ADMINISTRATIVE PROCEEDING BEFORE THE SECURITIES COMMISSIONER OF MARYLAND IN THE MATTER OF: * No. 2011-0128 BEATE M. BRANDL * Respondent. * * * * * * * * * * * * * * SUMMARY ORDER TO CEASE AND DESIST ORDER TO SHOW CAUSE WHEREAS, the Maryland Securities Commissioner (the Securities Commissioner ), pursuant to the authority granted in Section 11-701 of the Maryland Securities Act, Md. Ann. Code, Corps. & Ass ns, 11-101, et seq. (2007 Repl. Vol. & 2010 Cum. Supp.) (the Securities Act ), has initiated an investigation into the activities of Beate M. Brandl ( Brandl ), a/k/a Beate Kanamine, Beate Proeller and Maria Proeller ( Respondent ); and WHEREAS, the Securities Commissioner has determined that grounds exist to allege that Respondent has engaged in acts or practices constituting violations of the Securities Act, including fraud in connection with investment advisory activities; and WHEREAS, the Securities Commissioner has reason to believe that Respondent may be engaged in continuing violations of the Securities Act. NOW, THEREFORE, pursuant to Section 11-701 of the Securities Act, pending a hearing in this matter or until such time as the Securities Commissioner modifies or rescinds this Order, it is hereby: ORDERED, that Respondent immediately cease and desist from engaging in violations
I. JURISDICTION AND VENUE 1. The Securities Commissioner has jurisdiction in this proceeding pursuant to Section 11-701.1 of the Securities Act. II. RESPONDENT 2. At all times relevant to the facts contained in this Order, Respondent has been a Maryland resident. 3. Respondent is not now, nor has Respondent ever been registered in this State as an investment adviser, investment adviser representative or broker-dealer agent. III. STATEMENT OF FACTS 4. In late 2010, Respondent offered to assist an elderly couple, E.B. and P.B., of Annapolis, Maryland, with the refinancing of their residence. A number of years prior, the couple had agreed to an onerous interest-only mortgage on their residence, and to the purchase of of the Securities Act; and it is further ORDERED, that Respondent show cause why Respondent should not be barred permanently from engaging in the securities and investment advisory business in Maryland, and why a monetary penalty should not be entered against Respondent. Willful violation of this Order could result in criminal penalties under Section 11-705 of the Securities Act. The Securities Commissioner alleges the following as a basis for this Order: -2-
rental real estate, notwithstanding their advanced age and financial situation. Respondent began advising E.B. and P.B., who were were desperately seeking assistance to relieve their financial burdens, regarding their financial situation. 5. Respondent initially advised the couple, who are both in their 80's, that they should transfer assets, held in a brokerage account in the name of a revocable living trust in the couples names at the F.N.I.C. brokerage firm, into a Deutsche Bank account in Germany. Respondent, who is believed to be from Germany, claimed that in so doing, they would qualify for a modification of their mortgage by making it appear that those assets were no longer theirs. 6. In early January 2011, P.B. contacted her F.N.I.C. registered investment adviser and left a message for him to liquidate the brokerage trust account, valued at approximately $260,000, and to send her a check. She said that Respondent had advised her to send the monies overseas for purposes of obtaining a loan modification. The investment adviser cautioned P.B. that any liquidation of assets in that brokerage account would not be in their best interests. 7. The investment adviser made efforts to contact Respondent to discuss her recommendations to the couple. The investment adviser left several messages on her cell phone, however, Respondent did not return his calls. Eventually the couple communicated to Respondent that they did not wish to have the monies from their brokerage trust account sent overseas. 8. Without the couple s knowledge, on January 20, 2011, Respondent called an online brokerage firm to obtain information to set up an account for them. Respondent told the representative that she wanted to open an account with assets held at F.N.I.C. valued at approximately $260-270,000. She stated that she wanted the assets to be in a living trust for her -3-
children, in case something happened to her. She inquired into how the account had to be set up. 9. During that call, Respondent was transferred to another representative, whereupon she stated that she was not happy with how her brokerage account was being handled and the fees charged. She asked if she would have to cash out of the investments or whether she could transfer the investments over. She identified herself as Beate Brandl, and used the couple s address. However, she stated a preference to use a post office box because she claimed to travel. 10. Respondent further advised the online brokerage representative that she wanted to put the brokerage assets in a trust account because she was a single mother, and if something happened she wanted to make sure her children were protected. She also claimed, however, that her parents were involved and that she wanted to have them on the account as well so that in case something happened to her they would have immediate access to the money. 