U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20386 /December 6, 2007
Securities and Exchange Commission v. Sidney Mondschein and UNCI, Inc., , Civil Action No. C-07-6178 SI (N.D. Cal., Dec. 6, 2007)
SEC Charges Former San Francisco-Area Stockbroker With Fraudulent Scheme That Violated Privacy Rights of Elderly Customers
Broker Allegedly Sold Customers' Personal and Confidential Information to Insurance Agents as Sales "Leads" for Annuity Products
In a complaint filed today in the United States District Court for the Northern District of California, the SEC alleged that from December 2002 through August 2005, former Castro Valley, Calif., stockbroker Sidney Mondschein reaped illegal profits by secretly selling the names and other confidential personal information of over 500 of his customers to six different insurance agents. According to the complaint, Mondschein sold this information as sales "leads" solely to enable insurance agents to solicit these customers, many of whom had already purchased fixed or equity-indexed annuity products, to buy additional annuity products.
The complaint alleges that Mondschein never disclosed to any of these customers that he intended to sell, and did sell, their confidential personal information to insurance agents, and further alleges that he affirmatively misled his clients as to the nature of his compensation arrangements and relationships with the various insurance agents. According to the complaint, virtually all of Mondschein's customers were senior citizens.
The SEC complaint also alleges that:
According to the complaint, over the course of his numerous years as a broker, Mondschein allegedly developed an extensive securities liquidation business that he marketed exclusively to insurance agents. Mondschein allegedly promised the insurance agents speedy transfer and liquidation services to help close more annuity sales. The insurance agents recommended to their clients that they use Mondschein, instead of their existing broker, to sell their securities. The complaint alleges that Mondschein collected substantial brokerage commissions and other fees for selling the securities of elderly persons to fund their annuity purchases.
The Commission's complaint alleges that Mondschein committed securities fraud in violation of Section 10(b) of the Securities and Exchange Act of 1934 and Exchange Act Rule 10b-5. The complaint also alleges that Mondschein aided and abetted his broker-dealer firm's violations of certain of the customer privacy provisions of the federal securities laws, namely Rules 4(a), 5(a), and 10(a)(1) of Regulation S-P. The Commission's complaint seeks a judgment permanently enjoining Mondschein from violating these provisions of the securities laws, and ordering Mondschein to pay civil penalties and provide an accounting of, and disgorge, his ill-gotten gains with prejudgment interest. The Commission also seeks a judgment that Relief Defendant UNCI is in possession of illegally obtained funds to which it has no legitimate claim.