(CN) – Firstar Financial Group of Central Oklahoma defrauded retirees by promising grossly inflated returns on certificates of deposit and other investments, the Oklahoma Department of Securities claims in Federal Court. It also sued Firstar principals John Hamilton and Robin Peck, neither of whom is registered to sell securities.
The two former insurance salespeople began placing newspaper ads in 2007, claiming to offer the highest rates on certificate of deposit in the country. The ads, which first appeared under the name First Fidelity Financial Group of Oklahoma City and later the Firstar Financial Group, ran until June 20, 2010.
Throughout this period, and despite not being licensed in the state, Hamilton and Peck branded their company as “Your Safe Money Solution,” according to the complaint.
Their ads stated in fine print: “Firstar Financial Group LLC is a financial services firm that locates FDIC insured banks offering the highest CD yields nationwide,” the complaint states. The first print also stated: “promotional incentive may be included to obtain yield.”
The company’s come-ons encouraged investors to “simplify” their lives, through reliance on Firstar’s CDs, “savings accounts, money market accounts, fixed annuities and other higher yielding accounts.”
“Our objective is to provide you with financial instruments that can give you peace of mind to enjoy your retirement,” one promotional brochure said.
“Most, if not all, of the certificates of deposit offered by defendant Firstar are products of Discover Bank and Ally Bank,” the complaint states. “However, at no time material hereto, has Discover Bank or Ally Bank offered certificates of deposit with APY rates as high as those advertised by Firstar.”
To achieve the advertised yield and hide its misrepresentations, Firstar contributed “promotional incentives” out of its own funds, the state says.
It did not tell its customers they could not receive the anticipated yields without the direct participation of Firstar, nor did they tell them the banks issuing the certificates of deposit were not offering to pay the rate the defendants advertised, according to the complaint.
The state says Hamilton hosted seminars in Oklahoma, asking investors to put their money into capital appreciation bonds issued through a separate entity he controlled, called A&O Life Funds.
In the invitations to his “seminars,” Hamilton described “an extremely unique strategy for accredited and sophisticated investors to obtain true portfolio diversity without market or interest rate risk.”
Investors who bought into the scheme were promised returns of 12% to 15%.
These securities supposedly were bonds backed by bonded life insurance polices that had been acquired by A&O. Hamilton said that Provident Capital Indemnity Ltd. provided a surety bond on the investment. But the state says he neglected to tell investors that Provident had been censured by the Texas Department of Insurance in 2006, which issued an emergency cease and desist order preventing it from acting as a surety or engaging in any unauthorized insurance enterprises.
The state seeks an injunction, $50,000 fines for each defendant, an accounting, and disgorgement.