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. |
