3 Firms Charged With Rigging Stock Prices : Trading: The Manhattan district attorney also accused 21 brokers of creating fictitious markets for NASDAQ stocks, allegedly costing investors $10 million.
Three registered securities firms and 21 brokers were charged Wednesday with taking part in a stock-rigging scheme that allegedly cost thousands of investors nationwide more than $10 million.
The three firms--Wakefield Financial Corp., Kelly Trading Co. and G. K. Scott & Co.--allegedly colluded to manipulate trading in, and prices of, half a dozen NASDAQ stocks over a three-year period.
“What the enterprise essentially did was to create fictitious markets for the sale of over-the-counter securities,” Manhattan Dist. Atty. Robert Morgenthau said.
“By fixing the prices, the enterprise defrauded the persons from whom they bought stock at artificially low prices and the persons to whom they sold stock at artificially high prices,” he added. The securities that were allegedly manipulated were issued by Topologix Inc., Component Guard Inc., Weaver Arms Corp., R W Technology Inc., Media Products Inc. and Phoenix Advanced Technology Inc. Only Phoenix is still traded on NASDAQ.
NASDAQ, or the National Assn. of Securities Dealers Automated Quotation system, is an electronic marketplace in which securities firms quote prices at which they are willing to buy and sell securities in which they make a market.
Unlike the New York Stock Exchange and other major exchanges, there is no physical trading floor. NASDAQ securities tend to be issued by smaller, less seasoned companies.
Securities firms that are members of NASDAQ are supposed to act independently and to deal at arm’s length with each other. But in this case, one of the four indictments handed down charged that the firms “in reality worked together as a single criminal enterprise.”
By trading the stocks among themselves at predetermined and ever-higher prices, according to the indictments, the firms created a false impression of great demand and duped investors into buying the stocks. But prices collapsed when Wakefield ceased operations in March, 1989, the indictments charged.
Among individuals named in the indictment, issued by a New York County grand jury, were Alexander Minella, 31, president of Wakefield; his brother Keith, 30, who was president of Kelly; George Kevorkian, 61, president of Scott, and his son John, 33, who was head trader for Scott. These four were described in the indictments at being “at the top of (a) chain of command” in the alleged scheme.
Stephen Strombelline, associate director of the National Assn. of Securities Dealers, which cooperated in the investigation, said the indictments were part of a continuing effort to “rid the industry of the miscreants who have given us a bad name.”
Wakefield Financial and Kelly Trading are defunct and their former officials couldn’t be reached for comment. G. K. Scott, which has offices in New York, Florida and Tennessee, said in a statement that the firm and its principals “have done nothing wrong and, if in fact any wrongs were committed, then we were most victimized.”
The statement added that G. K. Scott “sustained probably the largest losses.” The company, which pleaded innocent, declined to elaborate.
Of the 21 individual defendants arrested Wednesday morning, most pleaded innocent and were released on their own recognizance later in the day.
Morgenthau said the case represents the first time that New York state’s Organized Crime Control Act had been used to prosecute fraud in New York City’s financial markets.
He said key participants in the alleged conspiracy could be imprisoned for up to 25 years if convicted, with a guaranteed minimum sentence of at least one year.
The investigation was conducted jointly by the District Attorney’s Rackets Bureau and the Organized Crime Control Bureau of the New York Police Department and relied in part on wiretaps.
