Baltimore brokerage Ferris Baker Watts Inc. has offered a settlement worth more than $16 million to victims of an investment fraud that was aided by a former broker at the firm, according to court documents filed this week.

The proposed settlement, which is subject to conditions, would resolve disputes with about 100 victims of the fraud, which grew out of a Ponzi scheme initiated by a former Ferris client, David A. Dadante.

It would also put the century-old regional brokerage a step closer to resolving a series of lengthy federal and internal investigations that have cost several senior managers their jobs and brought unwanted scrutiny at a time when its chairman, George M. Ferris Jr., is courting potential acquirers.

Dadante collected nearly $50 million from investors, mostly in the Cleveland area, to start an investment fund called the IPOF Fund. He later opened brokerage accounts at Ferris and engaged in repeated illegal stock trades through Ferris' trading desk with the help of his broker, Stephen J. Glantz. Both Dadante and Glantz have pleaded guilty to criminal fraud charges and have been sentenced to prison.

The investors sued to hold the Baltimore brokerage responsible for some of their losses, which occurred after the firm's internal watchdogs raised concerns about Dadante's account to top executives. Roughly $28 million was lost.

Without admitting any wrongdoing, Ferris has agreed to pay $7.2 million in cash to a victims fund and relinquish its claim to about $9 million worth of stock still held in Dadante's accounts with the firm. The stock, which Dadante bought with $9 million he borrowed from Ferris, will be sold over time and used to compensate victims.

"We believe this is a fair and reasonable settlement of a long dispute, and we are pleased to have reached this resolution," Robin Oegerle, a Ferris spokeswoman, wrote in an e-mail statement.

The matter has been a legal and financial distraction for Ferris since late 2005, when federal investigators began probing its trading on Dadante's behalf. Absent a settlement, legal experts say, the firm faced an expensive and potentially lengthy battle with investors seeking to recover losses.

"This is a great, equitable deal for everybody and allows Ferris to move on with their life and investors can move on with theirs," said Mark E. Dottore, a court-appointed receiver charged with recovering the investors' money. He negotiated the deal with Ferris.

However, a settlement with victims won't mark the end of Ferris' potential legal troubles. The Securities and Exchange Commission has yet to disclose the findings of its investigation, which could lead to civil and criminal penalties if regulators determine the firm acted improperly. The SEC does not comment on investigations.

It's also unclear whether all of the investors who lost money will accept the settlement. The investors have frequently feuded among themselves and with Dottore.

Some have sued Ferris independently, seeking damages in the tens of millions of dollars. The settlement agreement is predicated on those suits being withdrawn or dismissed by a federal judge in Cleveland. Each victim must sign a waiver promising not to sue Ferris as a condition of receiving any money.

The judge has given victims a chance to submit comments on the settlement. A hearing is set for March 12, and the judge is then expected to decide whether to accept the settlement.

Dadante, a former casino host who claimed ties to billionaire Donald Trump, enticed investors to his fund with promises of big returns with little risk. He backed up his claims with phony account statements showing eye-popping investment gains. The fraud unraveled in November 2005, when investors confronted Dadante and he admitted the fund was a Ponzi scheme, in which early investors are paid phony returns with deposits from new investors.

Dadante pleaded guilty last year to using proceeds from the fund to finance a luxury home and gambling junkets to Las Vegas. He also admitted to using accounts at Ferris and other firms to artificially inflate the stock of Georgia-based Innotrac Corp.

Investigators noted numerous instances in which Dadante bought shares minutes before the close of markets at a price slightly higher than the previous bid. Called "marking the close" or "painting the tape," the tactic has the effect of artificially boosting the closing price of the shares. At other times, he bought small blocks of shares throughout the day at incrementally higher prices. Investigators say the trades served no purpose other than to manipulate the stock.

Dadante received a 13-year sentence in federal prison, and Glantz, his broker, was given 33 months for helping with the illegal Innotrac trades.

The Sun reported in April that the fraud took place as Ferris' internal watchdogs were raising concerns about Dadante's account to the firm's general counsel and chief executive, among other top executives. A May 2003 memo showed that compliance department officials felt that Dadante's trading was raising the price of Innotrac's shares and that he had violated securities laws by accumulating a large stake in Innotrac without making certain regulatory filings.

Internal memos and court documents indicate that Dadante was allowed to continue buying Innotrac shares months after those concerns were raised.

The firm previously maintained that it should be allowed to sell the remaining shares in Dadante's account to pay off his $9 million debt to the firm. But the settlement agreement calls for Ferris to give up that claim and absorb the debt.

"If they had stopped this, then he [Dadante] wouldn't have been able to borrow that much in the first place," Dottore said.

Selling the shares for the benefit of victims could prove difficult. Dadante had accumulated 35 percent of Innotrac's stock, and most of the rest is held by company officers, meaning few shares trade on public markets.

"In this market, it's going to be tough," Dottore said. "But I'm sure I'll be able to do it."

paul.adams@baltsun.com