UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MINNESOTA

COMPLAINT

Plaintiff United States Securities & Exchange Commission ("Commission") alleges as follows:

SUMMARY

1. The Commission brings this civil action against Thomas G. Brooks ("Brooks"), the former manager of the Stock Loan Department ("SL Department") at MJK Clearing, Inc. ("MJK") for his fraudulent conduct relating to the stock loan business of MJK and for his aiding and abetting of MJK's violations of its customer reserve and record-keeping requirements under the federal securities laws.

2. From at least July 2001 through September 2001, Brooks failed to collect millions

of dollars owed to MJK for stock loan transactions involving two securities borrowed from Native Nations Securities, Inc. ("Native Nations"), Imperial Credit Industries, Inc. ("Imperial Credit") bonds and GenesisIntermedia ("GENI") common stock.

3. Brooks omitted to disclose the fact that the SL Department had failed to collect millions of dollars owed to MJK to other broker-dealers who engaged in stock loan business with MJK. Those same broker-dealers relied on MJK's financial condition to decide how much stock loan business to transact with MJK.

4. Between July 2001 and September 2001, Brooks falsified two SL Department reports used by MJK's accounting department to compute MJK's weekly customer reserve calculations. Brooks' manual alterations of those two reports caused MJK to reflect falsely the customer-related securities loaned on its books.

5. The inaccurate customer reserve deposit was included in MJK's FOCUS reports, which Brooks gave to other broker-dealers who relied upon it to determine MJK's financial condition and to decide how much business to transact with MJK.

6. Brooks, directly and indirectly, has engaged and, unless enjoined, will continue to engage in acts, practices and courses of business which constitute violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §77q(a)], Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §78j(b)], and Rule 10b-5 [17 C.F.R. §240.10b-5] thereunder and which constitute aiding and abetting violations of Sections 15(c)(3) and 17(a) of the Exchange Act [15 U.S.C. §§78o(c)(3) and 78q(a)] and Rules 15c3-3, 17a-3, and 17a-5 [17 C.F.R. §§240.15c3-3, 240.17a-3, and 240.17a-5] thereunder.

JURISDICTION

7. The Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. §77v(a)], Sections 21(e) and 27 of the Exchange Act [15 U.S.C. §§78u(e) and 78aa] and 28 U.S.C. §1331.

8. The transactions, acts, practices, and courses of business constituting the violations alleged herein occurred within the jurisdiction of the United States District Court for the District of Minnesota and elsewhere.

9. Defendant Brooks, directly and indirectly, made use of the means and instrumentalities of interstate commerce and of the mails in connection with the transactions, acts, practices, and courses of business alleged in this Complaint.

DEFENDANT

10. Brooks, age 38, is a resident of Eden Prairie, Minnesota. From January 3, 1999 to October 3, 2001, when he was fired, Brooks was the manager of the SL Department at MJK, a subsidiary of Stockwalk Group, Inc. ("Stockwalk") and vice-president of MJK. At all relevant times alleged in the Complaint, Brooks was licensed by the National Association of Securities Dealers (NASD) as a Registered Representative (Series 7) and a Uniform Securities Law Agent (Series 63). Brooks had been in the securities industry for 11 years beginning in September 1990, having worked in the stock loan departments at two other broker-dealers before MJK.

OTHER RELEVANT NON-DEEFENDANT ENTITIES

11. Stockwalk is a Minnesota corporation with its principal place of business in Minneapolis, Minnesota. It was originally incorporated in 1980. At all times alleged in the Complaint, its common stock was registered under Section 12(g) of the Exchange Act and was traded on the NASDAQ under the ticker "STOKQ." The common stock has since been delisted. During the relevant time period, Stockwalk had three subsidiaries: MJK, Stockwalk.com, a registered online broker-dealer, and Miller, Johnson, Steichen, Kinnard, Inc. ("MJSK"), a registered broker-dealer. Stockwalk recently emerged from Chapter 11 bankruptcy and reorganization.

12. MJK was a subsidiary of Stockwalk that provided securities clearing functions for Stockwalk and 61 other correspondent brokerage firms. MJK became insolvent on September 25, 2001, and the Securities Investors Protection Corporation ("SIPC") seized control on September 27, 2001. MJK had been registered with the Commission as a broker-dealer since 1981.

THE FRAUDULENT SCHEME

Brooks Committed Fraud Through MJK's SL Department

Background on MJK's Stock Loan Program

13. Between at least July 2001 and September 2001, MJK's SL Department engaged in stock loan transactions in which MJK acted as a middleman between two broker-dealers, matching a broker-dealer that had a particular security to lend with a broker-dealer with a need to borrow the particular stock. These transactions are referred to as "conduit" transactions.

14. Typically, when the market value of a security declines in a conduit transaction, the broker-dealer borrowing the security is entitled, on a daily basis, to "mark-to-market" or "mark" the position of the broker-dealer who loaned out the security. In such a case, the borrowing broker-dealer records the declining value of the security on its books and collects the difference between the original and current value of the loaned securities from the lending broker-dealer in order to recover the decreased value in the security. The converse is true when a stock price rises. Standard industry practice is to mark other firms daily for any decrease in security value and to pay out marks made by other firms so that the loan is 100 percent secured at the end of the day. MJK's SL Department followed this practice except for those conduit transactions involving securities borrowed from Native Nations.

