Investment Advisor and Broker/Dealer Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
Securities and Exchange Commission v. Brookstreet Securities Corp. and Stanley C. Brooks, Case No. SA 8:09-cv-1431-DOC (ANx) (C.D. Cal.)
JUDGE ORDERS BROOKSTREET CEO TO PAY $10 MILLION PENALTY IN SEC CASE
Recently, a federal judge ordered the former CEO of Brookstreet Securities Corp. to pay a maximum $10 million penalty in a securities fraud case related to the financial crisis.
In December of 2009, the U.S. Securities and Exchange Commission filed a civil injunctive action against Brookstreet Securities Corp. and Stanley C. Brooks, charging them with fraud for systematically selling risky mortgage-backed securities to customers with conservative investment goals. Brookstreet and Brooks developed a program through which the firm’s registered representatives sold particularly risky and illiquid types of Collateralized Mortgage Obligations (CMOs) to more than 1,000 seniors, retirees, and others for whom the securities were unsuitable. Brookstreet and Brooks continued to promote and sell the risky CMOs even after Brooks received numerous warnings that these were dangerous investments that could become worthless overnight. The fraud resulted in severe investor losses and eventually caused the firm to collapse.
On February 23, 2012, the Honorable David O. Carter entered an order granting summary judgment in favor of the Securities and Exchange Commission. He found Brookstreet and Brooks liable for violating Section 10(b) of the Securities Exchange Act of 1934 as well as Rule 10b-5. On March 1, 2012, the court entered a final judgment and ordered the financial penalty sought by the Securities and Exchange Commission. In addition to the $10,010,000 penalty, Brooks was ordered to pay $110,713.31 in disgorgement and prejudgment interest. The court’s judgment also enjoins both Brookstreet and Brooks from violating Section 10(b) of the Exchange Act as well as Rule 10b-5.