for the southern district of florida claudia schorrig,...
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Case 9:09-cv-80973-KLR Document 74 Entered on FLSD Docket 11/08/2010 Page 1 of 23
THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF FLORIDA
CLAUDIA SCHORRIG, andJOLENE SULLIVAN CASE NO.: 09-80973on their own behalves andon behalf of those similarly situated, CLASS ACTION
JURY TRIAL DEMANDEDPlaintiff,
vs.
IBM SOUTHEAST EMPLOYEES'FEDERAL CREDIT UNION,SOUTHEAST SERVICESORGANIZATION, Inc., andBARRY HUGHES
Defendants.
THIRD AMENDED CLASS ACTION COMPLAINT
Plaintiffs and putative class representatives, Claudia Schorrig ("Ms. Schorrig"), and
Jolene Sullivan ("Ms. Sullivan"), on their own behalf and on behalf of those similarly situated
(the "Class"), bring this action against Defendants, IBM Southeast Employees' Federal Credit
Union ("Credit Union"), Southeast Services Organization, Inc. ("SESO"), and Barry Hughes
("Hughes") (collectively the "Defendants"). The crux of this case is that Defendants improperly
permitted Wellstone Securities, LLC ("Wellstone Securities") to do business on the Credit
Union's premises. Wellstone Securities is a now-defunct broker-dealer that was established by
fraudsters for the purpose of using the good name of God to sell bogus investments to unwitting
purchasers. As a result of Defendants' misconduct, Plaintiffs and the Class suffered millions of
dollars in losses when Wellstone Securities predictably sold them worthless investments. In
essence, Defendants failed to perform their duties as gate keepers charged with the responsibility
of protecting Plaintiffs and the Class from plainly bad actors like Wellstone Securities. As such,
they must be held liable.
Case 9:09-cv-80973-KLR Document 74 Entered on FLSD Docket 11/08/2010 Page 2 of 23
PARTIES
1. At all times relevant to this lawsuit, Plaintiff and putative class representative
Claudia Schorrig lived in Boca Raton, Florida. She continues to do so today. At all times
material to this litigation, Claudia was a Credit Union member.
2. At all times relevant to this lawsuit, Plaintiff and putative class representative
Jolene Sullivan lived in Pompano Beach, Florida. She continues to do so today. At all times
material to this litigation, Jolene was a Credit Union member.
3. Defendant IBM Southeast Employees' Federal Credit Union is a federally
chartered corporation under 12 U.S.C. § 1461 et. seq. The Credit Union maintains its
headquarters in Boca Raton, Florida, where it was founded, along with seven other branches
across Florida. No localized operation, the Credit Union also maintains twelve branches in
Georgia, as well as one branch in Birmingham, Alabama. All told, these various branches serve
over 70,000 members across the country.
4. Defendant Southeast Services Corporation, Inc. is a Florida corporation organized
in 1986 by the Credit Union. SESO lists the Credit Union's Boca Raton headquarters as its
principal place of business.
5. Defendant Barry Hughes is an individual residing in Leesfield, Florida. During
the relevant time period Mr. Hughes acted as both the Vice President of the Credit Union and the
President of SESO. He is sued here in both capacities.
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RELEVANT NON-PARTIES
(CORNERSTONE MINISTRIES AND WELLSTONE SECURITIES)
6. Cornerstone Ministries Investments, Inc. ("Cornerstone Ministries") is a Georgia
Corporation that filed for bankruptcy in February 2008. Formed in 1996, Cornerstone Ministries
issued bonds from 1996 through October 2007, for the purposes of funding investments in
building churches, retirement homes, and child care centers. While founded for a laudable
purpose, certain officers of Cornerstone Ministries — namely, Cecil Brooks ("Brooks"), John
Ottinger ("Ottinger"), and Jack Wehmiller ("Wehmiller") — who, through myriad acts of fraud
and mismanagement, ultimately fleeced Cornerstone Ministries, drove it into bankruptcy, and
caused it to sell millions of dollars in bonds (through myriad misrepresentations and omissions)
that ultimately proved to be worthless after the company was driven into bankruptcy. Due to the
misconduct of Brooks, Ottinger, and Wehmiller, Cornerstone Ministries became the subject of
numerous enforcement actions by various state securities commissions, including Maine, Ohio,
Indiana, New Jersey, Colorado, and Kansas — and in each case, Cornerstone Ministries either
settled or lost outright.
