SEC Again Sues First Jersey, Charges Fraud
The Securities and Exchange Commission on Thursday filed a new lawsuit against Robert E. Brennan and First Jersey Securities Inc., charging that the flamboyant stockbroker and his firm defrauded customers by improperly influencing their purchases and sales of low-priced stocks.
The suit, filed in U.S. District Court here, alleges that Brennan and his New York-based firm earned gross profits of at least $9.6 million between November, 1982, and January, 1983, by manipulating trading in the stocks of three small companies.
5-Year Battle
First Jersey, which is privately held, has 36 offices, 1,200 salesmen and last year earned $30 million, Brennan said. The founder of First Jersey, Brennan also owns the Garden State Park race track in Cherry Hill, N.J., and Keystone racecourse near Philadelphia.
Brennan, known nationwide for his appearances in First Jersey television commercials, closed a five-year battle with the SEC last November. In a consent decree, Brennan admitted no wrongdoing but agreed to have a consultant review the firm’s practices and recommend changes.
Through 11 years of SEC investigation, Brennan has denied all wrongdoing, and on Thursday he insisted that the new lawsuit grew out of SEC officials’ “personal bitterness” over the outcome of the last lawsuit.
“It doesn’t surprise me that the SEC chose Halloween Day to start their new witch hunt,” said Brennan, whose brokerage has offices in San Diego and San Francisco. “It’s the same stale complaint.”
In the latest suit, the SEC alleges that the brokerage orchestrated a complicated scheme in which brokers in some offices urged clients to purchase the stock while brokers in other offices were telling clients that they should sell. The brokerage decided the sell price, and thus the amount of “profit,” according to the complaint.
First Jersey also profited by buying and selling stocks on its own behalf, the SEC charged. Prices of stocks were raised as much as 124%, the complaint said.
The securities cited in the complaint were those of three tiny companies, Sovereign Chemical & Petroleum Products Inc., Rampart General Inc. and Quasar Microsystems Inc. The brokerage was able to manipulate the stocks’ prices because there was little or no trading elsewhere, according to the complaint.
It alleged that the manipulation was coordinated from First Jersey’s New York headquarters and that, to conceal the fraud, salesmen were discouraged from discussing the firm’s buy and sell recommendations with salesmen from other offices.
They were also discouraged from conducting any independent research on the companies.
The complaint asks that Brennan and First Jersey agree to give up the $9.6 million in profits and that another independent consultant be appointed to investigate other possible cases of price manipulation.
Ira Sorkin, chief of the SEC’s New York office, said the charges contained in the complaint were “completely different” from those in the lawsuit settled last year. That suit dealt with First Jersey’s illegal practice of bidding for and purchasing the stocks that it also distributed, he said.
In the new complaint, First Jersey is cited for illegal increases and decreases in the stocks’ prices and misstatements and omissions of facts.
