Blotter April 2010

First Allied Settles Sunshine State Fraud

The Securities and Exchange Commission charged San Diego-based broker/dealer First Allied Securities with failing to reasonably supervise one of its registered representatives who engaged in unauthorized fraudulent trading in the accounts of two Florida municipalities. The SEC charged the former broker, Harold H. Jaschke, with fraud last year.

Jaschke executed numerous unauthorized transactions, made unsuitable recommendations, and churned the accounts of the City of Kissimmee, Fla., and the Tohopekaliga Water Authority, between May 2006 and March 2008. First Allied agreed to settle the SEC's findings by paying $1.95 million.

According to the SEC, First Allied failed reasonably to supervise Jaschke because it did not have systems in place to ensure a response to red flags indicating possible churning and suitability violations. The SEC also found that First Allied had no system in place to monitor compliance with its rule prohibiting brokers from using personal e-mail accounts to conduct business. This enabled Jaschke to use his personal e-mail account to send and receive business-related e-mails that were neither reviewed nor retained by the firm, as required under law.

Fraud On the Bus

The SEC charged a Los Angeles-based investment advisory firm and its principal with fraud and obtained an emergency court order to halt a $14.7 million Ponzi scheme targeting retired Los Angeles bus drivers.

The SEC alleges that Thomas L. Mitchell and his firm, Mitchell, Porter & Williams (MPW), solicited clients to invest their retirement money in promissory notes offered by two other entities he operates (Adivanala AA Investment Trust and AB3). Many of MPW's clients are recently retired bus drivers from the Los Angeles County Metropolitan Transit Authority who were referred to the firm by former co-workers. The SEC alleges that Mitchell met with the prospective clients and encouraged them to take their retirement pensions as a lump-sum payments rather than a monthly annuity, and then to let him manage that money. According to the SEC's complaint, Mitchell raised funds from 82 clients in the fraudulent promissory note offering, and he promised investors fixed interest returns ranging from 10 to 15 percent annually for three or six-year terms.

In classic Ponzi style, rather than invest new money in stock, bonds or real estate as promised, Mitchell used it to pay “returns” to existing investors. Furthermore, the SEC alleges Mitchell used 20 percent of new investor money to fund luxury car payments, mortgage payments, payments for a cruise, and tickets to sporting events.

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