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A Los Angeles Financial Industry Regulatory Authority arbitration panel has ordered MML Investors Services, LLC – which is part of the Massachusetts Mutual Life Insurance financial group – along with MML broker Kimberly Michel to pay a former California customer more than $1.2 million in damages in connection to sales of an unregistered security issued by Diversity Lending Group (DLG).
The award includes compensatory damages, as well as reimbursement for expert witness fees, deposition costs, and FINRA filing fees. Moreover, the award represents approximately 90% of the requested compensatory damages.
Previously reported by the Wall Street Journal, the investor, Karen Lamoreaux, had accused MML Investors Services and Michel of negligence for letting her broker sell her the investment.
According to the FINRA arbitration panel, the broker, Steven Corzan, convinced Lamoreaux and her late husband to use equity in their home, as well as funds from a retirement plan to purchase approximately $1.2 million in promissory notes issued by Diversity Lending Group.
Lamoreaux and her husband reportedly were told that DLG was run by an “expert in real estate” who would buy distressed properties and then fix them up for rental or sale. In reality, however, DLG was a Ponzi scheme. It was shut down by the Securities and Exchange Commission (SEC) in March 2009.
At the time, the SEC alleged that DLG had diverted a substantial amount of investor money to various undisclosed ventures and that its principal, Bruce Friedman, took millions of dollars for his personal use.
“Customers like Ms. Lamoreaux who had accounts with MML, and dealt with Mr. Corzan were led to believe that stocks, bonds, mutual funds, insurance and even DLG notes were approved products, and had received MML’s stamp of approval,” the arbitration filings said. “The DLG notes were actually not an approved product.”
FINRA barred Corzan from the brokerage industry earlier this year for engaging in private securities transactions. As part of that settlement, Corzan neither admitted nor denied FINRA’s charges. Lamoreaux’s did not name Corzan in her arbitration claim with FINRA because he had filed for bankruptcy protection in 2010.