The Financial Industry Regulatory Authority (FINRA) fined Brookstone Securities and barred the firm's Owner & CEO Antony Turbeville from the industry for fraudulent sales of collateralized mortgage obligations (CMOs) to what FINRA refers to as "unsophisticated, elderly and retired investors."
In addition to actions taken against Turbeville, broker Chistopher Kline was barred for his participation in the scheme, while Chief Compliance Officer David Locy was suspended for two years and fined $25,000.
FINRA found that between 2005 and 2007, Turbeville and Kline intentionally misled customers with fraudulent misrepresentations and omissions regarding risks associated with CMO investments. The board charged Brookstone Securities with having, "preyed on their elderly customers' greatest fears": Turbeville and Kline allegedly lured their customers with threats of losing assets to nursing homes or otherwise encountering financial ruin.
During that two-year period, Brookstone made $492,500 in commissions on CMO transactions from seven customers while, those same customers lost $1,620,100 as a result of the investments in CMOs.
FINRA noted that when interest rates began to rise in 2005 and problems with CMOs became evident to Turbeville and Kline, the two failed to explained the changing conditions to their customers. Instead, they told their clients or let them believe that the CMOs were “government-guaranteed bonds,” which would preserve capital and generate returns between 10% to 15%.
Two of Kline’s customers were elderly widows who had very limited investment knowledge. Kline convinced the widows to invest their retirement savings in risky CMOs by promising they could not lose money because the CMOs were government-guaranteed bonds.
While Turbeville and Kline engaged in clearly unethical and egregiously abusive conduct, FINRA found that CCO Locy "looked the other way" during this period of fraudulent conduct that resulted in Brookstone earning nearly $500,000 in CMO bond transaction commissions while affected customers lost over $1.6 million.
FINRA additionally accused Brookstone of failing to acknowledge or accept responsibility for the misconduct, instead blaming the investors they had duped for their own losses.
If you suspect a broker or firm has engaged in unsuitable, improper, fraudulent or misleading practices that have proven harmful to your investments or interests, call The Law Offices of Jonathan W. Evans & Associates at 818-760-9880 for an investigation and consultation.