7. Wellstone Securities is a defunct broker-dealer that Brooks, Ottinger, and
Wehmiller created for the main purpose of marketing and selling bonds that they caused to be
issued by Cornerstone Ministries. But regulatory restrictions prevent an issuer such as
Cornerstone Ministries from distributing its own securities through an affiliated broker-dealer
like Wellstone Securities. As such, Brooks, Ottinger, and Wehmiller could not proceed forward
with their plan to directly own and control Wellstone Securities and use it as an instrument to
steal from unwitting investors. So they did it indirectly. Specifically, Brooks, Ottinger, and
Wehmiller simply gave Wellstone Securities to the seemingly benevolent and well intended
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"African-American Church Growth Foundation" ("AACGF"), an entity that, in reality, was
closely affiliated with Brooks, Ottinger, and Wehmiller. In fact, AACGF was run by a member
of Brooks' church; and several other individuals that Brooks, Ottinger, and Wehmiller had
placed as key employees, directors, and officers, of Cornerstone Ministries also were placed by
Brooks, Ottinger, and Wehmiller in senior positions at Wellstone Securities.
8. In sum, Wellstone Securities was formed, in large part to sell bogus investments
in Cornerstone Ministries to unwitting investors. And Wellstone Securities in fact became the
chief market-maker for Cornerstone Minstries bonds. But as Cornerstrone Ministries came
undone, so did Wellstone Securities. Wellstone Securities eventually withdrew its registration as
a broker-dealer in December 2007 — just shortly before Cornerstone Ministries filed for
bankruptcy.
9. The scheming efforts of Brooks, Ottinger, and Wehmiller to use Wellstone
Securities for their own profit is well documented in an Examiner's Report, prepared and filed in
Cornerstone Ministries' bankruptcy by Pat Huddleston, Esq. ("Examiner").' In pertinent part,
the Examiner concluded that the facts "paint[ed] a troubling picture of broker misconduct."
(Report at 28). Further, citing Exchange Act § 10(b) and Exchange Act Rule 10b-5, the
Examiner concluded that "Cornerstone Ministries bondholders may be able to recover [against
Wellstone Securities and its registered representatives] for . . . fraud." (Report at 29). And
referring specifically to Wellstone Securities, the Examiner said the situation was "particularly
troubling." (Report at 30).
10. The bottom line is that Brooks, Ottinger, and Wehmiller fleeced Cornerstone
Ministries and created Wellstone Securities to sell Cornerstone Ministries bonds all for their own
The Examiner's Report is attached as Exhibit A and cited as ("Report at ").
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selfish interests. In other words, Brooks, Ottinger, and Wehmiller turned an otherwise noble
endeavor into their own personal fraud that, in the name of God, preyed on people's Christian
faith, hope, and noble intentions all to bilk investors. Plaintiffs filed the instant suit because
Defendants owed a duty to act as a gate keeper that would protect Plaintiffs and the Class from a
bad actor like Wellstone Securities, but Defendants breached that duty thereby causing Plaintiffs
and the Class — wholly innocent, good, decent, and hard working citizens — to suffer millions in
losses.
JURISDICTION
11. This Court possesses subject-matter jurisdiction over this matter based upon 28
U.S.C. § 1332(d)(2).
12. Upon information and belief, at least one member of the Class is a citizen of
Florida; at least one member of the Class is a citizen of Georgia, and at least one member of the
Class is a citizen of Alabama.
13. The amount in controversy exceeds the sum or value of $5,000,000, exclusive of
interest and costs.
14. Upon information and belief, the number of members in the putative class is more
than 100.
VENUE
15. Venue is proper in this district because much, if not all, of the wrongs alleged
herein occurred in Palm Beach County, Florida. Additionally, several named parties either
reside in this district (as is the case with Plaintiffs), or maintain their headquarters in this district
(as does the Credit Union).
