidson. By this time, he said, Sterritt “had put Continental into bankruptcy.” In October 1998, Rahr, the largest investor in CIC, sued the Sterritts, Sterritt Properties and others involved in the transactions. The primary defendant, however, was Dale Sterritt, said Sims. Rahr v. Sterritt, No. 3:99-CV-628-G (N.D. Texas). The company also sued, charging that Sterritt and the others had looted the corporation. The defendants denied the allegations of fraud, said Barron: “It didn’t happen the way they said it did.” He said that the defendants were hampered by the court’s decision to limit each side to 1,500 minutes. “This provided the plaintiffs with an extraordinary advantage. They could take these extraordinarily complex transactions and distill them and make them look worse than they were.” But the time limit left the defendants with insufficient time to explain the transactions, he said. The defendants have not yet decided on their next step, said Barron: “Some action will be taken, but right now everybody is in a bit of a shock.”

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