Inquiry causes Dallas brokerage to step back
07:51 AM CST on Tuesday, February 28, 2006
By PAUL FOUTCH / The Dallas Morning News
Salomon Grey Financial Corp., a Dallas-based brokerage firm under investigation by securities regulators, has asked that its state and federal registration certificates be terminated.
The National Association of Securities Dealers Web site on Monday listed Salomon Grey as having requested termination with the NASD, the Securities and Exchange Commission and every state agency it was registered with. The request was made Friday.
Salomon Grey is a defendant in an SEC lawsuit and an NASD inquiry. Both are related to securities violations in the sale of stock. In a 2004 case, the NASD fined the firm $100,000.
The firm's president, Kyle B. Rowe, has been the subject of seven investor complaints since 2001, according to NASD records.
Mr. Rowe did not return repeated calls for comment.
Salomon Grey has been in operation since 1997. Mr. Rowe bought the firm a year later and expanded it into several cities, according to a February 2000 article in the Dallas Business Journal.
The article said Salomon Grey had grown from virtually no customers to more than 15,000.
"In this industry, there are a lot of brokers who aren't happy with their firms," Mr. Rowe told the publication. "We're fair to the brokers. We pay them on time. We keep our word. That brings a lot of brokers to our door, and they bring their clients with them."
As of August, Salomon Grey had 65 brokers, about 15 of them in Dallas, according to NASD records.
The door to the firm's suite at Lincoln Centre, LBJ Freeway and the Dallas North Tollway, was locked Friday morning.
NASD spokeswoman Nancy Condon said each of the firm's customer accounts is held at the clearing firm Salomon Grey contracted with.
A clearing firm is to stock trades what a title company is to home purchases.
Ms. Condon said Salomon Grey customers wanting information on their accounts should contact the clearing firm listed on their most recent statements. Two clearing firms listed as working with Salomon Grey didn't return calls requesting comment.
A spokeswoman for the Securities Investor Protection Corp., which insures customer accounts against brokerage firm bankruptcies, said the Salomon Grey situation doesn't sound like a case the SIPC would have to get involved in.
Ex-customer's loss
A former Salomon Grey customer, Diane Truly of Sacramento, Calif., lost about $70,000 in high-risk penny stocks after answering a telephone solicitation, according to Jay Stein, her Los Angeles attorney.
Ms. Truly's case – filed in 2001 – was one of the seven customer complaints against Mr. Rowe. They included allegations that Salomon Grey brokers put investors in unsuitable securities, traded without approval or traded only to generate commissions.
Mr. Rowe's response to each complaint was that he was not the broker who handled the account and was named only because he was president of Salomon Grey.
Ms. Truly settled with Salomon Grey and Mr. Rowe on condition that she not discuss the settlement, Mr. Stein said.
As part of the case, Mr. Stein alleged that Salomon Grey was a successor to a California company called Pacific Cortez Securities, which was accused of manipulating the market for penny stocks and selling them to unsuspecting investors at inflated prices in the late 1990s.
Its principal, Harold Bailey "B.J." Gallison, was sentenced in 2003 to five years in prison for securities fraud in the case, in which about 400 victims lost $2.5 million. Pacific Cortez was taken over by the state of California, and Mr. Gallison was barred from participating in the securities industry.
"My theory was that Salomon Grey was the successor firm to Pacific Cortez, with the same principals and without the regulatory history," Mr. Stein said.
In his response to Ms. Truly's complaint, Mr. Rowe denied Salomon Grey was a continuation of his previous employer.
However, the NASD's Ms. Condon said, "We are aware that there was some crossover in staff."
Steve Davis, the deputy district attorney for San Diego County who prosecuted Mr. Gallison, said Mr. Rowe was a high-level broker for Pacific Cortez.
"When Pacific Cortez closed its doors, there was a trail of money going from Gallison to Salomon Grey, and so that was the basis for the belief that B.J. Gallison was one of the owners of Salomon Grey," Mr. Davis said.
Mr. Rowe was not charged in the Pacific Cortez case. Mr. Gallison is due to be released on parole on Wednesday, Mr. Stein said.
Multiple inquiries
Salomon Grey has been involved in multiple regulatory inquiries recently:
•Salomon Grey and Mr. Rowe are defendants in an SEC lawsuit that accuses them of participating in a "pump-and-dump" scheme, in which the market for the penny stock of Freedom Surf Inc., a surfing products company, was manipulated higher and then sold to unsuspecting investors.
According to the lawsuit, Salomon Grey bought blocks of the stock at a discount of about 50 percent off the artificially inflated prices and sold them to its retail investors at or near the artificially inflated prices.
Lawyers involved on both sides didn't return telephone calls for comment.
The court issued orders last week against two men in the case, Mervyn A. Phelan Jr. and Craig H. Brown, both from California. The orders bar them from ever trading in penny stocks.
The man described as the architect of the scheme, Mervyn A. Phelan Sr., was convicted of securities fraud in federal court in Manhattan in November 2004 in the same case.
•According to the firm's NASD regulatory disclosures, Salomon Grey is the subject of an NASD inquiry accusing it of securities law violations related to a private stock sale, failure to make regulatory filings, and failure to maintain adequate supervisory procedures for its brokers. The firm disputed the allegations.
The NASD's Ms. Condon said she couldn't provide more details and couldn't say whether the investigation is related to the firm's requesting withdrawal of its registration.
"We can't comment on ongoing regulatory matters," she said.
•In 2004, the NASD, the industry's self-regulatory body, fined the firm $100,000 after an investigation that alleged Salomon Grey tried to manipulate the market and committed other violations related to a public offering of stock. Mr. Rowe was suspended from the industry for two weeks.
•Last year the NASD barred a Salomon Grey broker, Kevin Mark Weaver, from associating with any NASD member and ordered him to pay $547,468, plus interest, in restitution to customers. The NASD said Mr. Weaver engaged in the fraudulent offer and sale of unregistered securities. It said he failed to respond to requests to appear. No Kevin Weaver could be found in Dallas phone directories.
Staff researcher T. Alan Doss contributed to this report. |
