Securities violations alleged against former Indiana State Teachers Association investment and financial advisor
FOR IMMEDIATE RELEASE
October 27, 2010
Complaint alleges David Karandos of Indianapolis engaged in unethical, dishonest and deceptive practices by steering ISTA toward unsuitable, risky investment products
INDIANAPOLIS – Indiana Secretary of State Todd Rokita announced today that his Indiana Securities Division has filed an administrative complaint against David Karandos alleging 13 violations of the Indiana Securities Act for unethical, dishonest and deceptive practices. The complaint, which is attached to this release, alleges that over the course of many years, Karandos advised the Indiana State Teachers Association (ISTA) to invest its trust fund reserves in alternative investments such as hedge funds and private equity funds – illiquid investment products that come with long-term obligations, but offered large up-front commissions for Karandos.
“This is money that was supposed to be kept safe to be used by the ISTA Insurance Trust in meeting its obligations to retired teachers and others with long-term care needs,” Secretary Rokita said. “Now, because of these irresponsible and deceptive actions, along with other misdeeds and mishandlings, we’re forced to comb through a complex maze of ISTA funds in hopes of accounting for $23 million that ISTA admits is missing related to our federal litigation.”
If the allegations are proven by the Securities Division, Karandos could face a fine of up to $10,000 per violation, be ordered to pay restitution and could potentially be permanently barred from the securities industry in Indiana.
Karandos had been the investment advisor representative advising the ISTA Insurance Trust since 1991. The complaint alleges that beginning in 2004, Karandos continually recommended inappropriate alternative investments, such as hedge funds, private equity funds, etc., for the trust to purchase. It also states that in making such recommendations, Karandos failed to disclose the future risks involved with such products and failed to disclose the substantial compensation he and his employer would earn.
The ISTA Insurance Trust is currently one of the co-defendants in a federal securities fraud suit brought by the Indiana Securities Division against the ISTA. That suit alleges that ISTA unlawfully offered and sold investments in a health arrangement to dozens of Indiana school corporations, violating several provisions of the Indiana Securities Act.
According to the previous complaint against ISTA et al., money paid into the ISTA-controlled trust that was intended to be used for health claims was comingled by ISTA with funds from other sources including long term disability plan payments and invested by ISTA without the knowledge of the school corporations. The complaint alleges that ISTA now is unable to properly account for approximately $23 million intended for school districts.
The ISTA Insurance Trust was responsible for the issuance of medical and long term disability plans endorsed and provided by ISTA. The medical plan offered a feature which allowed school corporations to set aside their excess balances in order to earn investment returns to be used to offset future costs. Karandos was responsible for advising the trust on how to invest and calculate a rate of return for these dollars.
Indiana Securities Commissioner Chris Naylor has appointed O. Wayne Davis as Hearing Officer on this matter and has set a hearing date of January 25 at 9 a.m.
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