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News Release: 01-08
GRAY DAVIS, Governor
Date: 03/28/01
DEMETRIOS A. BOUTRIS, Commissioner
Corporations Department Shuts Down Fraudulent Bond Broker
Federal Court Findings Confirm Violations
Sacramento, March 28, 2001 — California Corporations Commissioner Demetrios A. Boutris announced that the Department of Corporations has revoked the license of securities broker Pacific Genesis Group for violating a 1999 desist order prohibiting certain improper activities. The desist order was issued by the Department to protect California investors from Pacific Genesis’ juggling of municipal bonds to keep afloat risky real estate schemes as they continued collecting exorbitant fees. Last month, a U.S. District Court made several findings further confirming Pacific Genesis’ blatant violation of the Department’s desist order. Also, the court issued a permanent injunction against Pacific Genesis and its principal.
"The Federal Court’s findings further confirm that Pacific Genesis continues to flagrantly violate laws designed to protect California investors," said Corporations Commissioner Boutris. "They were given a chance to play by the rules with the 1999 desist order, but they chose to keep defrauding investors. As a result, Pacific Genesis is immediately barred from further access to our markets."
Since 1995, Pacific Genesis has offered more than $250 million in bonds by abusing a financing law designed to help local governments pool together resources to build needed public projects like hospitals. By aggressively and recklessly using new bonds to refinance old debts on projects with little or no public purpose, Pacific Genesis has collected millions of dollars in fees while failing to disclose to investors key information needed to assess the substantial risks of such investments.
On February 16, 2001, the U.S. District Court for the Northern District of California issued a permanent injunction against Pacific Genesis Group and its principal, David Fitzgerald, in connection with an offering challenged by the U.S. Securities & Exchange Commission. Judge Breyer found that "the defendants’ infractions are not mere isolated instances but instead are a recurring feature of the defendants’ practices," leaving the Court with "little confidence that they will refrain from misleading investors in the future." The Federal Court’s determination is further evidence of Pacific Genesis’ violation of the Department’s 1999 desist order and their license to access California investors is immediately revoked.
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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