FINRA Panel Awards Investor $1.1 Million

A Los Angeles Financial Industry Regulatory Authority (“FINRA”) arbitration panel has entered an award against MML Investors Services, LLC (“MML”) in favor of its customer, Karen Lamoreaux.

According to Barrons, an MML broker, Steven Corzan, convinced Ms. Lamoreaux and her late husband to invest $1.2 million, obtained from their home equity and a profit sharing plan, in promissory notes issued by Diversified Lending Group, Inc. (“DLG”). The attorney for Ms. Lamoreaux said the customers were told that DLG was headed by a real estate expert who bought distressed real estate, then fixed it up and offered it for rental or re-sale.

In reality, DLG was a $228 million Ponzi scheme orchestrated by former money manager Bruce Friedman, according a Complaint filed by the Securities and Exchange Commission in 2009. Friedman died in a French prison while he was awaiting extradition to California to face criminal charges connected to DLG. According to the SEC, rather than purchasing real estate with the DLG investors’ funds, Friedman used the money to finance a luxury lifestyle and pay earlier investors.

Barrons reported that Corzan, Ms. Lamoreaux’s broker at MML, led her and her late husband to believe that the DLG notes were approved by MML, when in fact they were not. Corzan was barred from the securities industry earlier this year for engaging in private securities transactions, also known as “selling away.”

Ms. Lamoreaux sued MML in 2010 for breach of fiduciary duty, negligence, violation of California securities laws and breach of contract for allegedly not supervising their broker Corzan and for allowing him to sell the Lamoreaux’s the DLG notes. The FINRA panel found in favor of Ms. Lamoreaux and awarded her compensatory damages of $1,120,175, plus expert witness fees and costs. As is typical with FINRA awards, the arbitrators provided no basis for their decision.