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FACTUAL DISCLAIMER
16. Plaintiffs and the Class hereby disclaim any and all inferences or allegations that
the Credit Union, SESO, or Hughes acted with any intent to defraud or otherwise to do harm to
Plaintiffs and the Class; rather, Plaintiffs and the Class allege that the Credit Union and Hughes
acted negligently, and that SESO breached its contractual obligations intended to benefit
Plaintiffs and the Class.
FACTUAL ALLEGATIONS
17. What happened here is that the Credit Union invited a third-party securities
broker-dealer onto its premises to provide investment services to its members — i.e., Wellstone
Securities.
18. That business arrangement between the Credit Union and Wellstone Securities
was governed by a written contract bearing the title "Financial Services Agreement" (the
THE REQUIREMENTS OF THE NCUA
19. In turn, the FSA makes repeated references to the National Credit Union
Administration (the "NCUA") and, more specifically, it repeatedly affirms that the Credit Union
shall conform to the requirements of NCUA Letter No. 150.
20. The NCUA is the independent federal agency responsible for chartering and
supervising credit unions.
21. Since 1993, the NCUA has articulated the standards that its member credit unions
are required to meet when entering into an agreement with a broker-dealer to provide financial
services to that credit union's members.
2A copy of the F SA is attached as Exhibit B.
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22. Those standards are published in the form of guidance letters, each of which is
referred to as a "NCUA Letter to Credit Unions," informing credit unions about the proper
standard of care and practice relating to such relationships.
23. And NCUA Letter No. 150 — which, again, is specifically referenced and
integrated into the FSA governing the relationship between the Credit Union and Wellstone
Securities — states, in pertinent part, as follows:
Credit unions are offering mutual funds, annuities and other nondepositinvestments for sale to members through various types of arrangements. It isessential that credit unions develop procedures to fully apprise members thatthese investments are uninsured and entail risk.
Credit unions must honor the trust that members have placed in them and viewmembers' interests as critical to all aspects of their sales programs. Credit unions that do not operate their programs safely and soundly risk potential liability frommember actions.3
24. With regard to the "Scope" of NCUA Letter No. 150, it states as follows:
The guidelines of this letter apply to credit union-related sales, includingmarketing and promotional activities, of nondeposit investment products andservices. Such sales include: . . . [s]ales made by employees of CUSO's or otherentities occurring on credit union premises.'
25. And immediately below that, NCUA Letter No. 150 addresses "Credit Union
Responsibilities" and states as follows:
Credit unions must comply with all applicable laws, rules, regulations, and soundbusiness practices in any credit union-related sale of mutual finds, annuities orother nondeposit investment products. The credit union's directors areresponsible for evaluating the risks posed by the subject sales. It is important thatdirectors adopt self-governing policies and procedures to ensure compliance withthose requirements and to ensure consistency with the guidelines presented in this
1NCUA Letter No. 150, a copy of which is attached as Exhibit C, at p. 1 (underline added).
4NCUA Letter No. 150, Exhibit C, at p. 1 (underline added).
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letter. The policies and procedures need to address sales and services provideddirectly by the credit union, through a CUSO, or by an unaffiliated entity.'
26. And much more recently, the NCUA publish NCUA Letter No. 01-CU-20, which
addresses "Due Diligence Over Third Party Service Providers."6
27. Seemingly directly on point, NCUA Letter No. 01-CU-20 notes that "credit
unions are increasingly partnering with outside parties to enhance the services provided to
members."'
28. It then goes on to note that such arrangements can make programs "more cost-
effective, enable credit unions access to expertise that has not been developed in-house, and
promote programs that may not be feasible if entered into independently."'
29. But it also notes the NCUA is "aware of cases of third-party relationships
resulting in financial stresses for credit unions due to unanticipated costs, legal disputes, and
asset losses."'
30. And as regards those unfortunate situations, NCUA Letter No. 01-CU-20
emphasizes, under a section bearing the sub-heading "Due Diligence Review," the need to
perform a due diligence review prior to entering into any arrangement with a third party.
Specifically, it states as follows:
Credit union officials are responsible for planning, directing, and controlling thecredit union's affairs. To fulfill these duties, the officials should require a due diligence review prior to entering into any arrangement with a third party. Thefollowing identifies minimum procedures a credit union should follow; however
iNCUA Letter No. 150, Exhibit C, at p. 1(underline added).
