Brookstreet Scammed Old-Timers, SEC Says

SANTA ANA, Calif. (CN) - Irvine-based Brookstreet Securities Corp. and its CEO Stanley Brooks defrauded customers, including retirees, by selling them $300 million in risky, mortgage-backed securities under misrepresentations, the SEC claims in Federal Court. The agency says that even some of Brooks' bond traders called his operation "a scam," and it cost some retirees their life's savings and houses before Brookstreet collapsed.

Brooks sold collateralized mortgage obligations to more than 1,000 retirees, senior citizens and other people to whom they were unsuitable, the SEC says. Brooks continued to push the risky paper on his victims, even after he "received numerous indications and personal warnings that these were 'dangerous' investments that could become worthless overnight. One trader even called Brookstreet's program a 'scam,'" the SEC said in a statement announcing its lawsuit.

"These were complex mortgage derivative securities with Byzantine pricing, valuation and trading characteristics," an SEC spokesman said. "Selling them to retirees and conservative investors was profoundly and egregiously wrong."

The SEC seeks disgorgement, penalties and an injunction.

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