Evening star., 1962-04-19
; S&L Depositors
Ask Insurance Suit
Fraud Claimed:
State Asked
To Push Case
BY ROBERT GRUENBERG
Star Staff Writer

Star Staff Writer
Three shareholders with al
most $4,000 tied up in a closed
savings and loan firm have
started litigation to force a
State-appointed receiver to sue
the Security Financial InSur-
ance Corp. for fraud.
Purpose of the action, which
would be brought under what
has been described as rela-
lively little known section Of
the Securities and Exchange
law, would be to recover any
losses suffered by savings ac-
count holders in the Military
Service Savings & Loan As
sociation.
Military Service was placed
in receivership on November
2, with approximately S3.6
million in 1928 accounts. Earl
Nash, retired telephone COM
pany official, was appointed
receiver.
Accounts Held Insured
The association had adver-
tiSed that each of its accounts
was insured up to $4,000. It
Is on the basis of this claim
that the three shareholders are
pressing the State to sue Sc
curity Financial, the insuing
tlrm, under the fraud section.
A petition asking the Mont
gomery County Circuit Court
to order Mr. Nash to file the
suit, or-if the request is re-
fused-to have him pay for
such an action to be broughl
by the three shareholders, was
filed last Friday. However. it
has been kept confidential
until today.
4ne request, made of Circuit
Judges Ralph G. Shure and
Thomas M. Anderson, was ac-
companied by a lengthy
memorandum arguing that
under the SEC law holders of
savings accounts are holder
OF securities" of Militar,
through their passbooks.
Shareholders Rights Cited
1t also was argued that
under laws relating to sales
OF securities, the shareholders
tsaverS) had a right to bring
the action because they were
led to believe that their in
Vestments were insured.
The petition charged that
the associations claims of in
Surance were false, untrue and
misleading" because, it stated
further, Security Financial
was and is undercapitalized
and did not and does not now
have adequate reserves to cover
losses"
THE association military
Service) and SFIC are Mary
land corporations whose prin-
cipal places of business are
within 40 miles of each other
(Securlty Financial's offices
are in Baltimore)," the memo
randum of law stated.
1T is inconceivable that the
officers, directors and principal
stockholders of SFIC were not
aware of such representations"
it added.
Expensive Operation
Under the proposal, which
lawyers for both sides agree
could be a time-consuming and
expensive operation, attorneys
would have to take depositionS
from witnesses scattered as far
as Chicago Toronto, Canada.
1t would cost thousands of
dollars in legal costs, recording
fees, travel and other expenses.
During Maryland legislative
hearings in February, 1861, !;
was disclosed that two Cana
dian holding companies. with
headquarters in Toronto held
most of the security financial
stock.
Last January 8, a Chicago
lawyer, Henry McGurren, cast
the majority stockholders votes
for new directors during a
Shakeup in the firms top COM
mand, according to the As
Sociated Press. New directors
announced at the time in
cluded David D. Vine of
Toronto, and Thomas w. Mil
ligan. Chicago railroad supply
and insurance executive.
The suit was brought by 1t.
Col. James o. Frazier, of Fort
Belvoir, Va. who. according to
the petition. had $37,023 in
Edward L. Meyer, of
2307 Plyers Mill road, Silver
Spring. who had S14,160, and
Lex w. Barnett of 108O6 Mont
rose avenue, Garrett Park, who
had $1,000.