Source: https://www.sec.gov/litigation/complaints/comp18289.htm
Timestamp: 2019-04-25 08:36:33+00:00

Document:
1. This Court has jurisdiction over this action pursuant to Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d)(1), 78u(d)(3)(A), 78u(e) & 78aa. Defendants have, directly or indirectly, made use of the means or instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities exchange in connection with the transactions, acts, practices and courses of business alleged in this Complaint.
2. Venue is proper in this district pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, because certain of the transactions, acts, practices and courses of conduct constituting violations of the federal securities laws occurred within this district.
3. This action involves violations by Raymond L. Kotrozo ("Kotrozo") of an order issued by the Commission in an administrative proceeding on October 3, 1990, which barred him, among other things, from associating with any broker or dealer, with the right to reapply to become so associated after five years. From January 1999 through September 2001, Kotrozo violated the Commission's bar order by associating with the Beverly Hills branch office of Grattan Financial Securities, Inc., a registered broker-dealer, and Warner Pacific Financial, Inc. ("Warner Pacific"), an unregistered broker-dealer. Kotrozo was aided and abetted in his unlawful activities by Pamela H. Wilson ("Wilson") and her corporation, Warner Pacific. In addition, Warner Pacific also violated the federal securities laws by acting as an unregistered broker-dealer.
4. Raymond L. Kotrozo is a resident of Beverly Hills, California. From 1982 to 1990, Kotrozo was a principal, officer, director, and shareholder of RL Kotrozo, Inc. ("RLK"), a now-defunct registered broker-dealer, investment adviser, and transfer agent. In an October 1990 administrative proceeding, the Commission barred Kotrozo from association with the securities industry with a right to reapply after five years. The bar order was based on the entry of a final judgment of permanent injunction.
5. Pamela H. Wilson is a resident of Burbank, California. During the relevant time period, Wilson leased office space in Beverly Hills through Warner Pacific that she occupied while associated with Grattan Financial Securities, Inc. from January 1999 through September 2001. Wilson has held a Series 7 licensefrom the National Association of Securities Dealers ("NASD") as a general securities representative since 1985.
6. Warner Pacific Financial, Inc. is a California corporation with its principal place of business in Beverly Hills, California. Warner Pacific's president and registered agent is Wilson. From at least January 1999 through at least September 2001, Wilson used Warner Pacific to operate the Beverly Hills branch office of Grattan Financial Securities, Inc. and to sell insurance products. During this time period, Warner Pacific was not registered with the Commission in any capacity.
7. Grattan Financial Securities, Inc. is a registered broker-dealer with its principal office in San Gabriel, California. From January 1999 through September 2001, Grattan also maintained a branch office, through Wilson, in Beverly Hills, California ("Grattan Branch Office").
8. In February 1990, the Commission sued Kotrozo, RLK, and Kotrozo's wife in United States District Court for the District of Arizona, charging them with securities registration, antifraud, and broker-dealer record-keeping and net capital violations. The Commission's Complaint alleged, among other things, that Kotrozo had operated a Ponzi scheme through the sale of interests in a non-existent money market fund. In March 1990, pursuant to the defendants' consent, the district court permanently enjoined them from future violations of the above provisions of the federal securities laws and ordered them to pay nearly $1 million in disgorgement of ill-gotten gains.
9. On October 3, 1990, based on the entry of the federal court injunction, the Commission issued an Order Instituting Public Administrative Proceedings Pursuant to Sections 15(b) and 19(h) of the Securities Exchange Actof 1934, Sections 203(e) and (f) of the Investment Advisers Act of 1940 and Section 9(b) of the Investment Company Act of 1940, Making Findings and Imposing Remedial Sanctions. ("Order"). In the Matter of RL Kotrozo, Inc., Raymond L. Kotrozo and Carol A. Kotrozo, Admin. Proc. No. 3-7414.
10. Among other things, the Order barred Kotrozo from associating with any broker or dealer with the right to reapply to the appropriate self-regulatory organization to become so associated after five years.
11. The appropriate self-regulatory organization with which Kotrozo had to reapply to become associated with a broker or dealer was the NASD. Kotrozo did not reapply with the NASD to become associated with a broker or dealer until April 2002.
12. During all relevant times, Wilson and Warner Pacific knew of the Order.
Kotrozo participated in the hiring, training and mentoring of Grattan Branch Office brokers.
Kotrozo conducted investment seminars for the Grattan Branch Office; the seminars were the office's main marketing technique to obtain clients.
Kotrozo drafted and reviewed portfolio recommendations, which were presented to prospective Grattan Branch Officeclients.
Kotrozo participated in meetings with and made investment recommendations concerning specific mutual funds and variable annuity investments to prospective Grattan Branch Office clients, some of whom subsequently became actual clients.
14. From at least January 1999 through September 2001, Kotrozo received compensation derived from the Grattan Branch Office's securities-related business. During the majority of Wilson's association with Grattan, her commissions and her overrides (i.e. her share, as a supervisor, of the commissions earned by the Grattan Branch Office brokers) were deposited into a Warner Pacific bank account. From January 1999 through approximately September 2001, almost 82% of the funds deposited into the Warner Pacific account were Wilson's securities-related commissions from Grattan. During this time period, Warner Pacific primarily used these funds to pay Grattan Branch Office expenses and to compensate Kotrozo and Wilson. From January 1999 to approximately mid-2000, the Warner Pacific bank account was also used to pay Grattan Branch Office brokers their commissions and to pay salaries to brokers who did not generate sufficient commissions to cover their minimum salary.
