N.Y. Court Bars Penny-Stock Brokerage Firm

A judge temporarily barred a national penny-stock brokerage house from soliciting new business in New York state Tuesday after the state attorney general said there was evidence that it had defrauded millions of dollars from thousands of investors.

Atty. Gen. Robert Abrams said records showed that Power Securities Corp. of Las Vegas participated in “a massive fraud and swindle” that involved manipulating stock prices, creating artificial markets and marking up stock prices by 100% or more.

State Supreme Court Justice Jawn A. Sandifer issued a temporary restraining order barring Power Securities from soliciting new business in or from the state. The judge also ordered the company to provide documents and sworn testimony.

Founded in 1987

Power Securities issued a statement saying it would cooperate with the inquiry and present relevant information at a Feb. 22 hearing. “However,” the statement said, “the company intends to vigorously oppose the existing restraining order and any restrictions order and any restrictions on its business activities.”

Penny stocks are inexpensive securities sold over the counter. They are not listed on any major stock exchanges.

Power Securities was founded in 1987 by two Rochester, N.Y., natives, Richard T. Marchese, 29, and Eric G. Monchecourt, 27, and Orville L. Sandberg, 62, of Denver.

It employs 106 salespeople in four offices in New York state and 400 more around the country are registered to solicit business in the state, Abrams said. He said the company claims to have 1,300 employees nationwide.

He said records show that the company grew 20-fold in just over 18 months and that the company claimed that it had grown 50-fold. He said some brokers made $100,000 a month.

Under state securities law, the attorney general can apply for a restraining order if he shows that investors are in danger of being defrauded.

Abrams said “deception and fraudulent conduct are at the very heart of their business enterprise.” He said the temporary order would help the state gather information that could lead to a lawsuit to permanently bar the company from doing business in the state.

According to an affidavit signed by Assistant Atty. Gen. William H. Mohr, salespeople used coordinated buy-and-sell campaigns to create an “artificial, intramural market” and make a profit. Salespeople would tell one group of investors to sell while telling another group to buy, he said.