11. On that same day, January 20, 2011, Respondent opened an online brokerage account in the couple s names via the internet. In opening the account, Respondent did not use the couple s street address. Rather, she used a post office box in her (Respondent s) name the same post office box that she provided to the online brokerage representative in her call. Also, Respondent used an incorrect social security number for P.B. in opening the account. 12. Without consulting with the couple, Respondent provided suitability information to set up the account, including the false information that the couple s annual income was $200,000 and their net worth was $1 million. She stated that their investment experience was limited, that they would do approximately 10+ trades per month, and that the purpose and expected use of the account was [i]nvestment account with transfers for expenses. 13. Respondent assigned a user name and password to the online brokerage account -4-
so that the assets could be traded online. She caused the couple to sign paperwork authorizing the transfer of the brokerage trust assets located at F.N.I.C. to the online trading account. She caused the couple to sign paperwork bearing that same date, relating to a trust. The F.N.I.C. brokerage account assets were transferred to the online brokerage firm in early February 2011. 14. Respondent caused E.B. and P.B. to provide her with a $400 check payable to M.F., claiming that M.F. worked for a law firm and prepared the trust paperwork. Neither E.B. nor P.B. were contacted by an attorney or other third party at any time regarding the preparation of the trust, or to inquire into the couple s assets. Respondent did not explain to the couple why a trust was needed when they already had a revocable living trust. 15. Respondent caused an email address known as Phillis@DCGenerals.com to be associated with the online brokerage account. P.B. s first name is spelled Phyllis, not Phillis. Furthermore, DC Generals is the name of an ice hockey team with which Respondent is associated. The email address Phyllis@DCGenerals.com was not an email associated in any way with E.B. or P.B. 16. Respondent did not share with the couple the username and password for the online brokerage account, nor did she provide the couple with any other identifying information regarding that account such as the account number. Someone later accessed the account online and changed the mailing address from the post office box to P.B. s and E.B. s home address, however, so eventually they received account-related materials in the mail. 17. Neither P.B. nor E.B. authorized Respondent to act as a representative in setting up an online trading account for them via the internet. Nor did they understand that their F.N.I.C. brokerage assets were being transferred to an online brokerage firm. Neither P.B. nor E.B. have -5-
ever traded online, nor did they have any interest in trading their brokerage assets online. P.B. and E.B. were accustomed to having a registered investment adviser managing their investments. 18. In early February, after returning from a cruise, P.B. learned from her investment adviser that their brokerage trust account assets had been transferred to the online brokerage firm. She became very upset and called the online brokerage firm in a frantic effort to obtain information about her monies. She expressed concern that she did not know what had happened to her monies, and to state that she and her husband wanted to control their investments. 19. Shortly thereafter, P.B. communicated with Respondent that she had contacted the online brokerage firm in an effort to learn about the status of her and her husband s brokerage trust account assets. Respondent became upset with P.B. for having contacted the firm. 20. Respondent told P.B. that the mortgage company could trace P.B. s call to the online brokerage firm and would be aware that she had monies there, and that therefore the couple would then not qualify for a loan modification. 21. Respondent was aware, as explicitly stated in the trust documents prepared on their behalf, that the couple does not have any children. Nor, according to the couple, do they have any close living relatives in the State of Maryland. The couple s investment adviser at F.N.I.C. is located in the State of Florida. 22. Before acting as their financial representative, Respondent did not disclose to the couple that she had filed for bankruptcy. In May 2009, Respondent filed a Chapter 13 bankruptcy in the United States District Court for the District of Maryland (Northern Division), Case No. 09-18215. The case was dismissed on May 27, 2010. Respondent had also filed a Chapter 13 bankruptcy in Maryland back in 2004. -6-
23. Despite acting as the couple s financial representative, Respondent obtained a $3,000 loan from them in December 2010. Respondent claimed that her credit cards had been stolen and that she needed money to pay for gifts for her children. To date, Respondent has not repaid the loan extended by the Annapolis couple. COUNT I (Investment Adviser/Investment Adviser Representative Registration Violation Section 11-401) WHEREAS, Section 11-401 of the Securities Act makes it unlawful for any person to transact business in the offer and sale of securities in this State as an investment adviser or investment adviser representative unless that person is registered as such; and WHEREAS, the Securities Act defines investment adviser to mean a person who engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities; and WHEREAS, the Securities Act further defines investment adviser to mean a person who provides or offers to provide, directly or indirectly, financial advice and investment counseling or advice, on a group or individual basis; gathers information relating to investments, establishes financial goals and objectives, processes and analyzes the information gathered, and recommends a financial plan; or holds himself out as an investment adviser in any way, including indicating by advertisement, card or letterhead, or in any other manner that he is, a financial or -7-
