A federal judge has fined the former CEO of a defunct California brokerage firm $10 million for alleged civil fraud in selling risky mortgage securities to unsophisticated retail investors in the years before the housing market collapsed.
The Securities and Exchange Commission announced the order issued Thursday against Stanley Brooks, the founder, president and CEO of Brookstreet Securities Corp. Brooks also was ordered to pay $110,713 in restitution and interest, and to refrain from future violations of securities laws.
Tom Fehn, one of the attorneys representing Brooks, said Friday they plan to formally ask U.S. District Judge David Carter in Los Angeles to reconsider the ruling. Brooks had disputed the SEC's allegations. The case didn't go to trial because the agency's request for an immediate ruling was granted. Fehn said that Carter unfairly denied Brooks' request for additional time to respond to the SEC motion.
The SEC charged Brooks and Brookstreet with fraud in December 2009 in one of its early cases on sales of mortgage securities before the financial crisis.
The SEC said Brooks and the firm, which was based in Irvine, Calif., and closed in 2007, sold risky complex mortgage securities to retirees and others with conservative investment goals and continued to promote them even after learning they could quickly become worthless. They cost many investors their homes or retirement savings when the securities lost all their value after the housing market went bust in 2007, the SEC said.
"Brooks' aggressive promotion and sale of risky mortgage products to seniors and other risk-averse investors deserves the maximum penalty possible, and that is what he got," SEC Enforcement Director Robert Khuzami said in a statement.
The SEC also had sued 10 former Brookstreet brokers, accusing them of misrepresenting the mortgage securities to investors. Two of the brokers have settled the charges.
The agency has brought other cases related to the financial crisis since it began a broad investigation into the actions of Wall Street banks and other financial firms about three years ago.
Goldman Sachs & Co., for example, agreed in July 2010 to pay $550 million to settle charges of misleading buyers of a complex mortgage investment. JPMorgan Chase & Co. resolved similar charges last June and paid $153.6 million. Citigroup Inc. agreed to pay $285 million to settle similar charges, though that settlement was struck down by a federal judge in November.