On November 5, 2015, by consent, the Securities and Exchange Commission obtained a judgment against George P. Brown, age 81, in connection with an action against George P. Brown and his son Kevin C. Brown, age 49, both of Pennsylvania, and their related entities, for fraud in connection with the sale of various unregistered securities and Ponzi schemes, under which the 81 year-old Brown will be barred from barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, for life. Securities and Exchange Commission v. Summit Trust Company, et al., Civil Action Number 15-cv-05843-JCJ, in the United States District Court for the Eastern District of Pennsylvania.
According to the SEC Complaint, the Browns, operating from Colmar, Pennsylvania under the name Brown Investment Advisors, owned or otherwise controlled several different entities through which they effected their $53 million scheme: Summit Trust Company, Rampart Capital Management, LLC, Trust Counselors Network, lnc., Brown Investment Advisors, Inc., the Rampart Fund LP, Wealth Maintenance Organization, LLC, and Hoddinott Farm Development, LLC.
Summit Trust Company
In 2004, Kevin Brown acquired and became the sole common stock shareholder of Summit Trust Company is a Nevada-chartered trust company with its principal place of business in Las Vegas, Nevada, and marketing office in Colmar, Pennsylvania. Supposedly, Summit Trust Company was on the business of providing trust administration, estate planning, charitable giving, gift administration, and custodial services.
Anyway, from approximately February 2008 through February 2014, the Browns, with the help of certain undisclosed, but commission based “independent consultants,” Summit Trust Company raised approximately $33.2 million through an unregistered offering of its Preferred Stock. According to Summit and the Browns, these funds would be used for business expansion and acquisitions. Instead, as the story goes, Browns used much of the proceeds: (a) as a Ponzi scheme to pay dividends and make redemptions to other STC Preferred Stock shareholders; (b) to cover interest payments and redemptions for the investors in the Browns’ various other schemes, including Rampart Capital Management, LLC and the Trust Counselors Network, lnc.
Rampart Capital Management, LLC
Rampart Capital Management, LLC, a Delaware limited liability company with its principal place of business in Colmar, Pennsylvania. Rampart was formed in 1999 by its only two members, the Browns. Rampart Capiral Management is supposedly the “investment adviser” and the general partner to the Rampart Fund. However, Rampart Capital Management has never been registered with the Commission in any capacity.
Between approximately August 2008 and September 2013, the Rampart Fund raised approximately $7.9 million in the Rampart Note offering from over a hundred investors. The Notes supposedly had maturity dates of between one and five years and annual interest rates of between 6% and 10%, which would be paid quarterly. The Rampart Fund also relied upon the paid “Independent Consultants,” (i.e. undisclosed stockbrokers) to solicit investors in its Notes.
Supposedly the proceeds of these Notes were used to invest in The Underwriters Group, a Florida entity that purported to make short-term mezzanine loans to government construction and maintenance contractors. The Browns were supposed to get annual interest of 18%, on these notes, paid quarterly, and pay investors between 6% and 10%.
However, of course, in November 2009, The Underwriters Group defaulted on these Notes, and it was later discovered that one of the principals of The Underwriters Group had misappropriated the Investors’ money. But that did not stop the Browns from raising additional money or the Browns from taking their fees.
Even after The Underwriters Group insolvency, the Browns continued to raise money for Rampart, and The Underwriters Group and between December 2009 through September 2013, the Browns raised an addition $2.9 million from the sale of Rampart Notes. The Browns used the newly raised proceeds in three undisclosed ways: (1) as part of a Ponzi scheme so that the Rampart Fund could make interest payments and redemptions to existing Rampart Noteholders; (2) to make a variety of speculative investments that were unrelated to mezzanine loans; and (3) to make investments in the securities of the Browns’ affiliated entities Summit Trust Company , Trust Counselors Network, lnc., and the Wealth Maintenance Organization.
Trust Counselors Network, Inc.
The Browns formed the Trust Counselors Network, Inc., also located in Colmar, Pennsylvania in 2004. The Trust Counselors Network, Inc. is supposedly a Section 501(c)(3) non-profit organization which offers investors the opportunity to make tax deductible charitable gifts of securities to Trust Counselors Network, Inc., at cost, in exchange for periodic annuity payments, which The Trust Counselors Network marketed as “guaranteed.”
According to the SEC, The Trust Counselors Network, Inc. obtained security donations of approximately $12.9 million from ostensibly seventy-five investors. However, rather than investing those assets in more traditional investments that would have enabled it to meet its annual annuity obligations, the Browns invested a significant portion of those assets in speculative and risky investments that are now worthless, and used these funds in a Ponzi scheme to make the ongoing annuity payments to existing investors. With these funds the Browns also paid misappropriated or themselves exorbitant fees of almost $1 million and also paid “Independent Consultants,” (i.e. undisclosed stockbrokers) who solicited investments in
The Browns also misappropriated investor funds by transferring over $300,000 to BIA, taking out personal loans for an outstanding amount of $360,000, and making undisclosed payments to certain third parties who solicited investments in The Trust Counselors Network, Inc.
Accordingly, at least according to the SEC Complaint, and the Consent Order with George Brown, between 2008 and 2014, the Browns, through their various operations, bilked investors of approximately $53 million.
