SEC sues firms for alleged sale of bogus CDs to credit unions, banks

WASHINGTON – Hundreds of credit unions, banks and individual investors may have been bilked out of millions of dollars after purchasing what they thought were bank-issued, federally-insured certificates of deposit, according to the Securities and Exchange Commission. The SEC filed a civil lawsuit in federal court in Philadelphia on Oct. 23 against Robert Bentley and his companies Entrust Group, and Bentley Financial Services, Inc., all based in Paoli, Penn., alleging they represented to investors that the notes were CDs when they were actually uninsured securities issued by the defendants. Although the defendants used at least some investor funds to buy CDs, the terms of the CDs often varied substantially from those of the securities they were selling. In many cases, investors had to rely on the defendant’s ability to attract new investors in order for previous investors to receive payment of their principal. Investors currently have over $300 million invested with the defendants, according to the SEC. The SEC also alleged that the defendants defrauded investors by leading them to believe that their investments were being made through a brokerage firm registered with the Commission and insured by the Securities Investor Protection Corporation. None of the defendants’ sales of purported CDs to investors were made through such a firm, the SEC said, a clear violation of the Securities Act of 1933 and the Securities Exchange Act of 1934. Most of Bentley’s customers were credit unions, said Amy Norwood, assistant regional director of the SEC’s Denver office, but there may be some duplication of holdings among the 3,200 clients named in the suit. Current or former Bentley clients identified by the SEC include Four-Sixteen Federal Credit Union, of New Brunswick, N.J.; Ukrainian Self Reliance Federal Credit Union, of Pittsburgh; Sunflower Bank, of Salinas, Kan.; Duluth Teachers Credit Union, of Duluth, Minn., and Jefferson National Bank, of Jefferson, Texas; Several calls to Bentley’s attorney, Erich Schwartz in Washington were not returned but in a statement, he said the companies “(deny) the allegations made by the SEC and intends to fully defend the lawsuit in court.” Meanwhile, at press time, the SEC had requested a hearing to request a temporary restraining order and a freeze of all of the defendants’ assets. The SEC would not comment on what prompted the agency to investigate Bentley but generally red flags are pursued through public complaints, the commission’s own examinations and through other agencies including the NCUA said Don Hoerl, SEC’s associate regional director in Denver. Bentley has invested $4 billion for small banks, credit unions, nonprofit agencies and individual investors across the United States since 1986, according to the Philadelphia Inquirer. He is also a manager for Traders and Dealers, Inc., a Colorado-based NASD-member brokerage, but the agency has not recorded or provided oversight for Bentley’s sales of certificates of deposit, according to the SEC. [email protected]