2 Brokers Settle With SEC, Agree to Life Ban : Investment: Several government entities have sued the securities traders, claiming they were bilked out of more that $8 million.
Two securities traders accused of bilking six Southern California government entities out of more than $8 million have agreed to leave the securities business for life as part of a settlement with the federal Securities and Exchange Commission.
The brokers, William E. Parodi Sr., 47, of Woodland Hills and Frederick W. Parodi, 35, of Canoga Park did not admit in the settlement to breaking federal securities laws. But the SEC, in findings accompanying the settlement, charged that the Parodi brothers had engaged in “excessive and unsuitable trading” that resulted in “significant customer losses.”
Among the Parodi customers cited in the SEC findings were the cities of Lawndale, San Marino and Palmdale, Palmdale’s redevelopment agency, and the Three Valleys Municipal Water District in the San Gabriel Valley.
These entities, along with the redevelopment agency of Maywood, have filed suit against the Parodis, four other account executives and the two brokerage houses they worked for--E. F. Hutton, now Shearson Lehman Hutton, and First Investment Securities Inc.--over the handling of investment accounts.
SEC officials say the Parodi case reflects abuses elsewhere in the country in which some bond salesmen have persuaded small government entities to let them invest their surplus funds. Dubbed “bond daddies,” the salesmen use the money in short-term, high-volume bond trading that wins them fat commissions--and exposes their clients to considerable financial risk.
“Though I’d be hesitant to say it’s widespread, I’d have to say it isn’t isolated,” said Elaine Cacheris, assistant enforcement administrator in the SEC’s Los Angeles office. “We are seeing public institutions being solicited to make transactions that are unsuitable for their investment strategy.”
Said Paula Cone, Lawndale’s assistant city manager: “Lawndale lost $1.67 million, roughly half our (investment) portfolio. It was quite a loss.”
The local governments’ lawsuit, filed in U.S. District Court in Los Angeles last year, charges that the Parodis and the other defendants violated state and federal securities laws. It seeks $8.3 million in compensatory damages and $16 million in punitive damages.
Other Southern California cities have reported losses as a result of transactions handled by the Parodis, including Rancho Palos Verdes, Chino, Imperial Beach, Bellflower and Camarillo. Rancho Palos Verdes reportedly reached a settlement with E. F. Hutton last year in which the brokerage returned to the city $1 million it had lost plus some interest. The city of LaVerne, which had also invested money through the Parodis, suffered no losses.
It is unclear to what extent the SEC findings affect the cases of those cities and agencies that filed suit.
William Wynder, the attorney representing the plaintiffs, said he hopes to draw on documents and testimony that the SEC gathered in reaching its findings. But Cacheris of the SEC said her agency will have to keep the records confidential because it settled with the Parodis before taking the case to administrative hearings in which evidence can be made public.
Gerry Boltz, the attorney who represented the Parodis in the SEC case, agreed: “Had there been an evidentiary hearing, that evidence might have been usable for them,” he said. “We think it is a privacy matter protected by the privacy rights of our clients.”
As for the settlement, which was approved by the five-member SEC on Sept. 27, Boltz stressed that in the agreement with the SEC, his clients expressly state that they neither admit nor deny the commission’s findings.
Boltz said the Parodis will not comment on the case.
In its findings, the SEC said the Parodis concealed from customers the riskiness of their bond transactions and the fact that some of those transactions could leave accounts in debt.
