Stockbroker's Career Ends With a TILT

The road to Hell may be paved with good intentions, but stockbroker Earnest Flowers III seems to have found a shortcut.

History shows us how easily investors are victimized by what is known as affinity fraud — in this case, the victims seem to have fallen prey to Flowers because of their common church affiliation. Notwithstanding the apparent cloak of religion, this fraud is little more than the most banal of modern-day securities scams: the Ponzi scheme.

In June 2004, Flowers persuaded SP, a 45-year-old New York City resident working as an administrative assistant at the United Nations, to open an account with him at Investors Capital Corp. (ICC) in Lynnfield, Mass. SP was introduced to Flowers through her cousin, who was affiliated with Flowers' church. (In the Matter of the Department of Enforcement, Complainant, v. Earnest Flowers III, Respondent; FINRA Disciplinary Proceeding No. 2009016956601, Feb. 7, 2011.)

Between March 2004 through October 2004, Flowers sold to SP a $10,000 private placement interest in AllforChrist Ministries Inc. and a $4,000 interest in Gillette Group LLC. Flowers told SP that AllforChrist was a Christian-centered communications company and the Gillette Group was a chain of health food eateries. According to FINRA, at the time, neither company had conducted any business and, in fact, never would.

51MM Films

Between February 2008 and December 2008, while registered with Aura Financial Services Inc. in Birmingham, Ala., Flowers solicited at least $92,000 from customers RY, DS, KJ, OH, KM, LG, AL for investment in 51MM Films LLC, purportedly a film production company. All of these investors knew Flowers from their mutual affiliation with the Seventh-Day Adventist Church, where he was actively involved.

Acting as a “producer” for 51MM, Flowers issued and signed promissory notes to the seven investors. The subject notes promised 15 percent returns over terms of less than one year. Some of the promised returns would have amounted to more than 180 percent per year. Flowers had no reasonable basis to believe that 51MM could repay the notes, and some of the notes were issued after 51MM had defaulted on earlier notes. In fact, none of the seven investors was fully repaid.

Flowers falsely represented that the investments in 51MM would be used to finance its film production business, but, in reality, those funds went to pay Flowers' personal expenses and to repay other investors. Some of the investment proceeds were used to repay SP, KJ, and SWC for losses/loans. However, significant funds were simply diverted for Flowers' personal use.

Bad communication

From October 2004 through November 2006, Flowers communicated with SP and other customers through Yahoo e-mail accounts that were not affiliated with or approved by ICC or Aura, in violation of FINRA rules.

From November 2006 until around January 2009, Flowers attempted to settle complaints from SP and KJ without the knowledge or consent of Aura, in violation of FINRA rules. Upon learning of Flowers' $5,000 settlement payment to KJ, Aura terminated him.

All the private placement sales were private securities transactions undertaken in violation of NASD Conduct Rules 3040 and 2110. Moreover, Flowers' outside business activities on behalf of AllforChrist, Gillette Group, and 51MM violated NASD Conduct Rules 3030 and 2110.

Game Over

Flowers is little more than a huckster who stole from Peter to pay Paul but never managed to fully repay either. As the pressure mounted, Flowers resorted to the desperate measures of trying to hide his misconduct by communicating with his victims through unsupervised e-mail accounts or by cajoling unhappy clients with hush money obtained from other duped investors.

On Jan. 26, 2011, without admitting or denying any allegations, Flowers submitted an Offer of Settlement to FINRA, which was accepted and resulted in his being barred from the industry.

WRITER'S BIO:

Bill Singer is the publisher of RRBDLAW.com and BrokeAndBroker.com.