investment planner, counselor, consultant, or any other similar type of adviser or consultant; and WHEREAS, the Securities Act defines investment adviser representative to mean any partner, officer, director of (or a person occupying a similar status or performing similar functions) or other individual employed by or associated with an investment adviser, except clerical or ministerial personnel, who: makes any recommendations or otherwise renders advice regarding securities to clients; manages accounts or portfolios of clients; determines which recommendation or advice regarding securities should be given with respect to a particular client account; solicits, offers or negotiates for the sale of or sells investment advisory services, directly supervises employees who perform any of the foregoing; or any other person as the Securities Commissioner designates by rule or order; and WHEREAS, Respondent transacted business as an investment adviser or investment adviser representative in this State by providing or offering to provide financial and investment counseling or advice on an individual basis; and WHEREAS, Respondent transacted business as an investment adviser in this State while not registered with the Division as an investment adviser or investment adviser representative, in violation of Section 11-401 of the Securities Act. NOW, THEREFORE, IT IS HEREBY ORDERED that Respondent cease and desist from acting as an unregistered investment adviser in or from Maryland, pending a hearing in this matter or until such time as the Securities Commissioner modifies or rescinds this Order. Willful violation of this Order could result in criminal penalties under Section 11-705 of the Securities Act; and it is further -8-
COUNT II (Fraud in Investment Advisory Activities Section 11-302) WHEREAS, Section 11-302 of the Securities Act makes it unlawful for any person who acts as an investment adviser or representative under Section 11-101(f) or (g) of the Securities Act to: (1) employ any device, scheme or artifice to defraud; (2) engage in any act, practice or course of business which operates or would operate as a fraud or deceit on the other person; (3) engage in dishonest or unethical practices as the Commissioner may define by rule; or course of business which operates or would operate as a fraud or deceit on any person; (4) when acting as principal for his own account knowingly sell any security to or purchase any security from a client, or when acting in an agency capacity for a person other than the client knowingly effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of such transaction the capacity in which he is acting and obtaining the consent of the client to such transaction; or ORDERED that Respondent show cause why a final order should not be issued against her that orders Respondent to cease and desist from further violation of Section 11-401's investment adviser registration provisions, assesses Respondent the statutory penalty of $5,000 per violation of Section 11-401's investment adviser registration provisions, permanently bars Respondent from the securities and investment advisory business in Maryland and orders any other sanction or combination of sanctions against Respondent as permitted under Section 11-701.1. -9-
(5) knowingly make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and WHEREAS, Code of Maryland Regulations ( COMAR ) 02.02.05.03B sets forth various prohibited practices, and provides that an investment adviser is a fiduciary and has a duty to act primarily for the benefit of its clients; and WHEREAS, Respondent engaged in dishonest or unethical practices by advising E.B. and P.B. to omit information regarding certain assets from their loan application for the purpose of qualifying for a loan modification; and WHEREAS, Respondent breached her fiduciary duty as an investment adviser to act in the best interests of her clients E.B. and P.B., including by recommending that they liquidate and/or transfer certain brokerage assets to an overseas account; and WHEREAS, Respondent breached her fiduciary duty as an investment adviser by failing to obtain authorization from P.B. and E.B. to act as a representative in setting up an online trading account for them via the internet; and WHEREAS, Respondent breached her fiduciary duty as an investment adviser by opening an online trading account in E.B. and P.B. s names, notwithstanding that an online trading account was not consistent with those individuals financial objectives including the objective of having a managed account; and WHEREAS, Respondent breached her fiduciary duty as an investment adviser by withholding information about the online brokerage account from E.B. and P.B., notwithstanding that the account was titled in the couple s names and was being funded with their brokerage -10-
