SEC Accuses L.A. Man, 4 Others of Stock Fraud
The Securities and Exchange Commission on Monday accused a former stockbroker from Sherman Oaks and four other men of defrauding nine U.S. brokerage firms in a $10-million scheme to purchase stock without paying for it, a maneuver known as “free-riding.”
The agency, in a lawsuit filed in U.S. District Court here, also charged that two of the men tried in January, 1984, to obtain separate bank loans totaling $1.4 million by using as collateral First City Properties Inc. stock they had paid for with bad checks or not paid for at all. The bank, Republicbank of Dallas, discovered that the stock’s ownership was being disputed by the brokerages and declined to make the loans.
The stock was in Beverly Hills-based First City, a thinly traded stock of which 70% is owned by the Belzberg family of Canada. The company is not accused of any wrongdoing.
Bought Nearly 400,000 Shares
Unclear in the SEC complaint is whether the defendants’ purchases of First City drove the price up to their benefit. In 1984 and 1985, the defendants allegedly bought nearly 400,000 shares of the stock and options involving hundreds of thousands more. From January, 1983, to the end of 1984, the stock rose from $4 to $21; in trading Monday on the New York Stock Exchange, it slipped $3.625 to close at $12.125 on volume of 459,700 shares.
In a statement issued Monday, the company stressed that the SEC is not charging that “the underlying values of any of First City’s properties or assets are affected.”
Among the defendants is Maurice Rind of Sherman Oaks, a former stockbroker who in 1976 and 1977 was convicted on criminal fraud charges in unrelated cases and sentenced to jail terms.
Also charged is Thomas W. Reid of Grandview, Tex., a businessman who in 1978 was charged in an unrelated case with civil fraud by the SEC and agreed not to violate securities laws in the future. The agency alleged Monday that Reid masterminded the First City purchases by introducing the defendants and persuading them to buy the stock. The remaining defendants are Michael Joe Rogers, a Grandview attorney; Armond Zaccaria, a New York businessman, and Peter Vito, also a New York resident.
Assets Frozen
A federal district judge here on Monday issued a temporary restraining order against all the defendants and froze the assets of all but Zaccaria and Vito, who bought the stock in 1983. The remaining defendants, an SEC spokesman said, made their purchases as recently as last month and thus may still have some of the proceeds of the purchases in their possession.
According to the SEC complaint, Reid and the others arranged to purchase shares and options in First City stock from--among other brokerages--E. F. Hutton & Co., Prudential-Bache Securities, Smith Barney, Harris Upham & Co., Rooney, Pace Inc., Dean Witter Reynolds & Co., Bateman Eichler, Hill Richards Inc. and San Diego-based First Affiliated Securities.
According to the SEC complaint, the defendants would order the stock and options and either fail to pay for it at all or submit bad checks in payment. In some cases, by the time the brokerages realized that payment was not forthcoming, the defendants already had the stock certificates in hand and refused to return them.
Some of the firms have attempted to liquidate the defendants’ holdings of the stock, generally at a loss. Smith Barney has lost $107,000, Prudential-Bache, $90,144, and Rooney, Pace, $134,000, the SEC said. Rooney, Pace, in a separate civil suit here, has sued Reid for return of $100,000, its loss from liquidating his position of 70,000 shares worth about $1.1 million. Among other outstanding accounts, the SEC says, Reid still owes Hutton $286,000 for options and stock he bought on Jan. 7.
In a bizarre twist, Zaccaria is accused of having fraudulently purchased $880,000 of First City stock in November, 1983, from J. David Co., a La Jolla brokerage subsequently liquidated by federal authorities as the focus of a major fraud by its owner, J. David Dominelli. Zaccaria later made good on his purchase, the SEC says.
