SEC charges 10 brokers with mortgage-backed securities fraud

[JURIST] The Securities and Exchange Commission (SEC) [official website] on Thursday charged 10 brokers [complaint, PDF; press release] with fraud for misleading customers into investing in high-risk mortgage securities. According the SEC, brokers from the defunct Brookstreet Securities Corporation held out collateralized mortgage obligations (CMO) [SEC backgrounder], which the SEC says are highly sensitive to interest rate, market, and liquidity risks, "as safe, secure, liquid investments that were suitable for retirees, retirement accounts, and investors with conservative investment goals" in violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act [text]. The SEC alleges that the brokers received $18 million in commission and fees from 750 investors and borrowed heavily to finance CMO purchases, eventually resulting in more than $36 million in losses. The Financial Industry Regulatory Authority [official website] also brought charges [press release] Thursday against six other former Brookstreet brokers alleging that they fraudulently marketed CMOs as being government-backed.

In September, the SEC filed similar charges [JURIST report] against two former brokers for Credit-Suisse [corporate website; JURIST news archive] with defrauding clients of $1 billion by selling subprime securities that they represented as being backed by government-guaranteed student loans. The SEC has also charged former NASDAQ [official website] chairman Bernard Madoff [JURIST news archive] and financier Allen Stanford [JURIST report] with defrauding investors of $50 billion and $8 billion, respectively.



 

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