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Brookstreet is getting a look from regulators

The Irvine brokerage's founder says SEC and NASD officials have been going through the failing firm's records.

June 30, 2007|E. Scott Reckard | Times Staff Writer

Federal regulators are examining the records of Brookstreet Securities, an Irvine brokerage being liquidated after sustaining heavy losses on mortgage-backed investments, the firm's founder said Friday.

Stanley C. Brooks, who started Brookstreet 17 years ago, said he fired 80 employees Friday, leaving a staff of about 15 to shut down operations over the coming months. Brookstreet last week severed ties with more than 600 independent brokers nationwide who had represented the firm.

Brooks said officials of the Securities and Exchange Commission and brokerage regulator NASD had been at Brookstreet "for two or three days," looking over its financial accounts and other records.

"They're here making sure we shut down the right way," preserving records when required, he said.

Representatives of the SEC and NASD declined to comment.

Brooks, the target of past regulatory actions for such missteps as allegedly putting clients in unsuitably risky investments and failing to supervise his firm, noted that in early 2006 he had settled an NASD case by agreeing to be barred from a supervisory role at any brokerage.

Because he wasn't a supervisor, Brooks said, he couldn't explain why certain Brookstreet customer accounts holding mortgage securities had borrowed far more heavily than company guidelines permitted.

The steep leverage multiplied the losses that resulted when Fidelity Investments' National Financial unit, which administered the accounts and cleared trades for Brookstreet, marked down the value of the securities as the sub-prime mortgage market deteriorated.

Some accounts lost so much money that they wound up with negative balances. Brookstreet was required to make up those shortfalls to National Financial, causing the brokerage's net worth to plunge to a negative $17 million, Brooks said.

scott.reckard@latimes.com

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