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News Release: 00-14
GRAY DAVIS, Governor
Date: 10/02/00
WILLIAM KENEFICK, Acting Commissioner
Court Approves Restitution Plan in Orange County CD Scam
Investors May Get up to 88% Refund in CD Services, Inc. Case
Los Angeles, October 2, 2000 — The Department of Corporations announced today that a Los Angeles Superior Court judge has approved a restitution plan proposed by Receiver Dennis Schmucker in the case of an Orange County "CD broker" that targeted seniors to invest in illegal and fraudulent Certificates of Deposit (CDs). Under the plan, the investors may receive up to 88% of their investment funds, subject to continuing negotiations and litigation relating to penalties for early withdrawals relating to the CDs and costs of the distribution.
On April 14, 1998, the department had filed the lawsuit against CD Services, Inc., a Laguna Beach CD broker which had been illegally and fraudulently marketing CDs worth at least $26 million to more than 400 mostly elderly investors since 1995. The Los Angeles Superior Court appointed Dennis Schmucker as receiver and ordered an asset freeze, restitution and penalties.
The lawsuit charged that CD Services, Inc. and its controlling officers Peter and Christopher Cook and Timothy Cox, engaged in fraud that:
- offered CD investments to elderly investors without disclosing that investor funds were being pooled to purchase CDs that would remain in the company's name and not that of the investors,
- failed to disclose that investors would be charged 43% commissions "up front,"
- failed to disclose that investor funds were being commingled with other company funds,
- failed to disclose that many of the CDs purchased were "zero coupon" CDs which would not reach maturity for 15-25 years, and
- failed to disclose that the investors could not sell their interests to anyone else.
Since the CD Services, Inc. case was filed, the department has issued additional orders for the illegal and fraudulent offer and sale of investments in CDs and/or for acting as an unlicensed broker-dealer to:
- Capital Advisory Group and Vincent Ferro of Westlake Village, CA.
- The CD Store and R.C. Henning of Pleasant Hill and Roseville, CA.
- Jeffco Financial Services and Jeffrey Schwartzfeger of Hemet, Sun City, Riverside and Santa Rosa, CA.
- San Clemente Securities and the following
related entities and individuals of San Clemente, CA:
- San Clemente Investments,
- Cooke B. Christopher,
- San Clemente Financial Group,
- Thomas Sunderland, and
- C&T Investment Group,
- Sandra Sunderland.
- United Custodial Corporation,
The department warned that the "brokering"of CDs is increasingly popular and that the victims of CD scams are often seniors who believe that they are investing in a conservative investment, and who do not realize that they are making an investment in the brokerage company and not investments in the CDs themselves; all of this greatly increases the risks involved in the investment.
The department noted that a substantial recovery to investors is unusual in a securities fraud receivership. In many cases, the investor funds have been eaten up in commissions, diverted for other purposes, stolen or are not backed by any real assets or property that can be liquidated.
Click-on the department's Investor Education button for more information about the risks of "brokered CDs."
The Department of Corporations is California's Investment and Financing Authority, reporting to the Business, Transportation and Housing Agency and the Governor. The Department is responsible for the regulation, enforcement and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending and residential mortgage lending. For further information or to obtain a complaint form, see the Department's Web site at www.corp.ca.gov.
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