Brokerage Firm Ordered To Pay $575,000 For Overcharging Investors
NEW YORK (AP) _ Securities regulators have ordered Josephthal, Lyon & Ross to pay about $575,000 and censured its chairman for overcharging hundreds of investors for stocks the brokerage firm sold them.
It was the third time in less than four years the firm and chairman Dan Purjes were cited for securities violations by the National Association of Securities Dealers, a Washington-based industry self-policing group.
In the latest settlement announced Monday, Purjes was ordered not to violate NASD rules again. And the firm’s former head trader, Frank Garriton, was suspended for 15 days and fined $10,000. Garriton is currently a stock trader with the firm. The New York-based firm did not admit or deny wrongdoing.
Josephthal, Lyon was accused of excessively marking up the stock price of ACTV Inc., a small New York-based video and audio technology company, by 5.26 percent to 41.7 percent in summer 1991.
Markups above 5 percent of a brokerage firm’s cost for shares are considered excessive and above 10 percent can be considered fraud, in violation of NASD rules, NASD regulators said.
The firm allegedly dominated and controlled ACTV’s stock price through Purjes, also the firm’s chief executive, and then-head trader Garriton.
Purjes and Garriton were accused of selling ACTV stock to investors at the same time they were buying the same securities for the firms account, another violation of NASD rules.
``Protecting the nation’s investing public means guaranteeing that every broker/dealer treat their customers fairly, and not profiting by willfully overcharging investors is a key element of that protection,″ said Mary Schapiro, president of the NASD’s regulatory arm.
Josephthal, Lyon agreed to pay a $350,000 fine and $225,000 in restitution to at least 200 investors, including about $72,000 in interest.
Some of the restitution also reflects improper profits earned by the brokerage in 1992 by manipulating prices of two initial public offerings, Medsonic Inc. and Scicione Pharmaceuticals.
The brokerage firm agreed to conduct a thorough review of its supervisory procedures under the guidance of an outside consultant acceptable to the NASD, and follow its recommendations.
Purjes said in a statement that Josephthal, Lyon agreed to the settlement ``to remove any doubts as to the firm’s commitment to treat its customers fairly and properly.″
In the earlier violations, the NASD in September 1992 censured and fined the firm and Purjes $7,500 for failing to adequately supervise brokers and for improperly selling new stock.
In the second incident, the NASD in October 1992 fined Josephthal, Lyon $225,000 and Purjes $75,000 for failing to have proper supervisory rules in place to keep employees from breaking securities laws. Both were also censured.