NASD Expels O.C. Securities Dealer, Alleging Fraud

MISSION VIEJO — Coastline Financial Inc. was expelled from the National Assn. of Securities Dealers and its owner was barred from the securities industry for allegedly misleading investors who bought $1.1 million worth of notes, the market regulator said Friday.

In addition, the Mission Viejo broker-dealer and its owner, Donald Allyson Williams, were fined $50,000 and ordered to repay any remaining notes, plus interest, according to NASD, which registers and oversees brokers and their companies.

The notes were issued by Southern California Mergers & Acquisitions Inc., a company controlled by Williams, NASD said. That company sold oil-and-gas properties to Onyx Oil & Gas Management Inc., which Williams and his wife owned, according to the regulator.

NASD accused Williams and Coastline of falsely telling 48 investors that the promissory notes were secured by AAA-rated U.S. government bonds. It also accused them of failing to disclose that Southern California Mergers was insolvent and couldn’t repay the debts in case of default.

Williams said he was “not at liberty” to discuss the action.

He and Coastline have appealed the case to the Securities and Exchange Commission. The sanctions remain in effect during the appeal, NASD said, though the firm can handle unsolicited transactions on behalf of existing customers.

The NASD’s National Business Conduct Committee, which issued the ruling, alleged that the “misconduct was extremely egregious.”

“It is simply indefensible for an NASD member firm to participate knowingly in the distribution of securities that contain material misstatements and omissions,” the committee said in its decision. “Such misconduct poses an extreme threat to the investing public--as well as to third parties.”

The committee said severe sanctions were needed to “prevent repeated misconduct” by Williams and Coastline and to serve as a deterrent to others.

In its decision, the committee noted that Williams and Coastline denied the allegations.

Though the company didn’t buy any government bonds as collateral at first, it eventually paid $67,928 to buy securities that would pay $987,000 in 25 to 30 years, NASD said.

Williams and Coastline had argued that they made full disclosure orally and in writing, that the financial condition of Southern California Mergers was adequate to repay the debts and that purchasers knew the nature of the collateral and relied primarily on Southern California Mergers, rather than on the government bonds, to repay the notes.

They also argued that any misrepresentations or omissions weren’t material.