assets; and WHEREAS, Respondent did not disclose her recent bankruptcy to her investment advisory clients E.B. and P.B., as may have been required under COMAR 02.02.05.03; and WHEREAS, Respondent engaged in these and other violations of Section 11-302 of the Securities Act. NOW, THEREFORE, IT IS HEREBY ORDERED that Respondent cease and desist from engaging in investment advisory activities in violation of Section 11-302 of the Securities Act and the prohibited practices set forth in COMAR 02.02.05.03B, pending a hearing in this matter or until such time as the Securities Commissioner modifies or rescinds this Order. Willful violation of this Order could result in criminal penalties under Section 11-705 of the Securities Act; and it is further ORDERED that Respondent show cause why a final order should not be issued against her that orders Respondent to cease and desist from engaging in activities in further violation of Section 11-302's investment advisory anti-fraud provisions and the prohibited practices set forth in COMAR 02.02.05.03B, assesses Respondent the statutory penalty of $5,000 per violation of Section 11-302's investment adviser antifraud provisions and related regulations, permanently bars Respondent from the securities and investment advisory business in Maryland and orders any other sanction or combination of sanctions against Respondent as permitted under Section 11-701.1. -11-
COUNT III (Violation of Securities Antifraud Provisions - Section 11-301) WHEREAS, Section 11-301 of the Securities Act prohibits any person, in connection with the offer, sale or purchase of any security, directly or indirectly to: (1) employ any device, scheme or artifice to defraud; (2) make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; or (3) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit on any person; and WHEREAS, Respondent failed to obtain suitability information from E.B. and P.B. prior to opening up a trading account on their behalf; and WHEREAS, Respondent initially misrepresented material information on customers new brokerage account forms, including a social security number and suitability information; and WHEREAS, Respondent engaged in a scheme to defraud by opening a trading account on behalf of E.B. and P.B. and by exclusively retaining information needed to access and control the account online, including the username and password for trading the account online; and WHEREAS, Respondent engaged in a scheme to defraud by misrepresenting herself as a relative of E.B. s and P.B. s to the online trading firm where she set up an account in the names, and by obtaining access to their personal financial information to enable her to open and trade the account; and WHEREAS, Respondent engaged in a course of business that acted as a fraud or deceit upon the online trading firm because she provided false information to the firm in at least one call to the firm in connection with setting up the account in E.B. s and P.B. s names, and because -12-
REQUIREMENT OF ANSWER IT IS FURTHER ORDERED, pursuant to Section 11-701.1 of the Securities Act and COMAR 02.02.06.06, that Respondent shall file with the Securities Commissioner a written she provided false information in setting up the accounts at the firm; and WHEREAS, Respondent engaged in a course of business that acted as a fraud or deceit upon E.B. and P.B. because she used the pretense of a loan modification to obtain personal financial information from them, and used that information to set up an online trading account in their names in such a way that Respondent had exclusive access to the account; and WHEREAS, Respondent engaged in these and other violations of Section 11-301 of the Securities Act. NOW, THEREFORE, IT IS HEREBY ORDERED that Respondent cease and desist from engaging in the offer and sale of securities in violation of Section 11-301 of the Securities Act, pending a hearing in this matter or until such time as the Securities Commissioner modifies or rescinds this Order. Willful violation of this Order could result in criminal penalties under Section 11-705 of the Securities Act; and it is further ORDERED that Respondent show cause why a final order should not be issued against her that orders Respondent to cease and desist from further violation of Section 11-301 of the Securities Act, assesses Respondent the statutory penalty of $5,000 per violation of Section 11-301, permanently bars Respondent from the securities and investment advisory business in Maryland and orders any other sanction or combination of sanctions against Respondent as permitted under Section 11-701.1. -13-
Answer to this Summary Order within 15 days of service of the Order. The Answer shall admit or deny each factual allegation in the Order and shall set forth affirmative defenses, if any. A Respondent without knowledge or information sufficient to form a belief as to the truth of an allegation shall so state. The Answer also shall indicate whether Respondent requests a hearing. A hearing will be scheduled in this matter if one is requested in writing. Respondent s failure to file a written request for a hearing in this matter shall be deemed a waiver by Respondent of the right to such a hearing. Respondent s failure to file an Answer or a request for a hearing shall result in entry of a final order granting the relief requested by the Maryland Division of Securities. Commissioner s Signature is on File with Original Document DATED: March 10, 2011 Melanie Senter Lubin Securities Commissioner -14-