NASD punishes La Jolla
Capital
STOCKS: Fines of nearly $1 million are
unrelated to the broker's Comparator work.
By LIZ PULLIAM
The Orange County Register
A brokerage that played a key role in the Comparator
Systems Corp. stock scandal has been banned from
selling penny stocks and its officers ordered to pay nearly
$1 million for sales- practice abuses, the National
Association of Securities Dealers said Thursday.
San Diego-based La Jolla Capital Corp. and its president,
Harold B.J. Gallison, plan to appeal the order, said
company attorney Irving Einhorn. Gallison did not return
calls for comment.
La Jolla handled about 10 percent of the transactions
when Comparator stock exploded in May 1996 from 3
cents to nearly $2 in four days of frantic trading that set
Nasdaq volume records and valued the company at about
$1 billion. The NASD halted trading and the Newport
Beach company, which purportedly sold
fingerprint-identification technology, turned out not to
have a product.
Thursday's penalties, however, stem from about 140
transactions that predate the Comparator scandal and that
involve the low-priced stocks of 15 companies, including
Newport Beach- based Largo Vista Group Ltd., a
manufactured-home exporter. The transactions took place
in La Jolla's offices in San Diego, Modesto, New York,
Las Vegas and Bethesda, Md.
An NASD panel in Los Angeles found that the company
violated investor-protection laws by getting customers to
sign documents that were supposed to exempt their trades
from penny- stock rules. Many of the investors didn't
understand what they were signing and some had their
signatures forged, the panel said.
The New York and Maryland offices, which were
responsible for most of the sales, promoted stocks and the
company's 800 telephone number on a radio show, then
required investors to sign a letter saying the company had
not solicited the sale, the panel said.
Attorney Einhorn said company officials were trying to
comply with laws that regulate high- pressure sales tactics.
Brokerages are exempt from the rules if they can prove
they didn't recommend a stock.
''There were no guidelines set up as to what you had to
do,'' Einhorn said. ''We thought that (letter) would be
good enough.''
Gallison and the company were ordered to pay a
$401,380 fine and $400,000 in restitution to investors.
Gallison also was barred from working as a brokerage
principal and was suspended for 30 days from working in
the securities industry. Four other current and former
officials were fined $111,000.
La Jolla has had several regulatory run-ins in its
seven-year history. The NASD fined 22 of its brokers for
sales abuses last year and fined the firm $100,000 in May
for failing to supervise its brokers adequately. Regulators
in at least five states have sanctioned the company.
The NASD has cracked down on a number of
penny-stock dealers in recent months in an effort to
combat fraud. Regulators last month levied $7 million in
fines against two other penny-stock brokers, D. Blair &
Co. and GKN Securities Corp., and promised to toughen
penny-stock rules in a wide-ranging effort to curb abuses
in the low-priced stock market. Penny stocks, a generic
term for shares that typically sell for under $1, are easily
manipulated because even a few trades can dramatically
increase their prices.
Gallison predicted in an interview last year that he and his
company would survive regulators' investigations and
investors lawsuits filed against the company.
''They can look all they want,'' said Gallison. ''The real
bottom line is the NASD doesn't like B.J. B.J. loves
low-priced stocks. The (Securities and Exchange
Commission) has told the NASD to put all
low-priced-stock traders out of business.''
Register reporter Ron Campbell and Bloomberg News
contributed to this report.
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