A cease and desist order has been issued to Conestoga Trust and Michael McDermott by Colorado Securities Commissioner Gerald Rome for multiple violations of the Colorado Securities Act.
Conestoga Trust employed agents who were not licensed to solicit or sell securities in Colorado. The company had also been the subject of prior disciplinary actions by four other state securities regulators [Arkansas, California, Utah and Wisconsin] and was operating as a multi-level marketing system, while McDermott had been sued in a civil case in Texas; all of those facts were not disclosed to investors and should have been, Rome said.
Conestoga Trust has agreed to pay $40,000 to the State of Colorado as part of the Consent Order.
“Before someone makes an investment — and we’re talking large sums of money sometimes,” Rome said, “they should make a simple call to our office to verify that the information they received from Conestoga or some other company is legitimate.”
Rome said he hasn’t seen multi-level marketing used in the sale of securities very often. Conestoga raised approximately $1.1 million to invest in fractional interests in life insurance policies from at least nine investors, eight of whom lived in Colorado.
“It’s a way to get more salespeople out in the field,” he said. “It was a multi-level marketing scheme where they hired a sales agent to sell these securities and if that person hired another agent, they would get a percentage of that person’s commission when they made a sale. Apparently, they were up to six or seven levels from the information we have.”
McDermott, 70, and Conestoga Trust have 10 days to make the $40,000 payment to the state of Colorado.
For the 2016-17 fiscal year, Division of Securities, which is part of the Colorado Department of Regulatory Agencies, imposed 44 administrative sanctions, filed 20 civil cases and secured 10 criminal indictments.