BB&T unit settles lawsuit against former manager

NORFOLK

A subsidiary of BB&T Corp. that accused a former employee of defrauding several clients of more than $13 million has settled the dispute out of court.

The suit, which BB&T Asset Management Inc. brought in Norfolk Circuit Court last year against former portfolio manager Frederick V. Martin of Norfolk, had been scheduled to go to trial next week.

The allegations of fraud and breach of fiduciary duty attracted widespread attention in the Hampton Roads financial community because of Martin's long career as an investment advisor and service on the boards of several educational, civic and charitable institutions in the region. These included Virginia Wesleyan College, the WHRO Foundation and the Eastern Virginia Medical School Foundation.

Martin and one of his attorneys, Mark Baumgartner, said Thursday that the terms of the settlement were confidential and declined to comment. Edgar Spivey, an attorney who represented BB&T Asset Management, also declined to comment.

BB&T's Raleigh, N.C.-based unit, which filed its suit in October 2007, contended that Martin diverted assets from 15 clients to a Virginia Beach candy distributor where he was a director and majority owner. Between 1998 and mid-2006, Martin transferred the funds to the financially faltering company, Sweet City Inc., the suit stated. The company wasn't a suitable investment for his clients, and the funds that he put into Sweet City were "a total loss," the BB&T unit contended.

Martin was able to carry off the transfers, it said, because clients trusted him completely. Because of their advanced age or lack of financial sophistication, Martin knew that these clients wouldn't scrutinize his handling of their accounts, the investment management firm said.

The BB&T unit said it paid the clients whose assets were diverted when their losses came to light and they threatened to sue. Disclosures in court documents earlier this year indicated that BB&T received $5 million for these payments on a financial institution bond from Indian Harbor Insurance Co.

Martin characterized his transfers of client funds as investments, but these were never accompanied by a prospectus, private placement memorandum or other documentation required for an investment, BB&T Asset Management said.

Martin denied wrongdoing and sought to have the case dismissed. His clients were aware of the transfers of funds and didn't object, Martin said in response to the BB&T subsidiary's allegations. He acknowledged that his disclosures to clients about his personal involvement with the now-defunct candy company weren't put in writing.

Martin had been a co-founder of the Norfolk money-management firm Virginia Investment Counselors, which BB&T acquired from Martin and other owners in 2002. He left in September 2006.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com