LOS ANGELES — Christine Ramirez’s vision of a carefree retirement vanished when an investment scheme that “guaranteed” returns as high as 12 percent collapsed in 2009, taking her life savings with it.
In March 2008, Ramirez pooled money from her personal savings and retirement account and borrowed money against her home to invest $279,769 in Diversified Lending Group — a real estate fund managed by Bruce Friedman. A year later, the Securities Exchange Commission sued Friedman, DLG and another company associated with the group, called Applied Equities, Inc., unveiling the fund as a $216 million Ponzi scheme.
Ramirez believes she wouldn’t have invested in the fund if it hadn’t been introduced with what looked like MetLife’s stamp of approval. She’s suing MetLife and one of its California subsidiaries that, she claims, presented DLG as a “safe and secure” investment.
This is the first of many similar lawsuits to go to trial for which webcast coverage which is being provided by Courtroom View Network.
Ramirez's lawyers represent 98 people in seven cases. Her case received preference because she’s fighting late-stage breast cancer.
In the first days of the trial, which started July 20 and is being heard in Los Angeles County Superior Court, lawyers representing Ramirez have taken great pains to establish the foundation of their case — that MetLIfe’s reputation as an insurance company played a major role in Ramirez’s decision to invest in DLG, and by failing to properly supervise and train its agents. Similar claims are made against Tony Russon, a managing partner at a MetLife insurance subsidiary and a registered principal for a related financial services firm, who brought Friedman and DLG into the fold. Ramirez and her attorneys claim Russon’s agents introduced a program that jointly promoted MetLife and DLG products because they believed it was approved by the corporate office.
In his opening statement, Richard Donahoo, Ramirez’s attorney, described the way his client’s world was upended. After working hard for 25 years, Ramirez, a single parent in her 70s, had paid off most of her home and saved money in a retirement account. More than a year after DLG was raided by the SEC, she got back only a tenth of what she originally invested.
“She hoped for a comfortable retirement,” he said. She planned to travel and spoil her children and grandchildren. “She wanted to have a safe, secure retirement — not to worry about her finances.”
A trusted company
Ramirez was introduced to DLG during a MetLife insurance pitch arranged by her boyfriend, Paul Walker. He testified July 20 and 21 that he was referred to Scott Brandt, an agent at the MetLife subsidiary, by a close friend to buy life insurance.
At the presentation, Walker and Ramirez learned they could invest in DLG, which guaranteed a high return, and use the return to pay for insurance. This was referred to as a “premium financing” plan. Donahoo said the goal was to offer a new option for potential customers to pay for various types of insurance, which also benefited Friedman, whose plan to attract investors “didn’t really fly” until Russon and MetLife got involved.
“The goal was to sell more insurance,” Donahoo said.
But Ramirez wasn’t there to buy insurance — a fact MetLife’s attorney, Sidney Kanazawa reaffirmed in his opening statement and his cross-examination of Walker. She sat through the presentation to offer Walker a second opinion. But Brandt’s presentation gave her and Walker confidence to invest in the fund but neither walked away with a new MetLife insurance plan.
“If we were talking about a situation where Ms. Ramirez bought insurance, we’d be talking about a whole different case,” Kanazawa said. “We’re not talking about her buying insurance. She invested in a company called DLG that was a Ponzi scheme.”
He said it was Brandt’s idea to pitch DLG as a personal investment, rather than simply another way to pay for insurance. But that it was never a MetLife-approved product.
“They didn’t follow the rules and they were fired,” he said of agents involved in peddling DLG.
He pointed out that written material, including brochures and contracts, made no mention of MetLife or its subsidiary.
“That’s what this case is about,” he said. “It’s outside.”
In his testimony the following day, Walker said it didn’t matter that the documents didn’t include MetLife’s name. The plan was verbally presented as “the MetLife plan,” he said. He invested in DLG, thinking he’d wait a year to see if the fund brought the promised returns and then buy insurance.
“I’d heard about MetLife all my life. I never heard about DLG,” Walker said. “Because it was a company I believe in, we went forward.”
But he never took the next step and bought insurance, Kanazawa said to Walker.
“DLG collapsed before that year was over,” Walker said.
An approved plan
Walker testified that he knew little about Friedman except that he was a “real estate genius” who managed a fund that guaranteed a 12 percent return.
In reality, Friedman was a convicted felon with a history that included bankruptcy. He should have raised concerns from the start, Donahoo said, because he had a previous business relationship with Russon and owed him $750,000. In fact, Friedman had bounced several checks he wrote to Russon for $300,000. But Russon never disclosed that information to his agents when they were introduced to DLG.
This is a notable weak point in Russon’s defense, Theodore Peters, Russon’s attorney, said in his opening statement. But, he pointed out, Friedman had started to pay back his debt at the time that he pitched DLG to Russon’s agents.
“There is no evidence that (Russon) knew Friedman was a convicted felon,” Peters said. “Russon will tell you that he trusted Bruce Friedman.”
Russon was fired in 2009, bringing his 30-year career and his father’s “reputable, profitable” firm to “a crashing stop,” Peters said. “This all came crashing down because of DLG. It left a long trail of victims. … Tony Russon was one of them.”
A victim — not the cause, Peters told the jury. Russon instructed his insurance agents that they couldn’t sell DLG’s promissory notes. Instead, they could refer interested clients to someone else who could sell the notes.
Practically speaking, agents referred clients to Brandt, who surrendered his securities license in 2005 in order to promote the fund.
Like Kanazawa, Peters pointed to Brandt’s outside activity disclosure form, which included his work for DLG, to argue that Brandt’s role in selling the unregistered securities fell outside Russon’s purview as a supervisor, absolving him of responsibility for clients’ decision to invest. It’s the same reason he didn’t ask corporate MetLife to approve the plan — he didn’t think it was necessary because his MetLife insurance agents weren’t selling a product.
Brandt, who is a co-defendant in the suit, claims he and other agents assumed the plan was approved by MetLife as a method to pay for insurance because it was introduced in a MetLife training room. He didn’t just promote it — he also invested.
Stephanie Ames, who represents Brandt, told the jury that her client is a longtime life insurance agent with a more than 20-year relationship with Russon’s financial services firm. He believed this was a MetLife-approved product that he was authorized to cross-promote. He pitched it with MetLife insurance, believing it was a form of financing for a product that a client may otherwise not be able to purchase. He disclosed it on outside activity forms, which are supposed to be reviewed by corporate MetLife.
“He reasonably believed … that this was approved,” she said.
Donahoo told the jury that the whole scheme could have been stopped two years before Ramirez handed over checks made out to DLG. In March 2006, an application for corporate underwriting for DLG was rejected because it wasn’t an approved program. The issue was sent to a senior fraud investigator who did some digging. What she found “raised serious red flags,” Donahoo said.
She sent her concerns to her superiors, then, when she didn’t get a response, to an associate in the general counsel’s office.
“Nothing was done. It continued,” Donahoo said, adding that MetLife is responsible because it looked the other way.
“At the very least, the MetLIfe corporate office knew or should have known that Mr. Friedman was untrustworthy,” Donahoo said. “He had a shady background, he was a convicted felon, he had bankruptcies. And they should have known that this program for selling these DLG notes was improper.”
The trial is expected to last up to six weeks.