Bentonville brokerage accused of 'bait and switch'. (In Full View).SOUTHMARK OF BENTONVILLE, A BROKERAGE firm, and its Tulsa parent company were shut down Nov. 1 by the Securities and Exchange Commission for operating what the agency called a "fraudulent scheme Noun 1. fraudulent scheme - an illegal enterprise (such as extortion or fraud or drug peddling or prostitution) carried on for profit illegitimate enterprise, racket ." According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. an Oct. 29 securities fraud action filed by the SEC in U.S. District Court in Oklahoma, Southmark has defrauded at least 400 investors, most of them elderly, since 1996 with a "bait and switch A deceptive sales technique that involves advertising a low-priced item to attract customers to a store, then persuading them to buy more expensive goods by failing to have a sufficient supply of the advertised item on hand or by disparaging its quality. " gimmick using advertisements for high-yielding certificates of deposit. Customers seeking the safety of CDs would inquire, the suit says, then Southmark agents would aggressively pitch to them "a purportedly personalized managed mutual fund investment program." The agents described the program as "as safe or safer" than CDs. But principal invested in mutual funds may depreciate depreciate v. in accounting, to reduce the value of an asset each year theoretically on the basis that the assets (such as equipment, vehicles or structures) will eventually become obsolete, worn out and of little value. (See: depreciation) , unlike CDs which guarantee a set return. Also investors were sold Class "B" mutual fund shares that carry deferred sales charges deferred sales charge A fee levied by some open-end investment companies on shareholder redemptions and by many insurance companies on annuities. The charge of up to 5% of the value of the shares being redeemed frequently varies inversely with the period of (loads) and higher internal expenses than Class "A" shares. One customer, a retired commercial airline pilot, invested his $2.1 million retirement savings with Southmark and quickly incurred more than $84,000 in commission charges and fees, according to court records. Bruce Bokony, chief counsel of the Arkansas Securities Department, said his agency had not yet received any complaints about Southmark. The Oklahoma Department of Securities, however, has issued a cease-and-desist order Cease-and-desist order An order issued after notice and opportunity for hearing, requiring a depository institution, a holding company or a depository institution official to terminate unlawful, unsafe or unsound banking practices. against Southmark Inc., an SEC-registered broker dealer, and its sister firm Southmark Advisory Inc., an SEC-registered investment adviser. Following the Oct. 29 federal complaint, U.S. District Judge James Ellison James Ellison can refer to:
In that capacity, Dowdell will oversee all operations and assets of the firm until the matter is resolved. Dowdell did nor return repeated phone calls. Southmark and its owner, Wendell D. Belden, became registered brokerage agents in Arkansas on May 8. The Arkansas Securities Department said Southmark never notified the state that it would also operate here as a federally chartered investment advisor Investment Advisor 1. A person making investment recommendations in return for a flat fee or percentage of assets managed, known as a commission. 2. For mutual fund companies, it is the individual who has the day-to-day responsibility of investing and monitoring the cash and , indicating that the Bentonville office was just a brokerage arm of the company. In September, Southmark leased about 5,000 SF of upscale office space at 1703 Phyllis in Bentonville. Lindsey-Green Commercial Properties is its landlord. Gertrude Margaret Edwards then became the Bentonville branch's principal broker on Oct. 23. But Southmark's doors in both states are locked for now. The SEC said that since 1996 Southmark sold Class "B" mutual fund shares worth $82.8 million and "fraudulently earned at least $5 million in advisory management fees and undisclosed brokerage commissions." That included $3.3 million in brokerage commissions. The SEC alleges that Belden defrauded clients by lying about the safety of mutual funds; by failing to tell them about more advantageous investments options; by failing to tell investors that Southmark would earn a 4 percent commission off investments in the "managed" program and by failing to tell the clients about previous disciplinary actions the state and National Association of Securities Dealers National Association of Securities Dealers (NASD) Nonprofit organization formed under the joint sponsorship of the investment bankers' conference and the SEC to comply with the Maloney Act, which provides for the regulation of the OTC market. had imposed against him. On Aug. 12, Belden was fined $40,000 by the NASD NASD See: National Association of Securities Dealers NASD See National Association of Securities Dealers (NASD). , ordered $55,567 in restitution to clients and was suspended for a year from associating with any NASD member. On Aug. 29, the Oklahoma Department of Securities barred Belden and fined him $50,00. Belden and Southmark declined comment. But during a phone call to Belden's residence, a woman who variously identified herself as being "with Southmark" and as "the housekeeper," appeared to have an extensive knowledge of high finance and the company's business dealings. "Just wait until our hearing Nov 15," she said. "The other side forgot to tell the judge that we have $70 million in CDs, and all this is about is the (Oklahoma Department of Securities) trying to scare people into thinking we ran off with their money." |
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