Security: News

A Harris County jury in Texas says Houston-based Coastal Banc SSB should pay $15.7 million for its role in a stock fraud scheme that cost investors millions.

The verdict that was handed down followed four days of trial in Judge Joseph "Tad" Halbach Jr.'s 333rd Judicial District Court.

"In essence, the jury said to the bank, 'You had a responsibility as a financial institution and you failed,'" said attorney Randy McClanahan of Houston's McClanahan & Clearman, who represented Robert Ketchand of Boyer & Ketchand, the court-appointed receiver for the investment funds that lost money in the fraud scheme.  "Banks have a job to do and when they don't do it, people can get hurt."

Coastal Banc was one of a number of entities implicated in a securities fraud scheme perpetrated by Chris A. Slaga of Houston.  Slaga is currently serving a 48-month sentence in federal prison in the United States.  He pleaded guilty in 2002 to federal wire fraud charges, and has been ordered to pay $19.6 million in restitution. As president of Slaga Fund Management, LLC, he solicited approximately $21 million in investment money from a group of investors. However, he later admitted converting much of the money for personal use, depositing approximately $15 million into his own investment accounts, as well as purchasing a home, a grand piano and several expensive automobiles.

In the civil case against Coastal Banc, McClanahan and other attorneys representing the receiver argued that Coastal Banc knew Slaga was a private money manager for third parties, and yet still allowed the transfer of millions of dollars from investment partnership bank accounts into his personal accounts.

Coastal Banc once maintained 44 branch banks across Texas.  It has since been acquired by Hibernia Bank.