The Regulatory Failures
The SEC states in its complaint that during the relevant period, the Browns were not registered
as a broker or dealer or associated with a broker or dealer. Indeed, FINRA Public Disclosure shows only the Browns’ registration as “investment advisors,” and directs investors to the SEC’s Investment Advisor Public Disclosure database, which for both Kevin Brown and George P. Brown the “Regulatory Action Disclosure Reporting Page and the “Civil Judicial Action Disclosure Reporting Page” are blank “No Information Filed.”
Similarly, the new and improved Pennsylvania Department of Banking and Securities website, following the dismantling of the Pennsylvania Securities Commission, does not provide to searchable enforcement information, and a search of its entire website reveals nothing pertaining to the Browns. Accordingly, any of the investors investing $53 million dollars in these schemes, would have no reason to think that the Browns or their schemes are anything but purely legitimate.
However, between 2001 and 2002, the Guiliano Law Group brought actions on behalf of a half dozen investors against George P. Brown, Kevin C. Brown, Brown Investment Advisors, and their former broker-dealer, Multi-Financial Securities Corporation, for fraud and the sale of unregistered securities by the Browns, in connection with the sale of the unregistered securities of the Evergreen Security Fund, a $200 million Orlando, Florida based “Ponzi scheme” involving at least 2,000 investors.
Back then, George Brown held himself out as “specialist” in “helping conservative investors increase their portfolio yields and reduce risk,” and also holds himself out as a former Vice President of PSFS, in Philadelphia, “the nation’s largest savings bank,” where Brown personally “created financial and estate plans for 12,000 bank clients,” and “investments aimed at personal financial security” in excess of “$1.8 Billion.”
Also, back then, both Browns were terminated by Multi-Financial Securities Corporation for engaging in the sale of unregistered promissory notes, and at or about the same time, in 2001, both Browns were also subject to an action by the Pennsylvania Securities Commission relating to the sale of unregistered securities in the form of viatical settlements.
In fact, Multi-Financial Securities Corporation sought to avoid liability for the Browns’ conduct, and thinking that they may get a better deal in federal court, also sought to avoid the arbitration of these claims before the National Association of Securities Dealers, Inc., Office of Dispute Resolution, which is now the Financial Industry Regulatory Authority, because, irrespective of Multi-Financial Securities Corp.’s control person liability and its failure to supervise the Browns, the investor victims were not traditional customers of Multi-Financial Securities Corp.
However, in the seminal case of Multi-Financial Securities Corp. v. Brown, Civil Action NO. 02-3828 (E.D. Pa. Dec. 20, 2002), the Court disagreed. United States District Judge Legrome Davis found that, among other things, because the Browns expressly held themselves out as offering securities through Multi-Financial on their business cards, stationary, promotional materials, and internet site” during the course of their association with Multi-Financial Securities Corp., when they sold the unregistered investments, as “a matter of law that the dispute in question is between “a customer and an . . . associated person arising . . . in connection with the activities of such associated persons,” and that the dispute must therefore be arbitrated pursuant to Rule 10301(a) of the NASD Code of Arbitration Procedure.”
Although we remembered, apparently the regulators forgot about the Browns.
I am sure that the many hundred investors caught up in the Browns’ latest $53 million investment scheme will not soon forget them either.
Their victims, including most specifically, those victims whom were sold these securities through the Browns’ undisclosed, but paid “Independent Consultants,” (who may or may not be associated with registered securities brokers), may have viable and collectable claims against these “Investment Consultants,” and should consult with competent legal counsel to determine their legal rights.
Aggrieved investors, or customers of these “Independent Consultants,” or undisclosed securities brokers, should know, as were the issues back then in Multi-Financial Securities Corp. v. Brown, and which still apply to today: Courts and securities arbitration panels, in identical circumstances, have long held brokerage firms responsible for the conduct of their registered representatives in “selling away” cases based upon the broker-dealer’s failure to supervise. See, e.g., Hunt v. Miller, 908 F.2d 1210 (4th Cir. 1990); Harrison v. Dean Witter Reynolds, Inc., 974 F.2d 873 (7th Cir. 1992)(firm liable for agent’s selling away activities); Hollinger v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990)(same); State Security Insurance Co. v. Burgos, 583 N.E.2d 547, 557 (Ill. 1991)(liability for firm where broker acted with apparent authority); Salmon v. New England Securities Corp., FINRA Arb. No. 01-06935 ($1.4 million award against member for associated persons “selling away” third party notes); Sleight v. Centaurus Financial, FINRA Arb. No. 10-00536; Brezden v. Associated Securities Corp., FINRA Arb. No. 07-03054 (reasoned award against member for failure to supervise agent’s selling away activties); Chandler v. FSC Corporation, NASD Arb. No. 05-0443, (reasoned award against member for failure to supervise agent’s unauthorized selling away); Battle v. Northeast Securities, Inc., NASD Arb. No. 06-04110, (same)(reasoned award); Dobison v. Josephthal, Lyons & Ross, Inc., NASD Arbitration No. 96-00963 (arbitration award against brokerage firm for broker’s selling away of unregistered notes and warrants). Securities regulators have also taken the same approach and routinely hold broker-dealers responsible for the “failure to supervise,” when their representatives engage in this outside activity. In Re DBCC (No. 5) v. Charles E. French, Complaint No. 5940026, May 18, 1995 (sanctions against member for selling away activity of broker); Siriani v. United States Securities & Exchange Commission, 677 F.2d 1284 (9th Cir. 1982); Stoiber v. Securities & Exchange Commission, 161 F.3d 745 (D.C. Cir. 1998).
The Guiliano Law Group
Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.