Brokerage faces fraud penalty
Nasdaq regulators say California securities firm one of largest traders of stock in Akron media company
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BY ROGER J. MEZGER AND GLENN GAMBOA
Beacon Journal business writers
March 19,1997
A California securities firm that has been a major trader in the stock of an Akron multimedia company will be disciplined for fraudulent sales practices, Nasdaq stock market regulators told Congress yesterday.
The National Association of Securities Dealers Inc. and its Nasdaq stock market also said a special securities task force is being set up to work with the FBI and other law-enforcement agencies to investigate the possibility of criminal activity, including mob influence, in the stock market.
La Jolla Capital Corp. of San Diego; its president, Harold "B.J." Gallison; and 27 of the company's agents face disciplinary action for fraudulent sales involving the shares of 15 companies, said Mary L. Schapiro, president of NASD Regulation Inc.
The brokerage, which does business under the name La Jolla Capital Financial, was one of the largest traders of shares in Interactive MultiMedia Publishers Inc. of Akron last year when IMP stock soared 1,300 percent in a matter of weeks. Today the stock is essentially worthless.
IMP shares traded on the Nasdaq bulletin board, which is dominated by thinly traded "penny stocks," or stocks with small market capitalizations. The Nasdaq market has no trading floor; shares are traded through a computer system that matches bids and offers.
The Securities and Exchange Commission temporarily halted trading in IMP stock in December over concerns about the accuracy of the financial information the company has provided. The federal agency has been investigating IMP since at least last fall, including the company's ties to La Jolla Capital.
The NASD did not say yesterday whether the pending disciplinary action against La Jolla was linked to the trading of IMP shares. The discipline could come as a fine, a suspension or censure.
A former IMP consultant has alleged in sworn testimony that IMP President P. Joseph Vertucci schemed with the former manager of La Jolla Capital's Chicago office, Bruce Straughn, and others to run up IMP's stock price last year for their own profit. The former consultant, Douglas Furth, has also testified that Straughn bragged of his ties to organized crime and threatened to have Furth and other witnesses killed if they told what they knew about the alleged conspiracy.
Vertucci and Gallison have denied manipulating IMP's stock price or any kind of mob involvement. Straughn has not responded to repeated attempts to contact him over the past several weeks.
U.S. Rep. John Dingell of Michigan, the senior Democrat on the House Commerce Committee, last month asked Schapiro, Attorney General Janet Reno and Securities and Exchange Commission Chairman Arthur Levitt Jr. to outline the steps being taken to protect investors from organized crime's alleged influence in the trading of low-priced or "penny" stocks.
"The influence of organized crime in our markets is an issue that must be aggressively addressed," Schapiro responded in a Feb. 28 letter that Dingell released yesterday. Schapiro offered to brief the congressman in private.
Dingell's spokesman, Dennis Fitzgibbons, said the SEC's Levitt also has offered a private briefing on the matter. He said the congressman has yet to hear from Reno.
"The issues raised regarding organized crime in the stock market are quite serious," Fitzgibbons said yesterday. "The congressman wanted to find out whether they were true and what plan our regulatory agencies were using to deal with it."
Dingell's concerns grew out of a December story in Business Week magazine that said organized crime controls some securities dealers and stock promoters who deal in penny stocks. La Jolla Capital Corp. was not among several brokerage houses that Business Week named as possibly linked to organized crime.
But La Jolla has been named in 21 complaints filed with the NASD since 1991. And in May -- just two months after the 1,300-percent surge in IMP's stock price -- La Jolla was at the center of a brief 3,000-percent run-up in the stock of Comparator Systems Corp. of California.
Investors who lost millions when the stock quickly declined have filed a class-action suit against Comparator and La Jolla.
On Monday, NASD Regulation's Schapiro told the New York Society of Securities Analysts that a number of allegations about the stock market could undermine investor confidence.
"One such allegation is the presence of organized crime in the securities industry," Schapiro said. "We believe the presence exists, and it's disturbing. But we also believe it to be limited." |
