$2.5 MILLION SUIT CLAIMS INVESTORS WERE DECEIVED; LIFE SAVINGS LOST IN LAND DEAL.

Byline: Karen Maeshiro Daily News Staff Writer

More than 70 people, including a former Lancaster mayor and descendants of a pioneer family, have filed a lawsuit claiming they lost $2.5 million because their broker never told them their real estate investment was going sour.

An attorney representing the defendants, however, said the suit is groundless and predicted the claims would be rejected.

The lawsuit claims that Financial Network Investment Corp. and broker Russ Bateman kept the information, contained in an internal confidential memo, from the investors, the vast majority of them retirees from the Antelope Valley.

``These individuals put their life savings in there. We have people who are not going to be able to retire. Some have to continue working because the money is all gone,'' said Jules Leo Federman, president of a consumer advocate group called Investor Rights Association, who is working as a consultant on the case.

The lawsuit was filed last month in Lancaster Superior Court claiming breach of fiduciary duty, fraud and deceit regarding the purchase of shares in a real estate investment trust called Commonwealth Equity Trust.

The filing named as defendants Torrance-based Financial Network; Bateman, who closed his Lancaster office in 1993; and Bateman's supervisor. FNIC was acquired in 1997 by Aetna Inc., which is also named as a defendant.

Attorneys for the defendants said a similar claim involving another Commonwealth Equity Trust investor from Lancaster was heard before a three-person arbitration panel of the National Association of Securities Dealers and denied last fall.

``They are trying to blame the brokerage firm for selling a product. That whole idea was rejected in an identical case where the (memo) document was part of the evidence,'' said attorney Sam Edgerton, who represents the defendants. ``The arbitration panel found that the brokerage firm did everything required under the law and did not breach its duty to any of its customers. It's a bogus lawsuit. We went down this road before.''

Edgerton said Commonwealth Equity Trust performed very well for 15 years from its inception in 1973, paying out annual returns of between 8 and 12 percent, but then was hit hard by the onset of the recession in 1990. Three years later, CET filed for bankruptcy protection, he said.

``The security had tremendous financial troubles. But this was a problem encountered by the issuer itself, not the brokerage firm that sold it,'' Edgerton said. ``The brokerage gave full and accurate disclosure about the investment.''

Federman countered that the National Association of Securities Dealers arbitration panel, which regulates securities and dealers, was biased when it ruled against the other CET investor.

``The NASD picks and pays the arbitrators,'' Federman said.

Among the investors are former Lancaster Mayor William Pursley, who says he lost about $60,000, and Paula Ritter, whose family homesteaded Leona Valley before the turn of the century. She said her family lost nearly $179,000.

Ritter, 64, an Antelope Acres alfalfa rancher whose husband died in 1992, remembered being wooed to invest at seminars and expensive dinners at the Essex House.

``I thought it was totally safe. Their big selling point was they pay cash for everything for real estate. With the recession, it wouldn't affect us because the properties were owned by the investors,'' Ritter said.

The lawsuit says CET was presented by defendants as a safe, conservative real estate investment but was in fact a speculative investment that placed plaintiffs' entire principal at risk.