Investors Duped in CD Scam, State Charges
A state agency filed suit to close three Orange County financial brokers for allegedly duping customers--many of them elderly--into investing $26 million in unregistered certificates of deposit.
The Department of Corporations, in a filing last week in Superior Court in Los Angeles, alleged that the companies--CD Services Inc. and Nationwide CD Corp., both of Laguna Hills, and Leisure World Financial Services Inc. of Seal Beach--charged commissions of up to 43% on certificates that customers believed were insured when they weren’t.
It alleges that the brokers misled customers into believing they were buying CDs in their own name when in fact the certificates actually remained in the broker’s name and couldn’t be easily sold.
Bill McDonald, assistant commissioner for the department, said that in some cases, the brokers allegedly sold investors fractional investments in CDs. “The investor has nothing--there’s no liquidity, there’s nothing in their name,” he said.
The agency also alleges that the three companies operated a Ponzi scheme by paying early investors from monies raised by later investors, rather than from earnings on the certificates. It also claims that the companies improperly persuaded elderly customers to buy long-term investments that don’t pay dividends and don’t mature for many years.
Sheldon Jaffe, a lawyer for the defendants, said they deny the allegations and will vigorously fight them. He said that customers did become owners of the certificates and that some apparently bought them for trusts to pass on to heirs, rather than as a source of immediate income.
He added that investors could have learned of the commission rates if they’d asked. His clients “believe they’ve complied with the law in running their business.”
The department asked the court to appoint a receiver to oversee the assets of the companies and three officers, Christopher Cook, his father, Peter Cook, and Timothy I. Cox. Other defendants include James Lee Dellaquanti, a Nationwide shareholder; and John Warr, a Leisure World officer.
A hearing is set for May 20.
