AUSTIN (CN) - Investment companies bamboozled a man for $1 million worth of Apple stock by claiming he could "loan" it his 2,000 shares, then refusing to give them back, the man claims in court.
Keith L. Watson sued the College Authority, General Equity Services, Rainmaker International, the Life Insurance Company of the Southwest and three people, in Travis County Court.
Watson claims he arranged the so-called stock loan so he would not have to declare his stock portfolio on his son's applications for college tuition aid.
He claims that in the summer of 2008 he "hired the College Authority LLC to assist him with the college admissions process for plaintiff's son Christopher."
The complaint continues: "One of the representations of the College Authority was that plaintiff would not have to declare his stock portfolio, which mainly consisted of approximately 2,000 shares of Apple stock, when applying for Christopher's federal student aid to college.
"Keith Watson met with Jim McKinney, a college funding specialist employed by the College Authority. Mr. McKinney explained that the arrangement to be used involved taking out a 'stock loan.' The terms of the 'stock loan' were explained as Mr. Watson giving his Apple stock to General Equity Services Inc. in exchange for a non-recourse loan of up to 90 percent of the value of the stock. The proceeds of the loan were then to be used to purchase a life insurance product which would not have to be reported on the application for federal student aid.
"According to the College Authority, at the end of the loan term, Mr. Watson would have the option of 1) Renewing the loan if the stock was worth more than the amount owed in principal and interest at the time; 2) Paying off the loan principal and interest and obtain the return of the stock; or 3) Defaulting on the loan, keeping the loan proceeds with no further liability to pay off the principal and interest owing."
McKinney is not a party to the complaint. The individual defendants are Bryan Byrl Ward, of Seguin, Texas; Gary Joseph Lenahan, of Laguna Hills, Calif.; and Elizabeth Valdes, of Savannah, Ga.
Watson claims that "as it turned out, the 'stock loan' transaction was in fact a sham. It is believed that defendants simply caused the securities to be sold and used the proceeds to fund the 'loan,' keeping the remaining percentages for themselves and others who helped implement the scheme. Defendants never had any intention of returning the pledged stock certificates."
Watson claims: "Soon after the transaction, Mr. Watson began asking questions to Jim McKinney. In each instance Mr. McKinney assured Mr. Watson, that everything was fine and there was nothing to worry about.
"Apple stock is currently trading at approximately $533.00 per share. Mr. Watson has tried without success to contact the parties involved with the stock loan so that he can obtain his stock certificates which are currently valued at over one million dollars."
Watson says he "offered to repay the loan in exchange for the return of his Apple stock. This demand was never accepted, and indeed, was not even acknowledged."
He seeks damages for deceptive trade, negligence, breach of fiduciary duty, fraud and conspiracy.
He is represented by Mark Hefter of Austin.
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