Penny Stock Promoter Barred, Fined
Mar. 25, 1996
WASHINGTON (AP) _ A New Jersey securities executive was ordered to repay $7.9 million to hundreds of investors because they weren't warned that his firm sold them risky penny stocks, regulators said Monday.
Frank N. Wolf, former president and owner of New York-based F.N. Wolf & Co., also was banned from the securities industry and fined $250,000 by the National Association of Securities Dealers Inc., an industry self-policing group.
The Securities and Exchange Commission had barred Wolf from the industry in January in a separate fraud case.
The NASD also fined F.N. Wolf's former compliance director, Richard T. Sullivan, $10,000 and suspended him for one year from holding a supervisory position.
The charges concern F.N. Wolf's sale of 2.5 million shares in Nacoma Consolidated Industries between February and August 1991. Customers weren't warned that shares of Nacoma, which performed millwork for architectural firms, were classified as risky penny stock, which have a long history of being used in various frauds by brokers.
Under securities laws, firms that sell penny stocks first have to take unusual steps to warn investors about risks of such investments. Each customer has to grant their permission in writing to purchase penny stocks and the firm has to state in writing that the stock is suitable for the customer's investment goals.
``We consider the violations so serious that ordering the almost $8 million in restitution and barring Wolf from the securities industry for life are necessary to protect the investing public...,'' said Mary L. Schapiro, president of NASD Regulation Inc.
Wolf argued the penny stock rules didn't apply to Nacoma Consolidated Industries because the company exceeded a minimum financial test of $2 million in net tangible assets, a measure of readily available cash or securities. The NASD said Wolf didn't calculate Nacoma's size correctly, but he should have easily known how to make such a calculation due to his experience in the business and published guidance by the Securities and Exchange Commission.
``Wolf either knew or was willfully blind and reckless in not knowing'' that Nacoma was a penny stock, the NASD said.
The NASD ordered Wolf to repay hundreds of investors who bought the shares without the penny stock warning. The $7.8 million restitution, however, doesn't necessarily represent investors' losses, NASD officials said.
Wolf is appealing the NASD's case to the Securities and Exchange Commission. Telephone calls to attorneys for Wolf and Sullivan weren't immediately returned.
This is the latest in a series of regulatory blows for Wolf, whose firm is in bankruptcy reorganization. In January, the SEC barred Wolf from the industry and ordered him to pay $550,000 to settle charges of defrauding investors in the sale of another penny stock company.