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6,000 Lost Millions With Fiberline Deal : Probe: SEC has accused the Woodland Hills firm of fraud. Receiver seeks what money is left.

June 30, 1993|DON LEE | TIMES STAFF WRITER

Brokers Investment Corp. was terrific at raising money. What the Securities and Exchange Commission would like to know is what happened to it all.

From 1989 to mid-1992, the Woodland Hills company's high-pressure salesmen raised $109 million by reading scripts on cold calls made to thousands of investors from coast to coast, the SEC said. Investors were lured with talk of potential profits of up to 32% a year from deals in telecommunications, fiber optics and automated teller machines.

Some 6,000 people put up their money. It was supposed to go into deals set up by an obscure telecommunications outfit in San Diego called U.S. Fiberline Communications that was linked with Brokers Investment.

But if the SEC's allegations are right, at least $40 million was either pocketed for personal use by top officers of Brokers Investment and Fiberline, diverted for unrelated businesses or used as part of a fraudulent Ponzi scheme--in which money raised from new investors is used to pay off previous investors.

According to the SEC, this happened after a hefty 30% of the $109 million was taken out for commissions and fees to Brokers Investment and its principal executives, some of it illegally. In April, the commission filed a civil complaint in federal court in Los Angeles against Brokers Investment and Fiberline.

"It was one of the state's biggest boiler room operations in recent years," said Stan Maekawa, an assistant SEC regional administrator in Los Angeles.

The complaint forced Brokers Investment to shut down. Its co-owners, Norman Shubert and Daniel Steinberg, signed a consent order in May, without admitting or denying guilt, that prohibits them from selling unregistered securities and committing securities fraud.

Meanwhile, three principal officers of Fiberline--William Grant, Scott Nauert and L. Scott Noreuil--resigned from the company, and each signed a similar consent order. They, Shubert and Steinberg declined to comment for this story. But their attorneys said they will be vindicated once a thorough investigation is completed.

One man looking for the missing $40 million is a court-appointed receiver, accountant Robert Baker of Los Angeles, who is running what is left of Fiberline. Despite the consent decrees in the civil complaint, the executives could be subject to further action, including being ordered to make restitution, or they could face criminal prosecution.

In the meantime, Fiberline investors are anxious. Once hopeful of making big profits, they now just want their money back.

Pat Nottingham, a retired nurse in Florida, remembers when she first got the call from a Brokers Investment salesman in July, 1991. The pitch was simple and alluring: Invest $24,000 in a limited partnership and get back monthly payments totaling $35,000 over two years.

Nottingham agreed, but was nonetheless shocked when a messenger came to her door the next day to pick up the check. "I called and asked, 'What's the hurry?' The salesman said, 'You can't start getting any interest until we get your money.' "

As with many other Brokers Investment customers, Nottingham at first got steady dividend checks for a few months. Encouraged, she put another $50,000 into other Fiberline partnerships. But nearly two years later, she has received less than $2,000 from her investment, and not a penny in months. Nottingham faces a total loss of $72,000. "This literally wipes me out," she said.

Gerald Boltz, an attorney for Fiberline's principals, acknowledged that there were "operational problems" with the company. But he blamed investors' losses on the recession, competition and problems with a joint venture with a Mississippi company that Fiberline has sued.

Many investors also fault regulators for not doing anything earlier.

Brokers Investment was licensed by the SEC in 1985, but it was not until early last year that SEC examiners visited the firm for a routine inspection. By then, two other regulators--the California Department of Corporations and the National Assn. of Securities Dealers, the Washington-based group that licenses brokerages--had inspected Brokers Investment, or reviewed its operations, during the period of the alleged scam. But neither agency found anything seriously amiss.

If they had looked harder, they might have found that in the mid-1980s Steinberg, of Brokers Investment, and Grant, of Fiberline, were censured for selling unregistered oil and gas securities in separate cases. Steinberg was disciplined by regulators in Wisconsin and California, while Grant was censured in Wisconsin and Alabama.

Fiberline was licensed by the state as a long-distance carrier in 1988, and specialized in marketing pay phone and long-distance services to hotels, hospitals, condominiums and other businesses.

Brokers Investment described itself as a discount brokerage that also sold options and limited partnerships. In 1991, it said it had four offices in Southern California with more than 100 employees.

In February, 1989, Brokers Investment began selling the first of what would be 18 limited partnerships for Fiberline. Its brokers were paid a hefty 8.5% sales commission, and they were furnished with carefully worded scripts for their sales efforts.

If a potential buyer said he wanted to run the investment by his attorney, brokers were to respond: "Is he a securities attorney? Then he would not have the ability to pass judgment on the legality of this investment."

In 100-plus page prospectuses, investors were told in small type that they could lose everything. But investor Fred Levy, a retired Hughes engineer in North Hills, said he was told by salesmen that these caveats "were just boilerplate."

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