'A copy of NCUA Letter No. 01-CU-20 is attached as Exhibit D.
iNCUA Letter No. 01-CU-20, Exhibit D, at p. 1.
1NCUA Letter No. 01-CU-20, Exhibit D, at p. 1.
1NCUA Letter No. 01-CU-20, Exhibit D, at p. 1.
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this should not be considered an exhaustive list. Many times, informationgathered from the review will lead to further inquiries or fact-finding."
31. And ultimately NCUA Letter No. 01-CU-20 concludes that credit union officials
are liable if they fail to conduct appropriate due diligence. More specifically, it closes with the
following passage:
Partnering with a third party to expand lending to members can lead to growth,improved profitability, and stronger member relationships. However, the creditunion officials are responsible for establishing appropriate due diligence procedures and a system of controls to ensure these goals are met."
32. In short, the Credit Union owed a non-delegable duty to perform adequate due
diligence before inviting Wellstone Securities into the fold.
THE CREDIT UNION FAILED TO PERFORM ADEQUATE DUE DILIGENCE
33. Notwithstanding the foregoing, the Credit Union agreed to do business with
Wellstone Securities without performing adequate due diligence — which would have disclosed
it was a bucket-shop rife with fraud, in which case Wellstone Securities would not have been
permitted access to the members of the Credit Union.
34. As a result, the Credit Union invited Wellstone Securities onto its physical
premises, providing it with office space within Credit Union facilities and signage in its lobbies
35. Moreover, the Credit Union affirmatively recommended its members do business
with the Financial Services Representatives of Wellstone Securities. For example, the Credit
Union sent out newsletters to Credit Union members like Plaintiffs and the Class which touted
Wellstone Securities and coaxed Credit Union members with the following recommendations:
I NCUA Letter No. 01-CU-20, Exhibit D, at p. 1(underline added).
I NCUA Letter No. 01-CU-20, Exhibit D, at p. 3(underline added).
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When it comes to financial services. esen institution has adifferent outlook. At 113N4 Southeast 1.1("C:., out goal is tolook out fin your future. We help you keep pace '‘..1.111changing lealities, set targets to achieve you' goals, andcope with chan2ing financial need:, and I esponmhilities.Independent 1 inancial Services Rept esentatis es ure ready 7.0*.to :Alan: then ,.\ealth of experience - fitld arc specially -
named to ans ,.\ question:, with Vallia
infoimation that can impro\e you' financial ‘.\.Buying a home' Paying medical ot education bills"'Planning fot retirement? Looking for ins estmentopportunities 1") COTItaet a Financial ServicesRepiesentatke today
In Boca Raton, call: Seay, 561.982.4700, ext. 4772In hampa, call . 13arbura Leschunder, '127.848.2219
Atlanta, call: Jay Jones, 6'8.79-.6302,In all other areas, call: 800.8 - 3.5100, ext. 4772
*Auto Acquisition Car Finder service provided by Alliance Leasing Corporation.*Securities offered through Wellstone Securities, LLC, Member NASD/SIPC. Investmentproducts offered are not FDIC, NCUA or NCUSIF insured. Investment products are notobligations of or guaranteed by IBM Southeast EFCU, involve investment risk including thepossible loss of principal, and may lose value.
Credit Union Newsletter, Summer 2003.12
36. In general, the Credit Union gave Wellstone Securities all the indicia of a safe,
reliable option for financial services when that could not have been further from the truth.
37. The truth is that the Credit Union welcomed the proverbial fox (i.e., Wellstone
Securities) into the henhouse (i.e., the Credit Union) completely unaware of what it had done
because it simply failed to perform adequate due diligence as it was required to do. And as
noted above and explained in greater detail below, it was not long before the fox was feasting on
hapless hens (i.e., the Credit Union's members).
12see http: Hww ibmsecu.org'htm/News.BN0603.asp (downloaded Jun. 12, 2009)(emphasis added).
