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Monday, August 18, 2014

SEC CHARGES BROKER WITH STEALING FROM ACCOUNTS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges California-Based Broker with Stealing Money from Accounts
AUGUST 4, 2014

The Securities and Exchange Commission charged a California-based broker with stealing $4.4 million from two trust brokerage accounts at his firm and diverting it to a pair of friends for uses ranging from gambling to chartering a private jet.

The SEC alleges that John T. Thornes of Redlands, Calif., formerly the sole owner of Thornes & Associates, Inc., diverted funds out of a brokerage account for a trust established for the health and welfare of an 80-year-old dementia patient who has been living at home for several years with 24-hour nurse care. Thornes also siphoned money out of a brokerage account for a trust set up to fund college scholarships for local high school graduates.

According to the SEC's complaint filed in U.S. District Court for the Central District of California, Thornes stole money from the two accounts from November 2010 to April 2013 primarily to benefit two of his friends, Christopher Burnell of Highland, Calif., and Kyle Larick of Redlands, Calif. Thornes has tried to pass off the payouts as loans, however there were no loan documents, no stated interest, and no collateral for the funds given. None of the money was ever repaid.
The SEC alleges that Thornes deceived his own mother with respect to the educational trust. She served as trustee, and he periodically asked her to sign blank checks that he then used in his misappropriation scheme. Thornes never informed his mother about trades he made, and he converted the brokerage account to a margin account even though it was designated as a low or minimal-risk tolerance account. He used the margin debt in his scheme and later sold securities from those accounts to avoid the margin calls. Thornes did the same thing with the brokerage account for the elderly dementia patient.

According to the SEC's complaint, after Thornes liberally transferred money from the brokerage accounts to his friends, they used it to charter a private jet, buy a luxury car, and purchase a vacation home. Burnell also used the funds to gamble at a nearby casino or pay gambling debts. Thornes paid his mother about $84,000 in excess trustee fees.

Thornes has agreed to settle the charges and consented to the entry of a final judgment ordering him to pay disgorgement of $4,366,790, prejudgment interest of $278,540, and a penalty of $4,366,790. Without admitting or denying the SEC's allegations, he agreed to be permanently enjoined from future violations of Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Thornes also has agreed to consent to a collateral industry bar and a penny stock bar.

The SEC's complaint also names Thornes' friends Burnell and Larick as well as his mother Doreen Thornes as relief defendants for the purposes of recovering any illicit funds in their possession.
The SEC's investigation was conducted by John Britt of the Los Angeles Regional Office. The litigation will be led by David Van Havermaat. The SEC appreciates the assistance of the Financial Industry Regulatory Authority, Internal Revenue Service, and Secret Service.

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