The Securities and Exchange Commission (SEC) has charged California-based Brookstreet Securities Corporation and its President/CEO, Stanley Brooks, with fraud. The charges stem from Brookstreet’s habitual selling of risky mortgage-backed securities to clients with conservative investment objectives.
This risky and unsuccessful strategy was part of an internal Brookstreet program aimed at selling collateralized mortgage obligations (CMO) to clients, many of whom were categorically ill-suited to hold such investments. Through the internal CMO program, approximately $300 million of client funds were invested, a great deal of which were ultimately lost.
As markets deteriorated, CMOs being hit particularly hard, Brookstreet customers found themselves taking massive losses. Many clients lost their savings, homes, and retirements because of the program, and eventually, Brooks lost his company. Brooks, for his part, was warned multiple times about the errant logic in his program.
Brooks was personally warned on multiple occasions regarding the risk inherent in the CMO program with whistleblowers including his own Compliance Department, registered representatives, and institutional bond traders…among others.
Brookstreet and its CEO have been charged under the antifraud provisions of the Exchange Act.