SEC and FINRA Sue Brokers for Alleged Mortgage Backed Securities Fraud
The SEC and Financial Industry Regulatory Authority (FINRA) filed separate lawsuits alleging that 16 brokers from the now defunct Brookstreet Securities Crop. fraudulently mislead investors that derivatives based on mortgage-backed securities were safe and conservative investments. In its complaint, the SEC alleges that 10 Brookstreet brokers failed to inform customers about the risks associated with investing in collateralized mortgage obligations. The brokers portrayed collateralized mortgage obligations as secure investments to more than 750 customers, which ultimately cost those investors more than $36 million in losses, but earned the brokers $18 million in commission and salaries, according to SEC allegations. The SEC is seeking civil penalties and repayment of ill-gotten gains.
FINRA filed a companion complaint against six other former Brookstreet brokers. According to a FINRA press release, from June 2004 through May 2007, the brokers sold collateralized mortgage obligations to customers when the brokers themselves lacked a basic understanding of these complex and illiquid securities.
