Broker-Dealer Admits $16 Million in Fraudulent Trades : SEC Takes Control of Parr Securities
The Securities and Exchange Commission took control of a small broker-dealer firm Monday after the firm and its president acknowledged entering into more than $16 million in fraudulent transactions, officials said.
The SEC asked U.S. District Judge Edward Weinfeld to place Parr Securities in receivership. While the judge was considering that request, the SEC took control of the firm’s books. Parr had liabilities of $16.1 million and assets of only $750,000, the commission said in court papers.
According to the SEC, Parr’s liabilities include $4.9 million to Security Pacific Clearing & Services, a New York subsidiary of Los Angeles-based Security Pacific Bank; $3.1 million to Bank of Kansas City; $2.7 million to Southern National Bank of North Carolina in Lumberton, N.C.; $2.6 million to Land of Lincoln Savings & Loan of Berwyn, Ill.; $1.4 million to City Federal Savings & Loan in Birmingham, Ala., and $500,000 each to the Bank of Moulton (Ala.), First National Bank of the South in Ocean Springs, Miss., and St. Clair Federal Savings & Loan in Pell City, Ala.
The fraudulent trades began in 1983 when Parr’s president, Gregory Herbert, began running up large losses in futures contracts on government securities, according to the papers.
To cover the losses, Herbert put up non-existent securities as collateral for repurchase agreements with banks, thrift institutions and municipalities. Trades were funneled through a secret account at Chemical Bank.
After customers backed away from such deals following the 1984 collapse of Lion Capital, another brokerage firm that dealt heavily in “repos,” Herbert sold participations in $4.6 million in fictitious bankers acceptances to cover his obligations. Bankers acceptances are short-term loans to businesses that are used to finance inventory.
Finally, when last month’s collapse of Bevill, Bresler & Schulman--also heavily involved in repos--prompted Lincoln to demand the return of $4 million in securities that had already been sold, Herbert forged a Lincoln officer’s signature and raided one of the thrift’s own accounts at another brokerage to raise money to repurchase the securities, the SEC said.
In an agreement with the SEC, Herbert agreed not to contest any eventual action by the commission to bar him from the industry.
No criminal charges were filed, but the agreement did not rule out such charges against either Herbert or the brokerage firm in the future.
An unrelated company, Pars Securities of Ridgewood, N.J., issued a statement Monday saying that it was unaffiliated with Parrs Securities.
