Colton Gives Up License to Sell Securities : Inquiry: Action by company that promoted the troubled Hill Williams Development does not absolve it of liability.

Colton Financial Inc., which promoted the now scandal-ridden Hill Williams Development Corp., has abandoned its authority to sell securities to the public.

The former brokerage withdrew its registration with the National Assn. of Securities Dealers and surrendered its state broker-dealer license to the California Department of Corporations.

But its actions do not absolve it of liability in pending lawsuits or disciplinary action by the dealers association.

The company, founded by David Colton in 1988, served as the underwriter for Hill Williams’ fund-raising partnerships--promoting the deals to brokerages--and helped the home builder raise $90 million from the public over a 3 1/2-year period.

Earlier this year, Hill Williams filed for Chapter 7 liquidation under the U.S. Bankruptcy Code, leaving its 5,000 investors in limbo. In March, the Corporations Department accused the company in a civil lawsuit of operating a scam.

Hill Williams, Colton Financial’s primary client, has since come under criminal investigation by the Securities and Exchange Commission, the U.S. Postal Inspection Service and the Orange County district attorney’s office.

Colton himself still can sell securities through Robert Scott Securities Inc., a small brokerage he founded in 1991.

“Colton Financial still exists as a company, although it is now a financial services company,” Colton said. He has pared back his staff to one secretary, pointing out, “We’re not doing the volume of business that we had before.”

The company recently moved from its Newport Beach location to an office in Irvine.

Colton Financial has been named as a defendant in a half a dozen lawsuits demanding financial restitution from Hill Williams and brokers who sold securities to investors. But Colton said he is not “trying to escape any liability” by putting the company out of the brokerage business.

A National Assn. of Securities Dealers spokesman said that a company’s withdrawal from the organization would not protect it from disciplinary action by the group for past activities. Nor would such a move shield a company against litigation, said John Lawrence Allen, a securities attorney in Carlsbad.

Colton said the company is taking a time out from selling securities “until the Hill Williams situation is resolved.”

“We are not admitting any wrongdoing, but we don’t want new investors to be concerned with any prior activities of Colton Financial,” Colton said.

He said he is raising money for a limited partnership, the Integrity Fund, which he formed last March to buy foreclosed office buildings and apartment complexes.

The partnership is collecting money through a private offering. Unlike public offerings, private offerings do not require authorization from the Corporations Department.

By state law, a private offering cannot be advertised and is usually limited to 35 or fewer “sophisticated” investors--people who either have a pre-existing business relationship with the general partner or who have a sizable net worth.

“My experience with Hill Williams soured me on raising money for someone else,” Colton said, claiming that he “made no business decisions for that company.”

“My focus in the future is to make sure I have more control over my business activities,” he said.