In 1992, regulatory and legal problem for Rounds began when Fainter failed to supervise a CIS RR who was a broker in his branch office, Ted McCormick in El Paso, Texas. This problem required CIS to retain counsel after the SEC brought a formal complaint against CIS and it’s principals. Unfortunately in 1979 when Rounds’ earned his CFP and he was offered errors and emission(E&O)insurance which he applied for and was accepted but the insurance carrier subsequently cancelled all CFP’s coverage and would no longer insure anyone in the security industry which left Rounds without coverage.
Rounds retained Martin Berliner as legal counsel to represent CIS. He was deemed as a seasoned securities attorney. In addition to the SEC complaint, McCormick’s victims counsel filed a civil lawsuit in El Paso, Texas naming CIS, it’s board of directors and Rounds and Fainter individually. Berliner insisted from the “get go”to representing CIS, Rounds and Fainter and all of the CIS board members. Berliner stated “it wouldn’t look good if we started pointing the finger at each other.” It made some sense at the time. Berliner offered no “waivers” for the apparent conflicts that existed between the parties.
The SEC brought a complaint for lack of supervision against CIS, Fainter and Rounds. Berliner insisted on representing both Rounds and Fainter in this legal matter as well. He said, “the cases were related.”. Again, Berliner offered no waivers of conflicts between the parties.
Throughout Berliner’s representations he offered “no waivers” regarding any potential conflicts between the parties he represented. Rounds learned later it is a minimum legal requirement. A reputable securities attorney hearing the story stated, “the conflicts between the parties would be apparent to even a first-year law student. Moreover, even if Berliner had the signed waivers the conflicts were so transparent he would have to dismiss himself”. Berliner was being paid solely by a fund established by CIS for legal matters.
Berliner knew from the beginning that Rounds never hired McCormick nor was he ever McCormick’s supervisor. Under oath, Fainter testified six times that he alone was McCormick’s branch manager. McCormick had established fictitious bank accounts under the name of CIS at the El Paso bank and at Fort Bliss Credit Union. Neither account was never authorized or approved by the CIS home office or by any of it’s principals. Rounds insisted that “Berliner should be suing the bank and the Texas credit union who allowed McCormick to set up these CIS fictions accounts and to perpetrate this fraud on these twenty victims without CIS’ knowledge.” None of these 20 McCormick victims ever did business with the “real CIS.” Berliner ignored Rounds’ plea.
Subsequently, the SIPC trustee representing the estate of CIS sued the Texas bank and the credit union and received a large settlement on behalf of the CIS estate which none benefited the victims.
In Rounds’ opinion, “If Berliner would have sued the banks as Rounds requested at the onset it would have stopped this major catastrophe from ever occurring and most likely any settlement or judgment from the bank and credit union would have made whole the 20 victims’ losses.” But that would have required Berliner to retain Texas counsel since these financial institutions were in Texas. Berliner was not licensed in Texas. Hiring Texas counsel would have deprived him of his legal fees that he was realizing from the CIS legal fund. In Rounds’ opinion, “Berliner should of been disbarred for such egregious and blatant legal misconduct”. Rounds and the SIPC trustee did subsequently file civil lawsuits against Berliner and his law firm for not recognizing these conflicts between the parties.