15. Kotrozo was knowingly and substantially assisted in his unlawful association with both the Grattan Branch Office and Warner Pacific by Wilson, his former administrative assistant, and through her corporation, Warner Pacific, the purported owner/operator of the Grattan Branch Office. Wilson attempted to conceal Kotrozo's association with the Grattan Branch Office by characterizing Kotrozo as a consultant to Warner Pacific who provided general economic advice, hired and trained brokers, and performed clerical tasks such as answering phones, making coffee and moving cars.
16. Wilson knowingly and substantially assisted Kotrozo by participatingwith him in meetings with prospective Grattan Branch Office clients, including meetings in which he made investment recommendations.
17. Wilson, a signatory on both the Grattan and Warner Pacific bank accounts, further substantially assisted Kotrozo by allowing him to participate in the Grattan Branch Office's finances and compensating him for securities-related activities.
18. As the result of Kotrozo's unlawful association with the Grattan Branch Office and Warner Pacific, he received at least $404,000 and Wilson received at least $406,000 in compensation from the Warner Pacific account.
19. In addition to aiding and abetting Kotrozo's violations, from at least January 1999 through September 2001, Warner Pacific committed further violations of the Exchange Act by acting as a broker-dealer, while not registered with the Commission, through the activities detailed in paragraphs 20 and 21.
20. From at least January 1999 through September 2001, Warner Pacific hired, trained, marketed and motivated securities brokers and insurance agents.
21. As set forth above in paragraph 14, Warner Pacific also received Wilson's securities commissions, paid salaries and commissions to Grattan Branch Office brokers, paid Grattan Branch Office expenses and compensated Kotrozo for securities-related activities.
a. Kotrozo hired, trained, marketed and motivated securities brokers.
b. Kotrozo exerted control over the Warner Pacific bank account, including writing checks and determining what expenses were paid from the Warner Pacific bank account.
23. Kotrozo received compensation directly from Warner Pacific which was derived from the Grattan Branch Office securities-related business.
24. The Commission realleges and incorporates by reference ¶¶ 1 through 22 above.
25. On October 3, 1990, the Commission issued an administrative order which, among other things, barred Kotrozo from associating with any broker or dealer with a right to reapply for association to the appropriate self-regulatory organization after five years.
26. The above conduct by defendant Kotrozo violated the Order and constituted willful association with a broker or dealer in contravention of such an order.
27. By engaging in the conduct described above, defendant Kotrozo violated, and unless restrained and enjoined will continue to violate, the terms of the Commission's Order, which is enforceable by this Court pursuant to Section 21(e) of the Exchange Act, 15 U.S.C. § 78u(e), and Section 15(b)(6)(B)(i) of the Exchange Act, 15 U.S.C. § 78o(b)(6)(B)(i).
28. Defendants Wilson and Warner Pacific, and each of them, knowingly provided substantial assistance to defendant Kotrozo's violation of Section 15(b)(6)(B)(i) of the Exchange Act, 15 U.S.C. § 78o(b)(6)(B)(i).
29. By engaging in the conduct described above and pursuant to Section 20(e) of the Exchange Act, 15 U.S.C. § 78t(e), defendants Wilson and Warner Pacific aided and abetted defendant Kotrozo's violations and unless restrained and enjoined will continue to aid and abet Kotrozo's violation of Section 15(b)(6)(B)(i) of the Exchange Act, 15 U.S.C. § 78o(b)(6)(B)(i).
30. The Commission realleges and incorporates by reference ¶¶ 1 through 22 above.
31. Defendant Warner Pacific, by engaging in the conduct described above, directly or indirectly, made use of the mails or means or instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of, securities, without being registered as a broker or dealer in accordance with Section 15(b) of the Exchange Act, 15 U.S.C. § 78o(b).
32. By engaging in the conduct described above, defendant Warner Pacific violated, and unless restrained and enjoined will continue to violate, Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1).
Issue findings of fact and conclusions of law that the defendants committed the alleged violations.
Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d),permanently enjoining Kotrozo, Wilson and Warner Pacific and their officers, agents, servants, employees and attorneys, and those persons in active concert or participation with them, who receive actual notice of the order by personal service or otherwise, from violating and/or aiding and abetting violations of Section 15(b)(6)(B)(i) of the Exchange Act, 15 U.S.C. § 78o(b)(6)(B)(i).
Issue a judgment, in a form consistent with Fed. R. Civ. P. 65(d), permanently enjoining Warner Pacific and its officers, agents, servants, employees and attorneys, and those persons in active concert or participation with it, who receive actual notice of the order by personal service or otherwise, from violating Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1).
Order defendants Kotrozo, Wilson and Warner Pacific to disgorge all ill-gotten gains from their illegal conduct, together with prejudgment interest thereon.
Order defendants Kotrozo, Wilson and Warner Pacific to pay civil penalties under Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3).

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