15. MJK used LoanNet, an automated accounting service, to track stock loan positions. MJK used LoanNet to automatically mark and collect marks from other broker-dealers when a security declined or rose in value. However, MJK had to manually mark Native Nations for any decline or rise in securities borrowed from or lent to them because Native Nations did not subscribe to the LoanNet service.

Brooks' Role in MJK's SL Department

16. During the course of his employment as head of the SL Department at MJK, Brooks' responsibilities included overseeing the entire department, supervising the employees of the department and hiring and firing the employees in the department. In addition, Brooks dealt directly with the stock loan departments at other broker-dealers, signing the Master Securities Loan Agreement as MJK's representative. Brooks regularly spoke with other broker-dealers on the telephone, discussing the stock loan business and providing MJK's financial information to other broker-dealers, including sending MJK's FOCUS reports to other broker-dealers when they requested the information.

Brooks' Failure to Collect Marks Against Native Nations

17. From November 1, 2000, through September 2001, under Brooks' direction, the SL Department borrowed at least two securities from Native Nations: Imperial Credit bonds and GENI common stock, which it then loaned out to other broker-dealers.

18. From July 2001 through September 2001, the SL Department failed to collect marks owed to MJK by Native Nations on conduit transactions involving Imperial Credit bonds and GENI common stock. That was because Brooks directed the SL Department not to collect those marks owed to MJK by Native Nations. Brooks did that because he had arranged with Native Nations that it would pay MJK a higher rebate on the money MJK posted as collateral as part of the stock loan agreement with Native Nations.

19. During this same time period, other broker-dealers were marking MJK for the decline in value of the Imperial Credit bonds and GENI common stock, which totaled millions of dollars. Brooks continued to pay daily marks out to these other broker-dealers who borrowed Imperial Credit bonds and GENI common stock from MJK as the value of those securities declined. Brooks' failure to collect marks owed to MJK while paying marks owed to other broker-dealers created significant harm to MJK's financial health.

20. On September 26, 2001, MJK went out of business with Native Nations owing MJK uncollected marks of $129.8 million for the GENI shares and $63.2 million for the Imperial Credit bonds.

Brooks Did Not Disclose His Failure to Collect Marks Against Native Nations

21. Broker-dealers doing business with MJK had set credit limits against the SL Department based on the financial condition and information contained in MJK's FOCUS reports sent to them by Brooks. Brooks' failure to disclose MJK's uncollected marks against Native Nations deprived broker-dealers of accurate information on MJK's financial condition, and as a result, an accurate basis to decide whether to give MJK more business in stock loan transactions. Brooks knew other broker-dealers relied on MJK's financial condition to decide how much stock loan business to do with MJK. Yet, Brooks never told any of the broker-dealers that engaged in stock loan transactions with MJK that the SL Department had not collected millions of dollars worth of marks against Native Nations.

Brooks Had a Motive for His Actions

22. Brooks was motivated to commit fraud for personal gain. Native Nations promised to, and did, pay MJK higher rebates on the Imperial Credit bonds and GENI common stock in exchange for Brooks not collecting the marks against Native Nations. Brooks received 30% of the revenue from the conduit business as his bonus on top of his base salary. At the time MJK shut down at the end of September 2001, Brooks had received a significant portion of the 30% revenue from MJK's conduit business. Brooks received a bonus of $33,270 at the end of July 2001 and another $57,228 at the end of August 2001, for a total of $90,498.

Brooks' Role in MJK's Violations of the Customer Reserve and Books and Records Requirements

23. Under the federal securities laws, broker-dealers such as MJK are required to establish and maintain a reserve account in certain circumstances for the exclusive benefit of customers to whom they owe money or securities as a means of providing customers protection.

24. In at least July 2001 and September 2001, MJK violated the customer reserve requirements and books and records requirements as a result of Brooks' falsification of two internal stock loan reports used by MJK's accounting department.

25. On or about July 31, 2001, Brooks made handwritten alterations on a LoanNet report. The alterations falsely labeled entries totaling $16,200,000 as conduit business when they were actually customer-related.

26. Brooks' handwritten alterations caused MJK to report in its July FOCUS report that no additional deposit needed to be made under the customer reserve rule at the end of July 31, 2001. In reality, MJK should have deposited an additional $6,371,585 in its reserve account on or about July 31, 2001.

27. On or about September 21, 2001, Brooks falsified a second LoanNet report. Brooks manually altered the September 21, 2001 loan contract report. He falsely identified an alleged miscalculation by LoanNet. These alterations falsely reflected $24,010,00 as non-customer conduit business when it was actually customer-related.

28. On or about September 25, 2001, MJK was required to deposit $81.9 million in its reserve account as a result of Brooks' failure to collect marks from Native Nations as described above. MJK had no money to make the customer reserve deposit in its reserve account.

