Regulators Say Penny Stock Broker Defrauded Clients
The Securities and Exchange Commission said Monday that it had charged the nation’s biggest penny stock broker, Stuart-James Co., and its two owners with defrauding clients by creating artificial markets and markups of up to 200% on the first day of trading in two new stock issues.
The SEC staff also charged the Denver-based company and its owners with causing salesmen to use misleading scripts to pitch stocks by phone.
The scripts included illegal, bullish predictions for speculative low-priced securities, the commission charged.
Named in the proceedings were Stuart Graff, of Boca Raton, Fla., who holds about 49% of the firm’s stock and is chairman of the board, and James Padgett, of Denver, who also owns about 49% and is the company’s president.
Charges were also brought against two former or current regional vice presidents and seven current or former branch office managers.
Robert Fusfeld, senior trial attorney in the SEC’s Denver regional office, said the possible penalties ranged from censure to putting the company out of business and barring the individuals from the securities business.
“We view these as very serious charges and we intend to seek very severe sanctions,” he said in a telephone interview.
The company, which has 1,300 registered brokers and is licensed to do business in all 50 states, denied any wrongdoing and said it expected to be cleared when the matter comes before an administrative law judge.
“We intend to prevail at the time of the hearing,” said Marc Geman, the firm’s legal counsel and executive vice president.