Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, October 3, 2008

SEC Charges Five World Securities Brokers with Unsuitable Sales of Variable Universal Life Policies

The SEC filed a complaint against Kederio Ainsworth, Guillermo Haro, Jesus Gutierrez, Gabriel Paredes, and Angel Romo, five World Group Securities (WGS) registered representatives, including a branch office manager, charging them with fraudulently selling unsuitable securities, primarily variable universal life policies. Most customers who bought these securities lacked the cash or income to do so but were urged by the defendants to raise the money to pay for the purchases and subsequent monthly payments required for these products by refinancing their fixed-rate mortgages into subprime adjustable-rate negative amortization mortgages. Most customers had little formal education beyond high school, had little prior investment experience and several did not speak English fluently, if at all.  In making the sales, the defendants allegedly misrepresented the expected returns from the securities, the liquidity of securities, and the nature of the securities and the terms of the new mortgages while failing to disclose material facts about the products.

The Commission's complaint also alleges that the defendants falsified customer account forms and prepared order tickets that contained information they knew was inaccurate relating to the securities sales.

The Complaint seeks to enjoin the defendants from future violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 17(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 17a-3 thereunder; payment of disgorgement and prejudgment interest and the imposition of civil penalties.

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