SEC Sues Brokerage House and Founder

The Securities and Exchange Commission has filed suit in federal court in California against Brookstreet Securities Corp. and its founder, Stanley C. Brooks, alleging that Brookstreet systematically sold high-risk mortgage securities to customers who were financially unable to handle such risky investments.

The complaint alleges that Brookstreet and Brooks sold mortgage backed investments to more than 1000 retirees and others for whom such investments were unsuitable. The SEC contends that these Brookstreet investors poured over $300 million into collateralized mortgage obligations (“CMO’s”) between 2004 and early 2007. The CMO’s were bonds backed by payments on pools of mortgages. The complaint alleges that investors lost more than $36 million and that some lost their entire net worths. Moreover, some investors ended up owing money because they had borrowed funds to make the investment.

Earlier this year the SEC sued 10 Brookstreet brokers in federal court in Florida, alleging that the brokers had realized millions in profits from high risk investments by retirees. That complaint alleges that these retirees invested based on misrepresentations of the brokers who claimed that the complex and illiquid mortgage investments were safe and suitable for conservative investors.

Brooks through his attorney said that the company had instructed its brokers to provide potential investors with written warnings that the investments were appropriate only for those capable of handling high risk investments.

In the aftermath of its Madoff failures, it appears that the SEC is becoming aggressive in its efforts to fight investment fraud. For more about the SEC’s complaint, please see The Los Angeles Times article, December 9, 2009.

About Richard Serafini

Welcome to my blog. I am an attorney and practice in the area of corporate trial work. Areas of particular emphasis are white collar defense, securities litigation, health care litigation, internal investigations, RICO, and financial litigation. I will be posting interesting developments in my areas of interest. I hope that you find this blog helpful and informative.