Washington, D.C., Sept. 22, 2008 (LAWFUEL) – The Securities and Exchange Commission today charged a former broker in South Florida who allegedly defrauded senior citizens and other customers through a variety of abusive sales practices, garnering him more than $700,000 in commissions and fees while causing more than $2.7 million in investor losses.
SEC Chairman Christopher Cox announced the SEC’s enforcement action at the start of the SEC’s third annual Seniors Summit in Washington D.C. today. The SEC’s Seniors Summit is presenting tips and information to an audience of hundreds of older investors to help them detect possible senior scams and ensure their retirement assets are protected as they age. The SEC has brought more than 50 enforcement actions during the past two years against frauds particularly victimizing retirees and other older investors.
The SEC’s complaint in today’s enforcement action alleges that Gary J. Gross, a former registered representative who worked in the Boca Raton, Fla., branch office of broker-dealer Axiom Capital Management, Inc., recommended unsuitable securities and engaged in unauthorized and often unsuitable trades in his customers’ accounts. Many of these customers were elderly, unsophisticated investors who wanted to preserve their investment principal and grow their portfolios while investing with minimal risk. To cover up his misconduct, Gross allegedly provided some customers with documents reflecting false account values.
“This case highlights the need to ensure that seniors, and the investing public generally, are treated fairly and appropriately by brokers and others in the securities industry,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “This broker betrayed the trust that he developed with many of his customers, including senior citizens.”
David Nelson, Director of the SEC’s Miami Regional Office, said, “Mr. Gross’s disregard for his customers’ investment objectives in order to profit at their expense is both sad and unfortunate. This enforcement action demonstrates the Commission’s resolve to take enforcement action against wrongdoers who prey on senior citizens.”
According to the SEC’s complaint, Gross, who now resides in Far Rockaway, N.Y., persuaded customers to open accounts with him at Axiom from at least early 2004 through September 2006, pledging that he could deliver higher income and more safety than their current broker. The complaint alleges that Gross then traded the customers’ accounts in disregard of their generally conservative investment objectives.
Specifically, the SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, alleges that Gross recommended mutual funds and closed-end funds to his customers that were unsuitable for them and purchased risky, illiquid private placements and private investments in public equities, sometimes referred to as “PIPEs,” in his customers’ accounts without disclosing to them the risk factors.
The SEC’s complaint also alleges:
Gross recommended a highly speculative penny stock company, touting the company that issued the stock while failing to disclose the risks of this investment.
Gross churned at least four customer accounts.
When some customers complained about their investment losses, Gross told them to ignore their account statements and created fraudulent documents for them that misrepresented the current value of their investments and, in some cases, included baseless projections.
The SEC’s complaint charges Gross with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, the imposition of a civil monetary penalty and a penny stock bar against Gross.
The SEC’s investigation is continuing.