[ by Howard Haykin ] FINRA announced Monday that a hearing panel issued harsh disciplinary action against Lakeland, FL-based Brookstone Securities, along with its owner/CEO, a broker, and former CCO.  The ruling resolves charges brought by FINRA in December 2009.  The actions were taken in connection with their fraudulent sales of collateralized mortgage obligations (CMOs) to unsophisticated, elderly and retired investors. Named Respondents.   Brookstone Securities personnel named in the action are:  owner/CEO Anthony Lee Turbeville, broker Christopher Dean Kline, and former CCO David William Locy. FINRA Findings and Hearing Panel Allegations. From July 2005 through July 2007, Turbeville and Kline intentionally made fraudulent misrepresentations and omissions to elderly and unsophisticated customers regarding the risks associated with investing in CMOs.  All of the affected customers were retired investors looking for safer alternatives to equity investments.  The written decision described Turbeville and Kline as having "preyed on their elderly customers' greatest fears," in order to induce them to purchase unsuitable CMOs - e.g., referring to the customers' risks of losing their assets to nursing homes and becoming destitute during their retirement and old age. By 2005, interest rates were increasing, and the negative effect on CMOs was evident to Turbeville and Kline, yet they did not explain the changing conditions to their customers. Instead, they led customers to believe that the CMOs were "government-guaranteed bonds" that preserved capital and generated returns ranging between 10% and 15%. During the 2-year period, Brookstone's take on these transactions was nearly $500,000 in  commissions - CMO bond transactions from 7 customers named in FINRA's December 2009 complaint.  Those same customers also lost $1,620,000. Two of Kline's customers were elderly widows with very limited investment knowledge, who, vulnerable after their husbands' deaths, were convinced to invest their retirement savings in risky CMOs.  Kline told the widows that they could not lose money in CMOs because they were government-guaranteed bonds, and Kline further increased their risk by trading on margin. The hearing panel further noted that CCO Locy completely ignored his responsibility as chief compliance officer and "should have been a line of defense against Turbeville's and Kline's egregious conduct," but instead "he looked the other way while Turbeville and Kline traded CMO accounts that were unsuitable for their customers." The hearing panel concluded that Brookstone was responsible for Turbeville's and Kline's action.  According to the decision, "the firm neither acknowledged nor accepted responsibility for the misconduct at issue in this matter.  Instead, through Turbeville and Kline, it attempted to blame the customers for their own losses." FINRA Sanctions. Brookstone will pay $2.6 million in fines ($1 million) and restitution ($1.6 million) to customers;  $441K of that amount is imposed jointly and severally with owner Turbeville, and the remaining $1.2 million imposed jointly and severally with broker Kline.  Turbeville and Kline also were barred from the securities industry. The firm's former Chief Compliance Officer David Locy was barred from acting in any supervisory or principal capacity, and he received a 2-year suspension in all capacities and a $25K fine. If appealed: Unless the hearing panel's decision is appealed to FINRA's National Adjudicatory Council (NAC) or is called for review by the NAC, the hearing panel's decision becomes final after 45 days. For further details, go to:   [FINRA News Release, 6/4/12] and [FINRA Extended Hearing Panel Decision].