Republican gubernatorial candidate John Cox and his investment firm paid $16,000 in fines to securities regulators more than a decade ago to settle charges of mishandling client funds.
Cox’s disciplinary record is included in disclosure statements he filed with the Securities and Exchange Commission. The statements show that he also was censured. A spokesman for the Cox campaign said the fines were the result of “clerical errors” and no damage was done to investors.
The regulatory fines, which date to 2004 and earlier, come as Cox, who frequently touts his business acumen, faces an uphill campaign this fall against Democratic Lt. Gov. Gavin Newsom. The Los Angeles Times reported last Friday that Cox, while working in the investment business in the Chicago area, paid a $1.7 million settlement in 1999 to an investment family over his handling of a real estate deal.
In August 2004 the National Association of Securities Dealers, a non-governmental regulatory organization, fined Cox and FEA Inc., one of his Illinois investment firms, a total of $15,000 for allegedly mishandling client dollars. The NASD was taken over last year by another non-governmental regulator, the Financial Industry Regulatory Authority.
According to a summary of the 2004 case filed with the SEC, investors handed Cox several hundred thousand dollars to invest in limited partnership. He was supposed to refund the money if a certain minimum number of shares in the partnerships weren’t sold. The deadline passed, the threshold wasn’t met but Cox “failed to promptly return the subscribers’ funds,” according to the summary.
In addition, Cox placed at least some of the funds “in a bank account he controlled” instead of parking them in special accounts set aside for the clients, the summary said.
Cox paid the fines and accepted the censure “without admitting or denying the allegations,” according to the records.
In 1990 Cox and FEA were fined a total of $1,000, also by the National Association of Securities Dealers, for mishandling funds related to another limited partnership investment. The NASD said Cox transferred a check for $87,500 from an escrow account before he was supposed to.
Cox campaign spokesman Matt Shupe said in an email that the “clerical errors” occurred when Cox’s business “was a tiny fraction of what it is now.”
The cases “involved no client losses or complaints at all,” Shupe added. “They were simply technical violations of rules designed for broker dealers that are much larger than his company was .... Simply put, these (violations) involved missing some arbitrary deadlines but ultimately these deals were successfully closed. The investors remained happy.”
When asked about the $1.7 million court settlement, Cox told the Times the case was “frivolous” and represented an attempt by his clients “to be bought out of real estate holdings for an outrageous price, $10 million.”
The case involved the Japp family, owners of a snack food company called Jays Foods. They accused Cox in a lawsuit in Chicago of misappropriating funds earmarked for investments in a series of apartment complexes and condominiums in Illinois, the Times said.