Investor's Watchdog.com: Stock, finance and investment protection for investors

The U.S. Securities and Exchange Commission has charged California-based Brookstreet Securities Corp. (“Brookstreet”) and its President and CEO Stanley C. Brooks (“Brooks”) with fraud for “systematically selling risky mortgage-backed securities to investors with conservative investment goals.”

The SEC alleges that Brookstreet and Brooks encouraged brokers to sell especially risky, illiquid Collateralized Mortgage Obligations (“CMOs”) to more than 1,000 seniors and retirees, many of whom lost their homes and their nest eggs.  According to the SEC, the defendants actually sold CMOs without authorization.  The first time the customers realized that they owned the unsuitably risky securities was when they received a confirmation statement reflecting the unauthorized purchase.

Notice two things about this case.  First, the unsuitable sales were made mostly to senior citizens who could not afford the risk.  Reckless brokers usually target the elderly simply because they usually have bigger accounts (from a lifetime of savings).  Those who suffer the most are, therefore, those who can least afford the loss.

Also, notice that the defendants’ allegedly improper conduct was motivated by their financial hardship.  Times were tight for brokerage firms in the wake of the financial crisis.  People did not want to trade.  No trading equals no money to the brokerage firm.  To make up for that lack of trading, the defendants allegedly sold CMOs, which pay very large commissions.

Never entrust your nest egg to any broker you have not thoroughly investigated through a professional investor protection company.