The Year in Enforcement: Tough But Fair Regulation

Jan 18

The State Securities Board assisted in the prosecution of investment fraud cases in 2016 that resulted in prison sentences totaling 82 years and $17.9 million in orders of restitution for investors.

In addition, investigations resulted in the indictment of 13 individuals in nine Texas counties and three federal jurisdictions.

The convictions and indictments came in cases involving real estate investments, oil and gas, foreign currency trading, and a stock-trading operation in a South Texas town far away from any financial center.

State Securities Board staff coordinated their work with federal authorities in three of the four U.S. Districts of Texas, including United States Attorneys' offices, the FBI, IRS-Criminal Investigation, and the U.S. Postal Inspector.

“The excellent working relationships among law enforcement and regulatory agencies in Texas continue to play an exceptionally important role in investment fraud cases,” Texas Securities Commissioner John Morgan said. “This type of cooperation enables us to leverage limited investigative resources to ensure that enforcement actions are taken to protect the public as quickly and efficiently as possible.”

In criminal cases, State Securities Board enforcement attorneys served as special prosecutors in three cases, working with local district attorneys:

  • A 22-year state prison sentence for Susan Gay Pruitt, who sold interests in nonexistent oil and gas exploration projects in North Texas and three other states.
  • Derek A. Nelson of Garland was sentenced to 19 years in state prison for defrauding investors of nearly $37 million in a real estate business that was supposed to buy and renovate distressed properties.
  • Investors in and around the small South Texas town of Alice lost millions of dollars in Michael Anthony Collins’ stock-trading operation of Alice. Collins was sentenced to 15 years in state prison.

In noncriminal actions, the State Securities Board brought administrative law sanctions against licensed individuals and firms that resulted in $583,500 in fines.

All fines were deposited into the General Revenue Fund of the State of Texas.

The Securities Commissioner entered administrative orders that suspended seven individuals who are registered with the Securities Board. The suspensions totaled nearly six years.

The Securities Commissioner also revoked the registrations of two investment adviser representatives:

  • A Dallas adviser who withdrew grossly excessive management fees from a client’s account and provided at least one inaccurate account statement to justify the fees.
  • A Fort Worth adviser who collected hidden commissions on investments he sold and did not disclose conflicts of interest to investors.

Old Security Financial Group Inc. in Spring, near Houston, paid the largest fine in 2016. The firm and its principals were fined $100,000 for selling unregistered investments in a “mortgage note program” supposedly backed by commercial real estate.

Other fines included:

  • LPL Financial LLC paid a $95,000 fine for supervisory failures related to a former agent who obtained $2 million in loans from an LPL client.
  • Charles Schwab & Co. Inc. paid a $95,000 fine for failing to verify that certain individuals with powers of attorney in client accounts were required to be registered as investment advisers.
Summary Of Enforcement Actions


  • Sentences totaling 984 months
  • $17,918,109 in restitution ordered

County jurisdictions in all criminal cases

Bexar, Cameron, Collin, Comal, Dallas, Harris, Jim Wells, Montgomery, Nueces

Federal jurisdictions

U.S. District Courts for the Western, Eastern, and Southern Districts of Texas

Administrative sanctions

  • 39 actions
  • 2 revocations of investment adviser representatives
  • 7 suspensions totaling 2,120 days
  • 15 reprimands
  • 7 actions filed with State Office of Administrative Hearings
  • $583,500 in fines deposited into state's General Revenue Fund