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Brookstone Securities fined by FINRA over CMO sales

The Financial Industry Regulatory Authority (FINRA) recently announced that a FINRA hearing panel ruled that Brookstone Securities of Lakeland, FL, and the firm’s Owner/CEO Antony Turbeville and one of the firm’s brokers, Christopher Kline, made fraudulent sales of collateralized mortgage obligations (CMOs) to unsophisticated, elderly and retired investors.

The panel fined Brookstone $1 million and ordered it to pay restitution of more than $1.6 million to customers, with $440,600 of that amount imposed jointly and severally with Turbeville, and the remaining $1,179,500 imposed jointly and severally with Kline.

The panel also barred Turbeville and Kline from the securities industry. The ruling resolves charges brought by FINRA in December 2009.

The panel found that from July 2005 through July 2007, Turbeville and Kline intentionally made fraudulent misrepresentations and omissions to elderly and unsophisticated customers regarding the risks associated with investing in CMOs. All of the affected customers were retired investors looking for safer alternatives to equity investments. According to the decision, Turbeville and Kline “preyed on their elderly customers’ greatest fears,” such as losing their assets to nursing homes and becoming destitute during their retirement and old age, in order to induce them to purchase unsuitable CMOs. 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. Instead, they led customers to believe that the CMOs were “government-guaranteed bonds” that preserved capital and generated 10-15% returns. During the two-year period, Brookstone made $492,500 in commissions on CMO bond transactions from seven customers named in the December 2009 complaint, while those same customers lost $1,620,100.

Two of Kline’s customers were elderly widows with very limited investment knowledge, who, vulnerable after their husbands’ deaths, were convinced to invest their retirement savings in risky CMOs. Kline told the widows that they could not lose money in CMOs because they were government-guaranteed bonds, and Kline further increased their risk by trading on margin.

Unless the hearing panel’s decision is appealed to FINRA’s National Adjudicatory Council (NAC) or is called for review by the NAC, the hearing panel’s decision becomes final after 45 days.

A CMO is a type of mortgage-backed security that creates separate pools of pass-through rates for different classes of bondholders with varying maturities, called tranches. The repayments from the pool of pass-through securities are used to retire the bonds in the order specified by the bonds’ prospectus.  CMOs are really only appropriate for high net worth and sophisticated investors.

If you purchased a CMO from Brookstone Securities, please call the securities attorneys of The White Law Group at 561-807-6804 for a free consultation.

The White Law Group is a national securities fraud, securities arbitration and investor protection law firm with offices in Boca Raton, Florida and Chicago, Illinois.

For more information on the firm, visit https://whitesecuritieslaw.com.

Tags: , , , , , , , , , , , , , , , Last modified: December 7, 2022