Firm Expelled from NASD, Ordered To Pay $8.7 Million
WASHINGTON (AP) _ Regulators on Monday expelled a large New York securities firm, Hibbard Brown & Co. Inc., from membership in a key securities industry association and ordered it to pay more than $8.7 million in restitution amid allegations it excessively overcharged customers.
The decision by the National Association of Securities Dealers, if upheld, could put Hibbard Brown out of business, said John Pinto, executive vice president of the industry’s self-regulatory body.
The NASD also effectively barred from the securities industry Richard P. Brown, the company’s president, and Anthony Nadino, its head trader. Both men are prevented from any further association with an NASD member in any capacity and were fined $150,000 each.
Hibbard Brown, based in New York, has 15 branches nationwide and employs 450 to 500 brokers, the NASD said. The firm, which declined to comment through an attorney, has appealed the NASD’s decision to the Securities and Exchange Commission.
The NASD charged Hibbard Brown ″clearly dominated and controlled the market″ for a company known as Site-Based Media Inc. Regulators charged that Hibbard Brown, Richard Brown and Nadino excessively charged customers in more than 6,200 transactions involving Site-Based Media’s stock.
Overcharges totaled more than $8.7 million, it said.
Regulators said the overcharges involved 7.8 million shares of Site-Based Media traded between Aug. 22 and Sept. 8 of 1991. The NASD charged the firm with excessive markups on the Site-Based Media stock that ranged from 101 percent to 169 percent over the market’s prevailing price for the security.
NASD rules prevent firms from charging more than 5 percent over a security’s prevailing price when they sell stock to a customer from their own account.
Pinto, the NASD enforcement chief, said the Hibbard Brown decision is one of the toughest against an active firm with a large customer list.
″Frankly, we believe, as did our committee, ... that their conduct was so egregious and so extensive that it in fact warranted an expulsion,″ Pinto said.
Pinto said that under one scenario, Hibbard Brown could be forced out of business if the SEC upholds the expulsion order.
″That’s exactly what we’re talking about,″ he said.
Hibbard Brown has asked the Securities and Exchange Commission to impose a stay preventing enforcement of the NASD order. Pinto said he expects a ruling soon on that request.
Separately, the SEC’s Chicago office is pursing a federal lawsuit against Hibbard Brown in U.S. District Court in Manhattan, said Richard Walker, the SEC’s New York regional administrator.
Last August, the SEC sought to freeze $6 million in assets of Hibbard Brown and another brokerage firm, F.N. Wolf & Co., on charges they withheld facts when selling stock of Treats International Enterprises Inc., an Ottawa-based franchiser of small bakeries. The SEC charged the two firms used high pressure ″boiler room″ sales tactics to pitch the securities to investors.
The SEC case also named the president of First Jersey Securities, Robert Brennan, saying he held 96 percent of Treats’ stock at the time. Most of the senior managers at Hibbard and F.N. Wolf formerly worked at First Jersey.
Brennan and First Jersey are midway through a lengthy civil stock fraud trial, separate from the F.N. Wolf lawsuit, in U.S. District Court in Manhattan, where the SEC is seeking the return of $78 million in profits and interest.
A receptionist at Hibbard Brown’s offices in New York, reached by telephone late Monday afternoon, said none of the firm’s executives were available for comment.
John Livelli, a Newark, N.J. attorney representing Hibbard Brown in the SEC case, declined comment on the NASD action
″We’re in the process of studying the decision,″ he said.