A FINRA panel is taking action against Brookstone Securities, Lakeland, Fla., and three individuals connected to the company, alleging CMO fraud. But an attorney representing the company said the firm and the individuals are appealing the decision and denying the charges.
The company referred all comments to Marc Abramson, the firm’s independent general counsel. Abramson, when asked about the charges, said, “This is a nonfinal civil decision by FINRA’s hearing panel. The company as well as the individuals involved are appealing the decision and refuting the underlying allegations.”
The Financial Industry Regulatory Authority said the panel’s decision can be appealed to its National Adjudicatory Council or can be called for review by that body. If not, the decision becomes final after 45 days.
The panel alleged that Brookstone engaged in fraudulent sales of collateralized mortgage obligations to elderly and retired investors. It fined the company $1 million and ordered it to pay restitution of $1.6 million to customers.
Of the $1.6 million, $440,600 is imposed jointly and severally on company owner and CEO Antony Turbeville with the balance imposed jointly and severally on one of the firm’s brokers, Christopher Kline.
FINRA said the panel also barred the two men from the securities industry.
It also barred David Locy, the company’s former chief compliance officer from acting “in any supervisory of principal capacity.” The panel suspended Locy for two years in all capacities and fined him $25,000. The charges were originally brought by FINRA in December 2009.
The panel found that from July 2005 to July 2007, Turbeville and Kline made “fraudulent misrepresentations and omissions to unsophisticated investors regarding the risks associated with investing in CMOs.”
The panel alleges the CMOs were not appropriate for retired investors “looking for safer alternatives to equity investments” and that Kline told two widows that they could not lose money in CMOs because they were government guaranteed.
“By 2005, interest rates were increasing and the negative effect on CMOs was evident to Turbeville and Kline, yet they did not explain the changing conditions to their customers,” the charges read.
