The U.S. District Court for the Southern District of Florida has found K.W. Brown & Company, K.W. Brown Investments, 21st Century Advisors, the companies’ owner Kenneth Brown, his spouse Wendy Brown, and representative Michael Cimilluca liable for their involvement in a cherry-picking scam that earned them $4.5 million and cost investors $9 million. The three of them were also found liable for violating federal securities laws.
According to the Florida Court, from September 2002 up until at least June 2006, Brown and his friends took part in a fraudulent cherry-picking scheme that helped him and his friends earn millions of dollars in illegal gains while clients lost money as a result.
Industry regulators had warned Brown that he needed to put in place procedures and policies that would prevent this type of illegal activity, yet the oversights persisted. A Securities and Exchange examination staff had discovered a number of violations in June 2003, including undisclosed conflicts of interest and breaches of fiduciary duty.
In 2005, the SEC filed a complaint against Brown and his three companies. The SEC says that Cimilluca, who day-traded in a proprietary account run by Brown Investments, pocketed 50% of the profits from the account as his compensation.
The SEC says that because Cimilluca was only paid 1% of commissions that he earned from executive trades, he was be more likely to move the more profitable trades to the Brown Trading Account while ignoring customer accounts. Because of this, investors lost profits valued at millions of dollars.
The defendants must now also pay $983,586 in pre-judgment interest on the $4.5 that the scheme earned them and $74,779 on the $296,147 in profits that had been diverted by Cimilluca, who is a registered representative for one of Brown’s firms.
Collectively, the three companies owned by Brown must pay a civil penalty of $4.5 million. Ken Brown and Cimilluca were also ordered to pay third-tier civil penalties of $250,000. Wendy Brown has been ordered to pay $100,000.
Losing money because of the misconduct of a broker or a broker-dealer can be a huge financial blow to an investor. The best chance you have of recovering your losses is retaining the services of an experienced stockbroker fraud law firm. Shepherd Smith and Edwards has helped thousands of people in the United States, as well as internationally, recover their investment losses. Contact Shepherd Smith and Edwards today and one of our stockbroker fraud lawyers would be happy to discuss your situation during your free consultation.
Related Web Resources:
SEC v. K.W. Brown and Company, et al., Civil Action No. 05-CV-80367-JOHNSON (S.D. Fla.), SEC.gov, January 8, 2008