Investment Firm Probed in Alleged Fraud

San Clemente Securities, an Orange County investment firm, is under investigation by government regulators for allegedly failing to disclose hefty commissions to customers.

This week, federal banking regulators issued a warning about the company after one small bank--which regulators did not identify--reported losing 40% of its capital because of hidden fees charged on certificates of deposit it bought through San Clemente Securities.

Though the Federal Deposit Insurance Corp. has taken no action against the company, it advised small banks to scrutinize any investments they may have made with San Clemente Securities, according to FDIC spokesman David Barr.

Cooke Christopher, the firm’s president and co-owner, could not be reached for comment Friday.

The company, previously known as San Clemente Financial Group, has advertised itself as a “CD broker,” offering above-average interest rates on CDs to small investors and banks by pooling their money and investing it in large, high-yield CDs.

State regulators say they are investigating whether the company failed to disclose its commissions, which in some cases may have totaled nearly 50% of the customer’s money.

“This company is on everybody’s radar screen,” said Bill McDonald, head of enforcement at the California Department of Corporations. “We have not alleged fraud, but we are looking at these undisclosed commission issues.”

State regulators said they did not know how many investors might be affected.

Last year, the agency cited San Clemente Securities and its principals for doing business without a proper state license, McDonald said.

One unhappy customer in Texas, Heritage Savings Bank, filed suit against the company in April in U.S. District Court in Dallas. The bank says it entrusted a total of $3.3 million with San Clemente Securities, but that only $1.8 million was invested as promised. The rest went toward undisclosed fees, the suit alleges.

In an enforcement order issued last fall, regulators banned the company from selling securities in Arkansas after finding that it inflated rates of return and told investors that their money would be FDIC-insured, when it was not.

In recent years, nine states have taken enforcement actions against San Clemente Securities.

In February, the National Assn. of Securities Dealers fined the company and Christopher $15,000 for failing to maintain sufficient net capital and failing to report numerous customer complaints to the NASD.

In agreeing to the order, the company did not admit to any wrongdoing.