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THE ROLE OF SESO
38. Upon information and belief, the Credit Union created SESO in large part to
satisfy the Credit Union's non-delegable duties owed to the Credit Union's members vis-a-vis its
business dealings with Wellstone Securities, including, but not limited to, the duty to conduct
due diligence regarding Wellstone Securities.
39. In fact, the Credit Union entered into an agreement with SESO, through which
SESO agreed to perform such duties, and which SESO understood were being performed for the
benefit of Credit Union members:3
40. But SESO, like the Credit Union itself, failed to perform adequate due diligence
regarding Wellstone Securities — which would have disclosed it was a bucket-shop rife with
fraud, in which case Wellstone Securities would not have been permitted access to the members
of the Credit Union.
THE ROLE OF HUGHES
41. As noted above, Hughes was, at all times material, a vice president of the Credit
Union and the President of SESO.
42. More to the point, Hughes was the officer who has charged with making sure that
the Credit Union satisfied all of its obligations to its members vis-a-vis its dealings with
Wellstone Securities.
43. Or stated differently, Hughes was charged with making sure that SESO satisfied
all of the obligations that the Credit Union owed to its members vis-a-vis its business dealings
with Wellstone Securities.
'A copy of the Credit Union-SESO agreement is attached hereto as Exhibit E.
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44. But upon information and belief, Hughes was not only SESO's President, but also
its only (or at a minimum its principal) employee. As such, the practical reality is that Hughes
was charged with the responsibility of overseeing his own conduct and performance. In other
words, the entire set up appears to have been staffed improperly and failed to implement
appropriate checks and balances.
45. But no matter how you look at it, Hughes failed in his efforts. Neither the Credit
Union, nor SESO did what was required of it and, as a result, the Credit Union breached its
obligation to keep its members safe from a fraudulent operation like Wellstone Securities.
DEFENDANTS PERMIT WELLSTONE SECURITIES TO SELL CORNERSTONE MINISTRIES BONDS
46. NCUA speaks not only to the obligation to perform due digligence regarding a
third-party securities broker-dealer, but also it provides for the creation of guidelines with regard
to the "the types of products that the credit union will sell."'
47. Indeed, with regard to "Investment Advice," NCUA Letter Number 150 provides
that "credit union personnel should have thorough product knowledge and understand member
protection requirements." 5
48. Finally, before closing, NCUA Letter Number 150 states that if credit union
members are misled about the nature of a non-deposit investment product — say, for example, if
members are led to believe that certain bonds are safe and conservative when, in fact, they
represent a worthless investment in a Ponzi scheme — then, "the credit union providing the sales
or services could face potential liability.'
'See NCUA Letter No. 150, Exhibit B, at p. 2 (underline added).
'See NCUA Letter No. 150, Exhibit B, at p. 3 (underline added).
16See NCUA Letter No. 150, Exhibit B, at p. 3-4 (underline added).
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49. As such, it follows that the Credit Union, SESO, and Hughes collectively were
charged with vetting and designating the investment products Wellstone Securities could offer
for sale to Credit Union members.
50. Consistent with that charge, the Credit Union in fact produced and distributed to
representatives of Wellstone Securities a list of Credit Union-approved investment products.
51. The problem is that Cornerstone Ministries bonds were on that list when they
plainly should not have been.
52. Again, Credit Union, SESO, and Hughes failed in satisfying the duties the Credit
Union owed to members of the Credit Union.
WHAT DUE DILIGENCE WOULD HAVE REVEALED
53. Even a modicum of due diligence would have revealed that Wellstone Securities
was not a sound choice to select as a third-party provider of financial services and that
Cornerstone Ministries bonds, in particular, were not a safe investment product. For example:
a. Cornerstone Ministries said in an SEC registration statement that its
common stock was approved for listing on the Chicago Stock Exchange under the symbol IHN
but that was not true — Cornerstone Ministries securities were not approved for listing on the
Chicago Exchange.
b. Regulators from Maine, Michigan, Minnesota, and Texas brought actions
against Cornerstone Ministries as a result of the statement that Cornerstone Ministries stock was
listed on the Chicago Exchange when it was not.
c. According to a "Stop Order" issued by the State of New Jersey's Bureau
of Securities, "Cornerstone Ministries engaged in dishonest and unethical practices in the
securities business."
