Lawsuit against Woodside candidate is settled, he says Lawsuit against Woodside candidate is settled, he says (October 24, 2001)

**Suit alleges Gary McKae converted investor funds to his own use.

By Andrea Gemmet

Almanac Staff Writer

A 1999 lawsuit against Woodside City Council candidate Gary McKae is on the verge of being settled, a lawyer told the Almanac last week.

The Almanac learned of the two-year-old lawsuit earlier this month from a Woodside resident, and verified the information from records obtained from San Francisco Superior Court.

The suit has not been raised as an issue by any candidate, including Carroll Ann Hodges, Mr. McKae's opponent in District 6.

In the suit, 13 investors accuse Mr. McKae of fraud, mismanagement, and conversion of assets from two investment entities to his own use.

In the complaint, the plaintiffs said they invested $6 million in two entities Mr. McKae managed. His conduct caused the assets of each entity to be reduced to less than $1,000, the plaintiffs stated.

Asked for his comment, Mr. McKae said: "My attorney told me to say, if I was asked about the action or the circumstances giving rise to it, that the matter has been resolved on terms agreeable to all the parties."

Charlene Drummer, an attorney for 12 investors who filed the suit, said she expects her firm to file a settlement motion with San Francisco Superior Court this week. Ms. Drummer declined to comment further on the lawsuit.

Mr. McKae added: "If this is going to be an election based on name-calling, go ahead. I've been in the securities business 30 years and I have a clean record."
Allegations

In the lawsuit, the 13 plaintiffs said they were limited partners in W.I.S.E. Capital Partners, based in San Francisco, and that Mr. McKae was the general partner. The firm was formed to trade in stocks and other financial securities, with the principal focus on "publicly traded equity securities using a risk arbitrage strategy," the lawsuit says.

The plaintiffs said they invested approximately $5 million in the limited partnership and another $1 million in an offshore fund, W.I.S.E. Capital Ltd., a Bahamian company they said was operated and controlled by Mr. McKae.

In particular, the investors alleged that Mr. McKae transferred funds from the limited partnership into savings and loan passbook accounts that Mr. McKae opened in the names of his immediate family members. The investors said he used the funds for "personal expenses, including but not limited to credit card and country club charges and medical and dental expenses."

The plaintiffs include at least one Woodside resident, Ian M. Reed, who refused to discuss the case with the Almanac. Other plaintiffs named in the suit are: Gerald Wendel, Dieter Mees, Eva Mees, DM Motors Inc., Helmut D. Mees, Sabine Mees, Lee Jennings, Raymond A. Gillie, David Kimball, Robert W. Petersen, Herman Trotsky and Sylvan Raphael.

Many of the specific allegations are in a court declaration by Dean Lodmell, dated November 4, 1999. Mr. Lodmell said Mr. McKae hired him in 1998 and he became "intimately familiar" with the records of the limited partnership and the offshore fund.

Mr. Lodmell said he is the principal of Kideral International, a financial advisory firm involved in the startup and operation of hedge funds, and chairman of Morning Star Group Limited, a private trust company.

Mr. Lodmell alleged in the declaration that Mr. McKae:

**Placed funds from the two entities in 130 passbook accounts at a large number of mutual savings and loan associations, many in his own name and in the name of his wife and daughter.

**On July 16, 1998, transferred $610,000 from the two entities to Gary McKae Holdings.

**In or about January 1998, took a "performance allocation" of approximately $150,000 when the limited partnership was losing money. "I advised McKae that he was not entitled to this performance allocation, and he responded that he had already spent the money," said Mr. Lodmell in the declaration.
Closed down

Although Mr. McKae did not comment on the specific allegations in the lawsuit, he told the Almanac he closed down the partnership.

"My company had an investment partnership, I turned the investment partnership over to the trustees to liquidate, the court-appointed trustees are liquidating the partnership," he said. "You have venture capital and dot-com businesses go out of business all the time."

Editor's Note: The Almanac's policy is to not introduce new issues on the eve of an election. However, after carefully considering the charges contained in this lawsuit and providing the parties an opportunity to respond, the Almanac decided it would be a disservice to withhold this information from the public.