WASHINGTON -- Several investors who bought bonds sold by the California firm FSG Financial Services Inc., which the Securities and Exchange Commission closed down in July for allegedly selling nonexistent tax-exempt securities, are considering suing the firm, a lawyer for the bond purchasers said yesterday.

So far six investors who bought roughly a half a million dollars worth of revenue bonds sold by FSG are mulling over whether to file a suit charging the Beverly Hills firm with securities fraud, according to Jeffrey Nadrich, a Los Angeles attorney who represents the six.

And the number could mount as investors learn that the firm is in receivership and their next interest check will not be in the mail, he said.

The SEC won a preliminary restraining order from a federal judge in July barring FSG from violating federal securities laws and freezing the bank accounts of the firm and its president, Joan Kantor. The agency is expected to use a new federal securities enforcement law to impose heavy fines on the firm and disgorge the profits made by FSG from the sale of the bonds.

So far the agency has charged the firm with selling $250,000 in non-existent municipal bonds, but the amount of bonds probably will soar, said Lori Richards, assistant administrator of the SEC's Los Angeles regional office.

Agency lawyers yesterday were scheduled to receive FSG's first written response to the SEC's complaint, which charged that from Jan. 1990 through the present, FSG raised hundreds of thousands of dollars from public investors through the sale of such securities as Los Angeles Industrial Development Revenue bonds and California Health Facilities revenue bonds -- bonds that issuers say do not exist.

Sophisticated bond documents mailed to clients by FSG said the bonds were rated triple-A and backed by escrowed U.S. government bonds. The documents also failed to disclose that the firm is the successor to First Securities Group of California Inc., which was expelled by the National Association of Securities Dealers in 1989.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.