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Consumers Union Sues PaineWebber, Alleging Kickback Scheme

January 31, 1992

NEW YORK (AP) _ The publisher of Consumer Reports magazine on Friday sued PaineWebber Inc. in federal court, alleging more than $1.4 million in overcharges as part of a fraud and kickback scheme.

Consumers Union of United States Inc. alleged that a former PaineWebber broker paid kickbacks to the company’s chief financial officer to maintain Consumers Union and its pension fund as clients.

The lawsuit, filed in Manhattan federal court, also names the former broker, Stanley Feminella, and the former Consumers Union chief financial officer, David Granston.

The lawsuit claims that Feminella and Granston, who both live in Locust Valley on Long Island, agreed to inflate commissions, fees and other charges to Consumers Union for securities transactions.

In exchange for the company’s business, the lawsuit states, Feminella paid Granston an undisclosed portion of sales credits and commissions that PaineWebber paid its broker.

In a statement, PaineWebber called the lawsuit ″totally without merit″ and that it would fight the case in court.

PaineWebber said Consumers Union ″has not provided PaineWebber with any evidence which would support Consumers Union’s claims that Mr. Granston obtained kickbacks from the former PaineWebber employee.″

Granston and Feminella did not return telephone messages left at their homes. Their lawyers could not be reached for comment.

Consumers Union, located in Yonkers north of New York, publishes the monthly magazine Consumer Reports, which rates consumer products and services.

Its lawsuit says that Consumers Union was a PaineWebber client from October 1986 until September 1988. The company’s pension fund was a PaineWebber client from August 1987 until September 1988.

Granston supervised all investments by Consumers Union, according to the lawsuit.

It claims that Feminella and PaineWebber inflated the prices Consumers Union paid for securities in which it invested. It says Feminella and PaineWebber ″systematically charged ... grossly excessive″ fees and commissions on more than $33 million in government mortgage-backed and other securities.

Consumers Union said it learned about the allegations in December 1990 and fired Granston last April.

The company said it referred its case to the U.S. Attorney’s Office. A spokeswoman, Deborah Corley-Guzman, declined to comment on whether the case was being investigated but said no charges had been filed against Feminella or Granston.

Feminella left PaineWebber in September 1988 and took the Consumers Union business with him to Shearson Lehman Brothers.

Shearson last June settled similar charges with Consumers Union for an undisclosed amount, according to an official at the firm who asked not to be named. Feminella was fired by Shearson last March, the official said.

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