Tainted Investment Firm Files for Bankruptcy
A defunct Orange County investment firm, under investigation for allegedly misleading investors about commission fees, investment returns and the safety of certificates of deposit the firm sold, is taking steps to liquidate.
San Clemente Securities Inc. filed for bankruptcy under Chapter 7, a move that calls for liquidating the business. The petition, filed last week in U.S. Bankruptcy Court in Santa Ana, listed assets of $407,500 and liabilities of $3.3 million.
The company, which closed its doors last spring, billed itself as a “CD broker” that offered above-average interest rates on CDs to small investors and banks. But the firm may have failed to disclose commission fees of up to 50%, regulators said.
San Clemente sold assets such as clients’ accounts in April to InterFirst Capital Corp. of Los Angeles, and later surrendered its broker dealer license to the state Department of Corporations, said Bill McDonald, head of enforcement for the department.
In November, the company was expelled from the National Assn. of Securities Dealers, which had filed a fraud complaint against the firm, co-owners Cooke Christopher and Thomas Sunderland and some sales executives. Several executives were censured and fined $10,000 to $50,000 each.
Christopher and Sunderland could not be reached for comment Wednesday.
The company also has been the target of investigations in other states. In 1999, San Clemente was banned from selling securities after regulators found that the firm had inflated rates of return and falsely told customers that their investments were federally insured.
Regulators are receiving an increasing number of complaints about such operations, McDonald said.
Many CD brokers, he said, coax retirees to part with their money by offering annual rates of 10% to 12% on CDs versus about 5% offered by banks.
But brokers often fail to disclose the existence of hefty commission fees or that the CDs might not mature for 25 years. Often, CDs are pooled and put in the names of the brokers or their companies, preventing individual investors from cashing them in, he said.
In some cases, investors were falsely promised that their CDs would be insured by the Federal Deposit Insurance Corp., he said.
The department of corporations has taken legal action in recent years against several CD brokers in Southern California, including CD Services Inc. of Laguna Hills.
In July, the Department of Corporations issued an order barring Capital Advisory Group of Westlake Village from selling CDs.
Despite San Clemente’s bankruptcy filing, the department is continuing its investigation of the firm’s activities, McDonald said.
