*******OFF TOPIC???*******
For Release:
Contact:
Investor Contact:
Thursday, September 11, 1997
Nancy A. Condon - (202) 728-8379
(301)-590-6500
NASD Regulation Disciplinary Committee Bars La Jolla Capital From Penny
Stock Transactions; And Orders Fines And Restitution Of More Than
$950,000
Washington, D.C.¾NASD Regulation, Inc., today announced that its Los
Angeles District Business Conduct Committee (DBCC) has ordered that San
Diego-based La Jolla Capital Corp. be permanently barred from selling
penny stocks and that five of its senior officials should be sanctioned
for circumventing the penny stock rules. Penny stocks are unlisted
securities that trade over-the-counter and are priced under $5 per
share.
As a result of a 16-day hearing by the DBCC, La Jolla Capital and its
President Harold B.J. Gallison were fined more than $400,000 and are
jointly responsible for repaying more than 100 investors from 26 states,
the District of Columbia, and British Columbia almost $400,000. The
remaining four senior officials were fined a total of more than
$150,000.
Initial actions, such as this, by an NASD Regulation District Committee
are final after 45 days, unless they are appealed to NASD Regulation's
National Business Conduct Committee (NBCC), or called for review. The
sanctions are not effective during this period. If the decision in this
case is appealed or called for review, the findings may be increased,
decreased, modified, or reversed.
The sales practice abuses at La Jolla Capital were uncovered after a
lengthy investigation by NASD Regulation's District Offices in Los
Angeles, San Francisco, and Denver. The DBCC found that from January
1994 through May 1995, La Jolla Capital and certain senior officials
circumvented investor protection laws in approximately 140 transactions
involving 15 separate securities. All of the transactions involve penny
stocks.
The violations occurred at La Jolla Capital's offices in San Diego, CA;
New York, NY; Las Vegas, NV; Bethesda, MD; and Modesto, CA.
The following senior officials were sanctioned:
1.Harold B.J. Gallison, President, and La Jolla Capital were fined a
total of $401,380. He was also suspended in all capacities for 30 days;
permanently barred from participating in penny stock transactions;
permanently barred from acting as a supervisor; and censured. 2.Robert
C. Weaver, Executive Vice President and Chief Legal Counsel, was fined
$25,000; suspended as a supervisor for 15 business days; ordered to
retake the qualifying examination to become a supervisor, and censured.
3.Gregory K. Mehlmann, National Branch Compliance Officer, was fined
$10,000; suspended as a supervisor for 10 business days; ordered to
retake the qualifying examination to become a supervisor; and censured.
4.Christopher S. Knight, Branch Manager, was fined $120,854; permanently
barred from acting as a supervisor; permanently barred from
participating in penny stock transactions; and censured. 5.Gerald J.R.
Budke, Branch Manager, was fined $5,150; suspended from participating in
penny stock transactions for one year; ordered to retake the qualifying
examination to become a supervisor; and censured.
Gallison, Weaver, and Budke are still employed by La Jolla Capital.
The 15 securities involved and sold by La Jolla Capital were: Affordable
Housing Constructors, Inc.; Ambra Royalty, Inc.; Drucker Industries,
Inc.; Environmental Recovery Systems, Inc.; Exten Industries, Inc.;
HEARx Limited; InfoServe, Inc.; Interactive Telesis, Inc. (formerly
known as INN Investment News Network Limited); Largo Vista Group Ltd.;
Longport, Inc.; Modern Records, Inc.; Peppermint Park Productions, Inc.;
Photo Acoustic Technology, Inc.; Quadratech, Inc.; and XO Corp. There is
no allegation that the affected companies knew of, or were involved in,
these violations.
The DBCC found that La Jolla Capital designed a system to circumvent the
Securities and Exchange Commission's (SEC) strict penny stock rules
which ensure that investors receive honest and candid information about
risk disclosure and suitability issues before they invest. La Jolla
Capital had investors sign a misleading document that purported to
exempt the transactions from the penny stock rule requirements. The
letters were portrayed to investors as a "formality," and in some cases
investors' signatures were forged. La Jolla also was found to have
implemented misleading and deficient supervisory policies and procedures
designed to foster the improper claim of this exemption.
Between February 1996 and October 1996, 22 other La Jolla Capital
brokers and supervisors, without admitting or denying liability, were
fined and disciplined in connection with this case. La Jolla Capital
employs 140 brokers in 11 offices in California, New York, Georgia,
Utah, Nevada, and Texas.
The DBCCs are comprised of elected representatives from the securities
industry who serve three-year terms.
NASD Regulation oversees all U.S. stockbrokers and brokerage firms. NASD
Regulation, along with The Nasdaq Stock Market, Inc., are subsidiaries
of the National Association of Securities Dealers, Inc. (NASDÒ), the
largest securities-industry self-regulatory organization in the United
States.
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