Brokerage Subpoenaed in Probe of Attempts to Sell Lincoln S & L
A Cincinnati brokerage has been subpoenaed by federal investigators looking into possible stock manipulation involving American Continental of Phoenix and its efforts to sell Lincoln Savings & Loan of Irvine.
But the head of Queen City Securities said the firm was not itself a target of a Securities and Exchange Commission investigation into questionable trading of American Continental stock.
“We haven’t done anything wrong. We are cooperating with the SEC in any way we can,” said H. Garrett Frey, Queen City’s chairman.
Although SEC representative Mary McCue would not confirm or deny that a probe is under way, the National Assn. of Securities Dealers has confirmed that both it and the SEC are investigating, according to the Cincinnati Enquirer.
Reviewing Trading
“We are reviewing trading in the stock,” said Enno Hobbing, an association vice president. His agency oversees the national over-the-counter securities market on which American Continental is traded.
American Continental’s common stock, which sold for more than $7 a share just 2 weeks ago, has plummeted to nearly $3. The firm’s preferred stock also has declined in price, selling at around $6.50 a share in recent trading after holding steady just weeks ago at more than $10.
That drop has been blamed on persistent rumors that plans by the Arizona firm to sell Lincoln had run aground.
Earlier this week, American Continental said its agreement to sell the thrift to a Los Angeles investor group headed by veteran thrift executive Spencer Scott had expired. The firm said it would continue to negotiate with the Scott group while entertaining bids from other suitors.
“We are certainly willing to work with Scott, but we will be looking very closely at other sale options as well,” American Continental Chairman Charles H. Keating Jr. said in a statement.
Separate Development
In a separate development, the U.S. attorney’s office in Los Angeles confirmed this week that Lincoln is involved in a criminal fraud investigation. A spokesman for the office declined to discuss the matter, however. It was not clear if that investigation was related to the SEC inquiry.
Frey said his firm is examining the spread and impact of stock market rumors about the Lincoln sale and the short selling of American Continental’s stock. It also is examining whether investors and American Continental have been harmed as a result, he said.
Short selling involves the sale of borrowed stock by speculators who believe that the price is headed down. If they are right, they will buy shares at a lower price to cover their short sales and profit from the difference.
Robert Kielty, American Continental’s senior vice president and general counsel, said Friday that he was not aware of a short-selling investigation.
Such a probe would not involve the company directly, Kielty said. “But we sure would be pleased if the SEC is looking into it,” he said. “Short selling has a negative effect on our shareholders because the short sellers want to drive down the price of our stock, so they generate bad news. We think they are the source of some of the rumors and negative information” about American Continental.”
Queen Cities Securities said it learned of the investigation when it was subpoenaed in February. It was asked to provide information concerning its activities in American Continental stock. Queen City holds hundreds of thousands of shares of the stock for its clients.
Queen City supplied the SEC with documents, but no company executives have been interviewed by the agency, Frey said. Also, association investigators have not contacted the firm, Frey added.
“We asked the SEC if we were a target and they said no, “ Frey said.
Although Frey would not disclose their names, he said others subpoenaed are likely to be among brokerages throughout the United States that make a market in American Continental’s stock.