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d. Brooks, Ottinger, and Wehmiller effectively launched Wellstone
Securities in large part to sell Cornerstone Ministries bonds — even though applicable regulations
forbid such an affiliation.
e. In an attempt to avoid the applicable regulations, Brooks, Ottinger, and
Wehmiller effectively gave Wellstone Securities to the AACGF to provide the necessary
"optics" to allow the fraudsters to do directly what they could not do indirectly.
f. The liability policy procured by Wellstone Securities specifically
excluded securities offered by Cornerstone Ministries.
g. The CRD of Dell Miller, the employee Wellstone Securities had
designated to act as its compliance manager for its Credit Union operations, actually disclosed
that Miller had been arrested twice and pled nobo contendre to theft charges, including felony
theft.
54. Additionally, other factors militated that the Credit Union undertake some
modicum of due diligence before allowing Wellstone Securities access to Credit Union clients,
recommending Wellstone Securities to Credit Union clients, and actively referring Credit Union
clients to Wellstone Securities:
a. Both Wellstone Securities and Cornerstone Ministries were obscure actors
in the securities markets; and
b. Cornerstone Ministries securities likewise were obscure, as well as
unregistered and illiquid.
55. But Defendants simply failed to undertake appropriate due diligence that would
have revealed all of the foregoing.
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56. Had Defendants done what they should have done, Wellstone Securities never
would have been put in position to sell Cornerstone Ministries bonds to unsuspecting members
of the Credit Union.
THE CREDIT UNION'S AFTER-THE-FACT ADMISSION
57. After Cornerstone Ministries ultimately collapsed, the Credit Union tacitly
admitted that the Defendants should have performed due diligence as to Wellstone Securities
before providing Wellstone Securities with unique and unfettered access to Credit Union
members to offer and sell to those members bonds issued by Cornerstone Ministries.
58. Indeed, after the Credit Union had ejected Wellstone Securities from its premises,
a credit union officer wrote a letter to Plaintiffs and to all members of the Class, saying that a
new broker-dealer would be selected to replace Wellstone Securities, and this time around, the
Credit Union had conducted ample due diligence to ensure the Wellstone Securities debacle
would not be repeated.'
THE DAMAGES SUFFERED BY THE PLAINTIFFS
59. By virtue of Defendants' failures and shortcomings regarding Wellstone
Securities and Cornerstone Ministries, Plaintiffs all suffered damages by virtue of having
purchased Cornerstone Ministries bonds sold to them by representatives of Wellstone Securities
through offices physically located on the premises of the Credit Union — bonds that all became
essentially worthless when Cornerstone Ministries declared bankruptcy. More specifically:
a. On July 30, 2004, Ms. Schorrig paid fifty thousand dollars ($50,000) for a
Cornerstone Ministries bond and, shortly thereafter, on January 25, 2005, Claudia trustingly
'A copy of the foregoing letter is attached as Exhibit F.
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invested another ten thousand dollars ($10,000) to purchase another Cornerstone Ministries
bond; and
b. On November 27, 2006, Jolene paid $58,873.45 for a Cornerstone
Ministries bond sold through Wellstone Securities at the Credit Union's offices
60. And neither of the Plaintiffs, nor any member of the Class, has received any
interest on the bonds since January 2008.
THE INEQUITABLE RESULT: THE CREDIT UNION PROFITED WHILE THE CLASS SUFFERED
61. While the Defendants' failures and shortcomings caused Credit Union members
to suffer greatly, the Credit Union itself actually profited from its arrangement with Wellstone
Securities.
62. Indeed, the Credit Union actually earned myriad fees for, in essence, what turned
out to be the Defendants' negligently failing to perform the Credit Union's non-delegable duties
and having exposed Credit Union members to harm vis-a-vis Wellstone Securities.
63. Specifically, the amount of fees earned by the Credit Union was directly
proportional to the amount of product sold by Wellstone Securities (including the sale of bonds
in Cornerstone Ministries).
64. As such, it should come as no surprise that the Credit Union constantly pressured
Wellstone Securities representatives to spend more time at the Credit Union's offices so as to
increase the amount of sales to Plaintiffs and all members of the Class and, hence, the amount of
fees for the Credit Union.
