SEC Joins Probe of Investment Firm Accused of Fraud

The Securities and Exchange Commission has joined a far-reaching probe into a now-closed South Bay investment firm suspected of defrauding as many as 1,500 investors nationwide of $30 million to $50 million, authorities said.

Although SEC officials refused to confirm or deny they were conducting an inquiry, numerous well-placed law enforcement sources said the agency has joined the U.S. attorney’s office, the FBI and the state Department of Corporations in investigating the activities of Wellington Group, a once-thriving real estate enterprise, which filed for protection under Chapter 11 of the federal bankruptcy code Aug. 3.

In joining the case, the sources said, the SEC has essentially taken over the state’s inquiry into alleged securities fraud--an area also under investigation by the U.S. attorney’s office and the FBI.

Unlike those federal agencies, however, the SEC generally handles civil, not criminal, cases, and thus could be looking into additional areas of securities law violations against Wellington and its former officers, including Morris English Jr., its president.

“The SEC was interested because it’s such a giant case,” said one source, who spoke on condition of anonymity. That source and others, including former Wellington investors, said the SEC probe began several weeks ago and will be much broader than the state’s investigation.

English could not be reached for comment about the SEC investigation. His attorney, Michael Firestein, declined comment.

Last July, the state Department of Corporations sued Wellington Group for alleged securities fraud and won a court order blocking the company, first headquartered in Rolling Hills Estates and later in Torrance, from selling securities.

The following month, Wellington filed for Chapter 11 protection, bringing an abrupt halt to 13 years of business, sparking a mad rush by creditors, and this year, investigations by federal agencies.

Specifically, those federal agencies are examining whether Wellington engaged in securities fraud and embezzlement by soliciting millions of dollars for investments in real estate transactions that were allegedly misrepresented or unsecured for investors.

Before the federal investigations began, the state Department of Corporations in January leveled a series of allegations against the company during a bankruptcy court proceeding that led to the appointment of a trustee to oversee Wellington.

In documents filed with the bankruptcy court, the agency alleged that Wellington officials misrepresented property values on investments, failed to record official trust deeds, failed to tell investors about Wellington’s links to borrowers and transferred investors’ money from one project to another without telling them.

In one case, the state alleged, Wellington represented different terms and values to investors on Sandiview Inc., a San Ramon condominium project. One investor was told the development was worth $13.9 million, while another was told its value was $18.6 million, the state charged. To date, that 150-unit project is only about one-third completed, and its value may not match the money collected by investors, according to trustee officials.

Last week, during a court proceeding on Sandiview and other Wellington investments, a federal bankruptcy judge ordered that English continue to be fined $1,000 a day for not turning over the company’s records. That fine was imposed in April, after the records were stolen from Wellington’s office in Torrance in a burglary that has yet to be solved.

To date, English, 50, has been charged by Torrance authorities with one count of grand theft and seven counts of writing bad checks. English pleaded not guilty to those misdemeanor charges in South Bay Municipal Court.

Word of the SEC investigation comes at a time when former investors in Wellington have voiced increasing frustration with the pace of probes by federal and state agencies, who have estimated that between 1,200 and 1,500 investors poured $30 million to $50 million into the company.

“It’s going very slowly. . . . Nothing has happened,” said Tom Hamilton of Los Angeles, one of two dozen Wellington investors who, as a group, say they have compiled a mailing list of 1,200 people nationwide with $30 million in outstanding investments.

“I have invested $316,000, . . . my mother has $166,000. Then I involved a close friend in this. He and his wife have $105,000,” Hamilton said. “I feel like I have a burden of over $600,000 on my shoulders.”

Noting the number of investors, he added: “To deprive these people of their livelihoods and their lives is despicable, and our government should be helping us, and they are not doing enough.”

Both federal and state authorities, however, said they are moving as fast as possible to unravel the Wellington case. As Mark Harmon of the Department of Corporations put it: “The agencies have to move at their own speed with information that can be used in a proceeding. . . . It’s a very complicated case.”