U.S. Securities and Exchange Commission
Litigation Release No. 18168 / June 3, 2003
SEC v. Thomas G. Brooks, U.S. District Court for the District of Minnesota, Civil Action No. CV 03-3319 ADM/AJB (D. Minn.)
The Securities and Exchange Commission ("Commission") today filed a civil action against Thomas G. Brooks (Brooks), the former manager of the stock loan department at MJK Clearing, Inc. (MJK), for his fraudulent conduct between July 2001 and September 2001 relating to stock loan transactions between MJK and Native Nations, Inc. (Native Nations).
The Commission's complaint, filed in the United States District Court for the District of Minnesota, alleges that from July 2001 through September 2001, Brooks, a resident of Eden Prairie, Minnesota, failed to collect millions of dollars in marks for stock loan transactions involving securities borrowed from Native Nations and owed to MJK, which was a subsidiary of Stockwalk, Inc. During this time period, Brooks never disclosed MJK's true financial condition which resulted from his department's failure to collect the marks owed to MJK to any of the broker-dealers his department conducted business with, while knowing the broker-dealers relied on MJK's financial condition to decide how much business to transact with MJK.
The Commission further alleges that Brooks aided and abetted MJK's violations of the customer reserve requirements and record-keeping provisions during this same time period. According to the Complaint, Brooks falsified two stock loan reports which were used by MJK's accounting department to incorrectly compute MJK's customer reserve deposit. The false information was subsequently incorporated into MJK's FOCUS reports which Brooks subsequently provided to broker-dealers doing business with the SL Department.
The Commission has charged Brooks with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and for aiding and abetting MJK's violations of Sections 15(c)(3) and 17(a) of the Securities Exchange Act of 1934 and Rules 15c3-3, 17a-3 and 17a-5. The Commission is seeking a permanent injunction, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties from Brooks.