EDMOND — A local broker-dealer could face penalties for allegedly engaging in unethical practices in violation of rules related to securities, according to a recently filed document.  

Anthony Cross, a registered broker-dealer, operates from an Edmond office of Cincinnati-based ONESCO, a.k.a. The O.N. Equity Sales Company, according to an affidavit filed earlier this week with Oklahoma Department of Securities Administrator Irving Faught.

Cross is accused of engaging in unethical practices in violation of rules by:

• Recommending that a customer mortgage her home and purchase securities with the proceeds.

• Reporting information he knew or should have known was false on the customer’s new account form.

• Falsely representing that the customer purchases of securities from two funds were unsolicited and;

• Engaging in the prohibited conduct constituting violations of ONESCO’s supervisory procedures.

The affidavit recommends that Faught issue an order suspending Cross’s agent and investment adviser representative registrations under the law for 30 days, censure ONESCO, impose civil penalties of $10,000 against the company and the broker and impose other sanctions as deemed appropriate and authorized by law.

A message seeking comment from ONESCO corporate headquarters in Cincinnati was not returned by press time.

Terra Bonnell, an enforcement attorney with the Oklahoma Department of Securities, said the respondents will be filing an answer and they have a right to request a hearing before the administrator or an appointed hearing officer.

Bonnell said the agency contends the broker-dealer advised the customer to buy shares that were not suitable based on her investment needs.



CASE BACKGROUND

Since 1988, Cross has been registered as a broker-dealer under Oklahoma securities laws, and since September 2001 he has been registered as an investment adviser representative, according to the affidavit.

The customer, a widow, lived in an Oklahoma City house she and her husband bought in 1974, the affidavit states. They had paid off their mortgage several years before 2006. The house appraised for $160,000 in August 2006 and $150,000 in August 2009.

According to the affidavit the customer and her husband were longtime clients of Cross. In July 2006, about a month after her husband died, she asked the broker-dealer about ways to supplement her monthly income.

According to the affidavit, Cross told the customer she could mortgage her house, invest the mortgage proceeds and use the income from the investments to supplement her income. Trusting Cross, she decided to mortgage her home.

Cross introduced the customer to a mortgage broker he had known for many years, and with the mortgage broker’s help she obtained a mortgage of $112,000 in October 2006, according to the affidavit. She received mortgage proceeds totaling $107,163.79 in November 2006.

That same month, Cross opened an individual brokerage account for the customer at Pershing LLC, another registered broker-dealer, the affidavit states. Cross completed a new account form which allegedly falsely indicated the source of funds was “Savings” and that the customer’s net worth was $250,000. The net worth was overstated, in part, because it did not reflect the mortgage liability, according to the affidavit.

On Nov. 8, 2006, the customer sent $96,000 of the mortgage proceeds to Pershing to fund her ONESCO brokerage account, the affidavit states.

On or about Nov. 14, 2006, Cross recommended a $60,000 purchase of Franklin Income Fund class A shares and $30,000 of the Highland Floating Rate Advantage Fund class A shares, according to the affidavit.

The Highland Floating Rate Advantage Fund’s Jan. 1, 2006, prospectus stated it did not intend to list its shares on any national securities exchange. It stated, “Shares of the Fund have no history of public trading and there is not expected to be any secondary trading market in the shares.”

As of May 31, 2011, the brokerage account’s market value was $34,291.30, the affidavit states. Of that amount, $9,653.22 was in a money market fund and $24,638.08 was in the Franklin Adjusted U.S. Government Securities Fund class A shares.

As of May 31, 2011, Cross had received compensation totaling $3,202.21 on the transactions in the customer’s ONESCO brokerage account, according to the affidavit.



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