Penny Stock Broker Is Fined : Burbank: Toluca Pacific Securities and two employees are assessed a total of nearly $200,000. One case involved alleged markups of prices.

Toluca Pacific Securities Corp. in Burbank, its president, Peter Blowitz, and another of the brokerage’s employees have been fined a total of nearly $200,000 by the National Assn. of Securities Dealers, which governs the NASDAQ stock market.

The fines were imposed for two cases of alleged violations of NASD rules, including excessive markups of stock prices. In one of those cases, the fines came on top of $1 million in losses that Toluca Pacific says it already has incurred from handling the transactions.

Toluca Pacific, founded by Blowitz in 1983, specializes in making markets for high-risk, thinly traded over-the-counter shares known as “penny stocks,” which typically sell for $2 a share or less.

In the first case, the NASD said Toluca Pacific and Blowitz, 49, were jointly fined $148,500 for allegedly selling a penny stock, AMDL Inc., and AMDL warrants to customers “at unfair prices,” with the 129 sales resulting “in markups ranging from 5.5% to 142% above the prevailing market price.” The alleged markups generated $135,000 in profits for Toluca Pacific, the NASD said.

The transactions occurred between May, 1990, and November, 1990, when trading prices for AMDL’s common stock were $1 a share or less, the NASD said. AMDL is a Pasadena concern that’s developing ways to identify biological elements related to cancer.

The fine can be reduced by any restitution that Toluca Pacific makes to the customers involved, the NASD said. The NASD also concluded that Toluca Pacific and its officers “did not set out to act to the detriment of customers,” and that “they were sincere in their belief that they were acting within the rules.”

Blowitz had challenged the allegations before the NASD, and in an interview he again denied any wrongdoing. But he said: “We’re not going to do anything about it” to avoid the cost of further proceedings. “We’re just going to pay the fines.”

The second NASD case is a complex one and involves litigation in addition to the NASD’s actions.

In this matter, the NASD levied a $10,000 fine against Toluca Pacific and Blowitz combined, and a $40,000 fine against one of its brokers, Steven R. Friedman. Friedman, 48, also was suspended by the NASD for four months. The parties accepted the fines in that case without admitting or denying the allegations. The NASD fined the parties because Friedman had bought a roster of investor clients from a former Toluca Pacific broker, Akiva Bar, who had been suspended from the NASD, Blowitz said.

Blowitz said Bar had left Toluca Pacific in 1989 when he was suspended. Blowitz said he could not remember why Bar had been suspended, but that the violation had occurred before Bar joined the brokerage. The NASD said Friedman knew, or should have known, that Bar had been suspended and that Toluca Pacific failed to adequately supervise Friedman’s actions.

Then, in July, 1991, Toluca Pacific filed suit in Superior Court in Los Angeles against some of the investors that Bar had represented.

The suit contends that in May, 1991, the investors placed orders to buy about 933,000 shares of E.N. Phillips Co. at a time when the stock was trading between $2.50 and $3 a share. Toluca Pacific executed the trades, but then the investors “refused to pay” for the stock, and Toluca Pacific said it was forced to liquidate the accounts at a loss.

The losses exceeded $1 million, according to a letter that Friedman wrote to the NASD in April. Friedman also wrote that he personally is repaying $700,000 of the losses to Toluca Pacific, and that Toluca Pacific itself fined him $10,000 and suspended him for three weeks for dealing with Bar.

E.N. Phillips is a Reseda company that at the time operated health-screening testing centers in shopping malls. E.N. Phillips has since abandoned that business and is now exploring possible acquisitions. In the meantime, the firm lost $460,769 on a mere $44,337 of revenue in the nine months ended June 30. Its stock now trades for 19 cents a share, Blowitz said.

Toluca Pacific’s lawsuit against the investors also lists as defendants E.N. Phillips’ two principals, Hal B. Phillips and his son, Douglas. The suit claims that the pair effectively agreed to reimburse the brokerage for about $300,000 of its E.N. Phillips-related trading losses, but later backed out of the deal.

The Phillipses denied the allegations, filed a countersuit and now the defendants are attempting to move the case from Superior Court to an arbitration hearing before an NASD panel, said Irving Einhorn, the Phillipses’ lawyer and a former regional administrator for the Securities and Exchange Commission. Toluca Pacific also filed a second suit, alleging that the Phillipses manipulated the price of E.N. Phillips’ stock. Again, the Phillipses denied the claims and filed a countersuit, which is still pending in Superior Court, Einhorn said.