COUNT I

Violations of Section 17(a)(1) of the Securities Act [15 U.S.C. §77q(a)(1)]

29. Paragraphs 1 through 28 are realleged and incorporated by reference herein.

30. At the times alleged in this Complaint, Defendant Brooks, in the offer and sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly, employed devices, schemes and artifices to defraud, all as more fully described in paragraphs 1 through 28 above.

31. Defendant Brooks knew or was reckless in not knowing of the facts and circumstances described in paragraphs 1 through 28 above.

32. By reason of the activities described in paragraphs 29 through 31 above, Defendant Brooks violated Section 17(a)(1) of the Securities Act [15 U.S.C. §77q(a)(1)].

COUNT II

Violations of Section 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§77q(a)(2) and 77q(a)(3)]

33. Paragraphs 1 through 28 are realleged and incorporated by reference herein.

34. At the times alleged in this Complaint, Defendant Brooks, in the offer and sale of securities described above in paragraphs 1 through 28, by the use of the means or instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly, obtained money and property by means of untrue statements of material facts and have omitted and are omitting to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and engaged in transactions, practices or courses of business which operated and operated as a fraud and deceit upon purchasers and prospective purchasers as more fully described in paragraphs 1 through 28 above.

35. By reason of the activities described in paragraphs 33 and 34 above, Defendant Brooks violated Section 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §77q(a)(2) and §77q(a)(3)].

COUNT III

Violations of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 [17 C.F.R. §240.10b-5] Thereunder

36. Paragraphs 1 through 28 are realleged and incorporated by reference as if set forth fully herein.

37. At the times alleged in the Complaint, Defendant Brooks, in connection with the purchase and sale of securities described above in paragraphs 1 through 28, by the use of the means and instrumentalities of interstate commerce and of the mails, directly and indirectly, employed devices, schemes and artifices to defraud; made statements of material fact and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and engaged in acts, practices and courses of business which operated as a fraud and deceit upon purchasers and sellers of such securities as more fully described in paragraphs 1 through 28.

38. Defendant Brooks knew or was reckless in not knowing of the activities described in paragraphs 1 through 28 above.

39. By reason of the activities described in paragraphs 36 through 38 above, Defendant Brooks violated Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 [17 C.F.R. §240.10b-5] promulgated thereunder.

COUNT IV

Aiding and Abetting MJK's Violations of Section 15(c)(3) of the Exchange Act [15 U.S.C. §78o(c)(3)] and Rule 15c3-3 [17 C.F.R. §240.15c3-3] thereunder

40. Paragraphs 1 through 28 are realleged and incorporated by reference herein.

41. At all times alleged in the Complaint, Defendant Brooks, knowingly or recklessly, substantially assisted MJK's violations of Section 15(c)(3) of the Exchange Act and Rule 15c3-3 as described in paragraphs 1 through 28 above.

42. By reason of the activities described in paragraphs 40 and 41 above, Brooks aided and abetted MJK's violations of Section 15(c)(3) of the Exchange Act [15 U.S.C. §78o(3)], and Rule 15c3-3 [17 C.F.R. §240.15c3-3] thereunder.

COUNT V

Aiding and Abetting MJK's Violations of Section 17(a) of the Exchange Act [15 U.S.C. §78q(a)] and Rules 17a-3 and 17a-5 thereunder [17 C.F.R. §§ 240.17a-3 and 240.17a-5]

43. Paragraphs 1 through 28 are realleged and incorporated by reference herein.

44. At all times alleged in the Complaint, Defendant Brooks, knowingly or recklessly, substantially assisted MJK's violations of Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-5 as described in paragraphs 1 through 28 above.

45. By reason of the activities described in paragraphs 42 and 43 above, Brooks aided and abetted MJK's violations of Section 17(a) of the Exchange Act [15 U.S.C. §78q(a)], and Rules 17a-3 and 17a-5 [17 C.F.R. §§240.17a-3 and 240.17a-5] thereunder.

PRAYER FOR RELIEF

WHEREFORE, the Commission requests that the Court:

I.

Find that Defendant Brooks committed the violations alleged above.

II.

Grant an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, restraining and enjoining Defendant Brooks, his officers, agents, servants, employees, attorneys and those persons in active concert or participation with him who receive actual notice of the Order of Permanent Injunction, by personal service or otherwise, from, directly or indirectly, engaging in the acts, practices or courses of business described above, or in conduct of similar purport and object, in violation of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§77q(a)(1), 77q(a)(2) and 77q(a)(3)] and Sections 10(b), 15(c)(3) and 17(a) of the Exchange Act [15 U.S.C. §78j(b)] and Rules 10b-5, 15c3-3, 17a-3, and 17a-5 [17 C.F.R. §§240.10b-5, 240.15c3-3, 240.17a-3, and 240.17a-5] thereunder.

III.

Grant an Order requiring Defendant Brooks to disgorge the ill-gotten gains that he received as a result of his wrongful conduct, including prejudgment interest.

IV.

Impose civil penalties against Defendant Brooks in accordance with Section 20(d) of the Securities Act [15 U.S.C. §77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)].

V.

Retain jurisdiction of this action in accordance with the principals of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court.

VI.

Grant Orders for such further relief as the Court may deem appropriate.

Dated: June 2, 2003

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