Plain Broker-Dealers Aren't Always so Plain

Brokerages have a primary fiduciary and legal obligation to protect their clients. Period. Unfortunately, greed and other unsavory considerations often get the best of them, and far too many brokerages tend to lose sight of this fundamental tenet of the financial industry. Soon, they’re serving themselves at the expense of their clients. A recent article on the Financial Regulatory Authority’s disciplinary actions against Cedar Brook Financial Partners for allegedly making false statements about high-risk funds sold to wealth management firm Pepper Pike is another sharp reminder that brokerages are often willing to bend or break the rules to turn a profit.

According to the article, FINRA punished Cedar Brook for making “false and misleading statements” about two funds: Medical Capital Holdings Inc, or MedCap, and IMH Fund, a security backed by subprime mortgages. MedCap in particular created massive problems for firms like Cedar Brook, when the Anaheim, CA-based company was revealed to be a Ponzi scheme sold to investors across the country and totalling nearly $2.2 billion in notes. The fraud was exposed by the SEC. The whole works. Oh boy.

Now, MedCap was a superlative fraud. But that’s got nothing to do with Cedar Brook. Except that Cedar Brook allegedly went wrong by misrepresenting just how risky the financial products being offered by MedCap and IMH actually were to investors--as well as altering at least three of their own investors’ accounts to create a false presentations of their net worth, concealing unbalanced portfolio distributions and potential unsuitability issues. Bad news. And it turns out Cedar Brook were not the only brokerage guilty of playing dirty over MedCap and IMH fund. According to FINRA’s records, across the country, 18 firms and 66 individual brokers have suffered disciplinary action over MedCap; and 15 firms and 40 brokers have suffered similarly over the IMH fund. And you can bet your bottom dollar there’s more where that came from.

Until this most recent scandal, Cedar Brook was a fairly well-regarded Midwestern brokerage. But beneath that veneer of respectability lurked a significant history of complaints against its principals that any informed investors could have accessed via FINRA’s BrokerCheck, which provides a history of any and all complaints against brokerage firms and individual brokers nationwide. After all, around 95% of registered brokers have NO complaints on their record.

If you or anyone you know has been the victim of broker misconduct or fraud, please contact us immediately for a free consultation.