State Insurance Commissioner Wayne Metcalf filed an arbitration complaint against Dean Witter with the New York Stock Exchange on Wednesday, saying the firm conducted illegal and unauthorized trading in highly speculative derivatives.
The trades resulted in losses of $5.65 million for Investors Equity but earned about $1.3 million in commissions and other charges for Dean Witter, the complaint said. The state also alleged that Dean Witter extended a $300 million line of credit to Investors Equity, which far exceeded the local life insurer's net worth.
A spokesman for Dean Witter's local office said the allegations do not involve its Honolulu operations and referred questions to the company's New York headquarters. Dean Witter's New York office could not be reached immediately for comment.
Investors Equity is the local life insurance company that was seized by the state Insurance
Division in June 1994 after running up a deficit of more than $60 million. Most of those losses came from ill-timed bets on derivative investments.
The company has since transfered its 13,000 life insurance and annuity policies to ITT Hartford.
The arbitration is the latest legal action involving Investor Equity's brokers and accounting firms. During the past year, the state has sued Merrill Lynch & Co., Goldman Sachs & Co., Ernst & Young L.L.P., Tradition North America Inc. and ADM Investors Services over sales of derivatives and futures to Investors Equity. The state also has instituted arbitration proceedings against Nomura Securities International.
Last year, the FBI's local office opened an investigation into Investors Equity as part of a broader inquiry by the FBI's Denver office into land deals involving Investor Equity and companies affiliated with Investor Equity's former head, Gary Vose.