A federal appeals court upheld the $10 million securities fraud fine against Stanley Brooks the former CEO and owner of Brookstreet Securities Corp., who was “involved in the nuts and bolts of how things worked.
The 9th U.S. Circuit Court of Appeals rejected Brooks’ challenge to the calculation of his $10 million fine by the Securities and Exchange Commission and upheld an injunction banning him from working as a broker or investment advisor in the purchase or sale of securities.
The SEC said Brooks created and promoted investment in Collateralized Mortgage Obligations to retail customers from 2004 to 2007, with more than 1,000 customers investing nearly $300 million in the CMO program.
Brooks, of San Clemente, received the fifth largest penalty issued against an individual by the SEC in 2009, according to Bloomberg News.
Brooks argued that he should be entitled to a good faith defense that he was not aware of his employee’s advice to retail customers in 2004 to purchase risky mortgage investments without establishing their financial suitability of those investments.
The appeals panel said Brooks knew that Brookstreet representatives were recommending and selling CMOs to customers, yet he failed to establish suitability standards for CMO clients until 2007.
Thus he cannot claim that Brookstreet’s supervisory system was adequate, the court said.
Brooks, who stepped down as CEO in 2007, had been sanctioned twice before by the SEC in 1992 and 1997, according to SEC documents. In 2007, Brookstreet failed to meet its capital requirements and closed operations, according to the SEC.
Brooks is no longer registered as a broker.
The 9th Circuit ruling came in a non-precedential memorandum decision.
Case: SEC v. Brookstreet Securities, No. 12-56404