65. The bottom line is that the Credit Union profited while Plaintiffs and the Class
suffered.
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66. The Credit Union's interest in maximizing its own fees (unwittingly at the
expense of the Class) did not stop with its pushing Wellstone Securities to sell more products to
Plaintiffs and the Class (including Cornerstone Ministries bonds).
67. Rather, the Credit Union (especially Defendant Hughes) also exercised control
over the hiring and firing of Wellstone Securities representatives who were to operate within the
confines of the Credit Union.
68. And if a Wellstone Securities representative was not generating enough fees for
the Credit Union (from the perspective of the Credit Union), then the Credit Union / Hughes
would pressure that representative to sell more product (including bonds in Cornerstone
Ministries) so as to generate more fees for the Credit Union — or that representative would be
fired.
69. The bottom line is that the Credit Union earned substantial fees in exchange for
each of the Defendants negligently having exposed Credit Union members to harm vis-a-vis
Wellstone Securities.
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COUNT INEGLIGENCE
(AGAINST THE CREDIT UNION AND HUGHES)
70. Plaintiffs here incorporate by reference paragraphs one through sixty-nine, as if
frilly here re-alleged.
71. The Credit Union and Hughes owed a duty to Plaintiffs and the Class.
Specifically:
a. The Credit Union bore a non-delegable duty to conduct adequate due
diligence before entering into any arrangement with Wellstone Securities — to make sure
Wellstone Securities did not present the risk of reasonably foreseeable harm to its members.
b. Hughes, by virtue of his position as a Vice President of the Credit Union
and the President of SESO, owed a duty to ensure both that the Credit Union performed adequate
due diligence prior to entering into an arrangement with Wellstone Securities and that SESO
established and implemented appropriate procedures and controls vis-a-vis Wellstone Securities
— to make sure Wellstone Securities did not present the risk of reasonably foreseeable harm to
the members of the Credit Union.
72. Defendants all breached the duties they owed to Plaintiffs and the Class.
Specifically:
a. The Credit Union breached its non-delegable duty to conduct adequate
due diligence before entering into any arrangement with Wellstone Securities.
b. Hughes breached the duty he owed to ensure both that the Credit Union
performed adequate due diligence before entering into any arrangement with Wellstone
Securities and that SESO established and implemented appropriate procedures and controls vis-
a-vis Wellstone Securities.
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73. As a result of the Credit Union and Hughes' negligence, Wellstone Securities was
invited onto the premises of the Credit Union as a third-party service provider, thus exposing the
members of the Credit Union to the risk of reasonably foreseeable harm.
74. And sure enough, Plaintiffs and the Class all suffered damages proximately
caused by the Credit Union and Hughes' negligence — to wit, they suffered millions of dollars in
investment losses when Wellstone Securities predictably sold them worthless Cornerstone
Ministries bonds.
COUNT IIBREACH OF CONTRACT BY INTENDED THIRD PARTY BENEFICIARY
(AGAINST SESO)
75. Plaintiffs here incorporate by reference paragraphs one through sixty-nine, as if
fully here re-alleged.
76. Defendant SESO entered into a written agreement with the Credit Union pursuant
to which SESO undertook the duty to establish and implement appropriate procedures and
controls vis-a-vis Wellstone Securities — to make sure that Wellstone Securities did not present
the risk of reasonably foreseeable harm to the members of the Credit Union.
77. Both the Credit Union and SESO expressed a clear intent that a purpose of the
foregoing contract was to primarily and directly benefit the members of the Credit Union and, as
such, the members of the Credit Union are the intended third party beneficiaries of the written
agreement between Defendant SESO and the Credit Union.
78. Defendant SESO breach its Contract with the Credit Union in that SESO failed to
establish and implement appropriate procedures and controls vis-a-vis Wellstone Securities.
79. As a result of SESO's breach of its duties owed under its contract with the Credit
Union, Plaintiffs and the Class have suffered millions of dollars in damages — to wit, they
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suffered millions of dollars in investment losses when Wellstone Securities predictably sold
them worthless Cornerstone Ministries bonds.
