Report Backs SEC Allegations Against Brokers Investment : Woodland Hills: A court-appointed officer agrees with the SEC, charging the defunct firm raised some of its funds in a Ponzi scheme.
After a six-month investigation, a federal court-appointed officer agreed with the Securities and Exchange Commission’s earlier allegations that the defunct Woodland Hills-based Brokers Investment Corp. engaged in a fraudulent Ponzi scheme and that much of the money it raised never went into various businesses as promised.
In a 72-page report filed this month in federal court in Los Angeles, Special Officer Robert A. Baker also detailed widespread misuse of investors’ funds by officers of U.S. Fiberline Communications Inc., a San Diego telecommunications firm for whom Brokers Investment raised more than $100 million.
Baker said executives at Fiberline took some investors’ money for personal use without authorization and set up other arrangements that benefited their families and friends.
Gerald Boltz, a Santa Monica lawyer who represents the principals of Fiberline, said he had not yet gone through the report.
Last April the SEC alleged that Brokers Investment ran one of the state’s biggest boiler-room operations in recent years. The SEC asserted in a federal complaint that from mid-1989 through 1992 script-reading salesmen at Brokers made cold calls to investors from coast to coast, raising $109 million by talking about profits of up to 32%.
Investors were told that their money would go into various limited partnership deals involving Fiberline and its entities. But the SEC said at least $40 million was pocketed or fraudulently used by the principals of Brokers Investment and Fiberline.
The SEC’s complaint resulted in Brokers Investment shutting down last spring. The discount brokerage was founded in 1985 and co-owned by Norman D. Shubert and Daniel H. Steinberg. In July, Shubert and Steinberg, both of Calabasas, signed an SEC administrative order that bars them from the brokerage industry for life.
Michael Matthias, a Los Angeles attorney who represents Shubert and Steinberg, did not return telephone calls.
With the filing of Baker’s report, SEC officials said they would now try to force the principals of Brokers and Fiberline, through claims in court, to pay back any money taken fraudulently. The SEC said it would also seek civil penalties as well as an order that would permanently bar the principals of Fiberline from becoming officers at any public company. Fiberline was owned and operated by William T. Grant, L. Scott Noreuil and Scott R. Nauert.
Fiberline, which specialized in marketing pay phone and long-distance services to hotels, hospitals, condominiums and other businesses, was formed in 1987 and once had more than 100 employees in San Diego and Las Vegas. Fiberline shut down earlier this summer.
Peter Davidson, a Los Angeles attorney who helped Baker with the investigation, said Fiberline investors will receive claim forms within the next 30 days. They will have until next April to file claims. As many as 4,000 investors in 46 states and eight foreign countries are thought to have claims against Fiberline and Brokers Investment.
But Baker’s report suggested investors may have a long wait before they get any money. Baker found only $225,000 worth of tangible assets at Fiberline, although he said there was a pending lawsuit filed by Fiberline against a Mississippi company that could result in additional money for investors.
Baker’s report said that by December, 1992, Brokers Investment had raised more than $101 million through 18 limited partnership offerings related to Fiberline and its entities. But Baker said 32% of the Fiberline money raised by Brokers Investment actually went back to the brokerage--15% in commissions, and 17% in fees for purported investment-banking services.
Baker called the 15% commission “extremely high,” and said the 17% fees for investment banking services appeared to be “unjustified and at minimum clearly excessive.”
Baker said there was a Ponzi scheme involving some of these investments, but his report did not specify the amount involved. In a Ponzi scheme, money raised from new investors is used to pay off previous investors.
Baker also said Fiberline officials--Grant, Noreuil and Nauert--paid themselves tens of thousands of dollars each time Brokers Investment transferred a certain amount of investors’ funds to banks.
Baker’s report said Grant has admitted to him that he has $109,000 belonging to Fiberline, but Baker said Grant has failed to keep his promise to return the money by October. Gerald Boltz, a Santa Monica lawyer who represents the principals of Fiberline, said of Grant, “I think he just doesn’t have the money.”
But attorney Davidson said that Grant has homes in France and Italy. California property records show that Grant also owns a condominium in La Jolla valued at $371,000.
Licia DeCamillis of New York was probably the single largest investor to Fiberline’s projects. She put in $725,000 in four partnerships, but has received only $10,000 back. Now that Baker’s investigation is over, DeCamillis said she hopes the U.S. Attorney’s office will file criminal charges against the principals of Brokers Investment and Fiberline.
