When a Boy Scout offers to help a little old lady across the street, she should check her purse upon reaching the curb.That may be the message of a securities arbitration that has just been completed. The arbitrators, assessing speculative ventures peddled to an elderly, disabled San Diego woman, cited “fraud, gross misconduct, breach of fiduciary duty, and/or gross negligence” by the financial swingers who claimed they were helping her across the street.
“The panel’s biting commentary about taking advantage of an older, retired, unsophisticated client through deceit has to sting,” says Bill Singer, who writes Broke and Broker, an Irreverent Wall Street Blog and also writes for the Huffington Post.
Securities arbitration is a dispute-resolution process. Instead of going to court, parties take their arguments to a supposedly impartial, knowledgeable panel. Since 2007, such arbitrations have been handled by the nongovernmental Financial Industry Regulatory Authority (FINRA).
The victim is Martha Campbell, 63, a retired, disabled customer-service agent who had worked for San Diego Gas & Electric for 34 years as a single mother with a high school education. Her life savings were $428,000, according to arbitration papers filed by her San Diego attorneys, Bradd Milove, Brian Miller, and Paul M. Jonna.
According to Miller, Campbell was in the process of selling her $400,000 home, “but the market went against her” as San Diego home prices plummeted at the time she became ill. Finally, she decided to do a short sale, a transaction in which a lender takes less money than is actually owed on the mortgage.
Her nephew-in-law, Daniel Guillen, assisted her in the short sale. According to her attorneys’ presentation in the arbitration, Campbell “was led to believe Daniel Guillen was acting altruistically.”
But that was questionable. According to information presented at the arbitration, Guillen got $18,000 from financial operator Kevin Williams, who put her retirement money in investments that the panel considered wholly unsuitable. Williams, who has offices in La Jolla and Orange County, put $350,000 of Campbell’s $428,000 in a real estate investment called the Land Entitlement and Opportunities Fund. Williams told her that she would make $3333 a month on her money.
Campbell’s attorneys say that Guillen was a money finder for Williams — that is, one who is paid a commission to recruit investors. “Daniel Guillen is not now, nor has he ever been, a money finder for Kevin Williams,” says Guillen’s lawyer, Andrew Stilwell, who would not say how Guillen got to know Williams. At the hearings, Williams’s lawyers argued that Guillen and Williams had a business together, and that explains the $18,000, according to Campbell’s lawyers.
I also asked Stilwell if Guillen told Campbell that he was steering her to Williams for altruistic reasons. “Mr. Guillen will not comment on the facts at this time,” says Stilwell.
According to testimony at the hearing, a full $340,000 of the $350,000 was transferred to Sycamore Ventures, which was owned and controlled by David Romo, a convicted felon. In December of 2002, Romo was sentenced to a year and a day in federal prison for bank fraud and transporting stolen securities.
According to the Sacramento Bee, Sacramento U.S. District Judge David F. Levi said that Romo had pulled off “a large fraud scheme” and told him, “This was not a momentary lapse in judgment. There is something deeper in your character that allowed you to be grossly dishonest in the business world.”
Romo’s Sycamore Ventures owned raw land in an undeveloped area. The project flopped. “As best as can be determined, the $350,000 investment…is a total loss,” said Campbell’s lawyers in the arbitration.
I also asked A. Kipp Williams, the attorney for Kevin Williams, some questions about the matter. How did Kevin Williams get to know Romo? Kipp Williams didn’t know. Did Kevin Williams do his due diligence on Romo’s criminal background? “I can’t tell you that,” said Kipp Williams, who accused me of representing one of Campbell’s attorneys, Milove, and hung up the phone. I called back and Kipp Williams said he couldn’t answer most questions because of attorney-client privilege, but he did say that Campbell “didn’t understand the documents” in the short sale and that she had not opened Kevin Williams’s statements for six months.
Kevin Williams had given her a private placement memorandum and explained the risks to her, claimed Kipp Williams. She doesn’t do her homework, he said. I then asked why the arbitration panel had come down so hard on Kevin Williams. The arbitration guidelines “are very skewed toward the investor,” said Kipp Williams. There has been no decision whether to appeal, he said.
Kipp Williams’s assertion that arbitrations are skewed in favor of investors will get a strenuous argument in many quarters. For example, a nonprofit group called Project on Government Oversight told Congress in February that “FINRA’s track record…is typical of financial self-regulators that have a cozy relationship with the industry they are supposed to be regulating.” Self-regulators “have effectively been asleep at the wheel during all of the major securities scandals dating back to the 1980s,” said the oversight group to Congress, citing the Bear Stearns, Lehman Brothers, Merrill Lynch, and Bernard Madoff debacles that went undetected for years.
Guillen was not a part of the arbitration process because he does not belong to the Financial Industry Regulatory Authority. So Campbell and her lawyers are suing him in superior court, alleging securities fraud, illegal securities sales by an unlicensed broker, negligence, breach of fiduciary duty, and other transgressions.
I asked Stilwell about these charges. There has been no decision how to respond to the charges, says Stilwell. “Mr. Guillen is adamant that the allegations made in Ms. Campbell’s complaint are completely false and bordering on frivolous,” says Stilwell.
But the arbitration panel came down extremely hard on Kevin Williams, charging him with “taking undue advantage of an older, retired, financially unsophisticated, and financially limited client,” as well as placing his own needs and interests above those of his client and using “deceit and misleading and reckless behavior” in the process.
Kevin Williams and his companies must pay $397,000 to Campbell, plus $75,000 in punitive damages and $165,000 in legal fees.
“This is another chapter in the annals of Scam Diego,” says Milove. “Moral depravity is increasing.” Bandits “are emboldened by the lack of enforcement of securities laws by regulators and courts over the last ten years.”