CLASS ALLEGATIONS
80. Plaintiffs and the Class seek class certification under Rule 23 of the Federal Rules
of Civil Procedure, and to that end make the following allegations regarding class action status
and certification:
a. Plaintiffs bring this putative class action under Rules 23(a) and 23(b)(3) of
the Federal Rules of Civil Procedure;
b. Plaintiffs do so on behalf of all Credit Union members who acquired
Cornerstone Ministries securities through Wellstone Securities, LLC, beginning on July 30, 2004
through September 5, 2008; and that the Class period runs from at least July 30, 2004 through
September 5, 2008;
c. Excluded from the Class are all the defendants, their officers and
directors, their legal representatives, heirs, and assigns, as well as any entity in which any of the
foregoing had or has a controlling interest;
d. The members of the Class are so numerous that joinder of all Class
members is impracticable—Plaintiffs believe that the Class members number in the hundreds;
e. Plaintiffs' claims are typical of that of the Class;
f. Plaintiffs will fairly and adequately protect the Class' interests and have
retained counsel experienced and competent in the prosecution of class actions relating to the
purchase and sale of securities;
g. A class action is superior to all other methods of resolution; and
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Case 9:09-cv-80973-KLR Document 74 Entered on FLSD Docket 11/08/2010 Page 21 of 23
h. Question of law and fact predominate over any questions solely affecting
individual Class members; those common questions include:
i. Whether the Credit Union negligently failed to perform duties
owed to Plaintiffs and the Class;
Whether Hughes negligently failed to perform duties owed to
Plaintiffs and the Class;
Whether SESO breached duties owed under its contract with the
Credit Union and whether Plaintiffs and the Class are intended third-party beneficiaries under
that contract; and
iv. Whether, and to what extent, the Class has suffered damages from
the violations alleged.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment as follows:
A. Determining that this is a proper class action and certifying it as such, along with
appointing Plaintiffs as class representatives;
B. Determining that Defendants perpetrated the wrongs identified in this complaint,
and that those wrongs damaged Plaintiffs and the Class;
C. Awarding compensatory damages in Plaintiffs' and the Class's favor, including
pre-judgment interest, costs, and expert fees, and attorney's fees, at an amount to
be determined in a jury trial; and
D. Such equitable and injunctive relief as the Court deems appropriate.
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Case 9:09-cv-80973-KLR Document 74 Entered on FLSD Docket 11/08/2010 Page 22 of 23
JURY DEMAND
Plaintiffs hereby demand a trial by jury for all issues so friable.
Dated: November 8, 2010.
By: /s/ David A. Rothstein, Esq.
DAVID A. ROTHSTEINFla. Bar No. 0056881drothstein(a)dkrpa.comSCOTT M. DIMONDFla. Bar No. 995762sdimond(ii;dkrpa.com JEFFREY B. KAPLANFla. Bar No. 39977ikapiallAdkrpa.com
DIMOND KAPLAN & ROTHSTEIN, P.A.Offices at Grand Bay Plaza2665 South Bayshore Drive, Penthouse 2BMiami, Florida 33133Telephone (305) 374-1920Facsimile: (305) 374-1961
SCOTT L. SILVERFla. Bar No. 095631silverAstockattomeys.com
BLUM & SILVER, LLPAttorneys for Plaintiff12540 W. Atlantic Blvd.Coral Springs, FL 33071Telephone: (954) 255-8181Facsimile: (954) 255-8175
JAMES D SALLAHFla. Bar No. 92584JOSHUA A. KATZFla. Bar No. 848301SALLAH & COX, LLC
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Case 9:09-cv-80973-KLR Document 74 Entered on FLSD Docket 11/08/2010 Page 23 of 23
2101 N.W. Corporate Blvd., Suite 218Boca Raton, FL 33431Telephone: (561) 989-9080Facsimile: (561) 989-9020
ATTORNEY'S CERTIFICATION AS TO SERVICE
I HEREBY CERTIFY that the foregoing document was filed using the Court's CM/ECF
system and was served this 8 th day of November 2010, upon counsel via the CM/ECF system.
/s/ David A. Rothstein, Esq. David A. Rothstein, Esq.
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