Judge Orders Shutdown of Bond Broker
A federal judge Friday issued a preliminary order shutting down Coastal Securities Corp., a small municipal bond broker-dealer in Century City, and installed a trustee to liquidate the firm.
In response to a suit filed by the Securities and Exchange Commission, U.S. District Judge Robert M. Takasugi in Los Angeles issued a preliminary injunction that, among other things, blocks Coastal Securities, its president, Mark D. Seigel, and its executive vice president, John J. Graffeo, from buying and selling securities or acting as a broker-dealer while in violation of certain SEC financial requirements.
In its suit, the SEC accused Coastal, Seigel and Graffeo of violating securities laws by failing to maintain the required amounts of net capital and customer reserves since at least March 29, and to keep required records.
The suit also charged Seigel and Graffeo with fraud, alleging that since at least March 18 they had transfered $250,000 in Coastal customer funds each week into Seigel’s personal bank account.
Seigel and Graffeo were unavailable for comment.
Takasugi also granted a request by the Securities Investor Protection Corp. that a trustee be designated to liquidate Coastal Securities. Gavin Miller of the Los Angeles law firm of Hufstedler, Miller, Carlson & Beardsley was named trustee.
The Securities Investor Protection Corp. is an agency financed by the securities industry that provides insurance for investors’ accounts up to $500,000.
An SEC spokesman said the trustee must now determine if Coastal customers have lost money because of the actions alleged in the SEC suit. The SEC is seeking a permanent injunction against Coastal, Seigel and Graffeo.
If a securities dealer falls below net-capital and customer-reserve requirements, it is supposed to notify the SEC and shut itself down. A lawyer for the SEC said that Coastal had assets of $1 million on Sept. 30, 1984.
Takasugi also placed a freeze on Seigel’s bank accounts and ordered him to account by Friday for all funds transfered from Coastal to Seigel since Feb. 1.
