With Securities, Broker Name May Not Say It All
Two underwriters of highly speculative stock deals are changing their names. Coincidentally, both have had to contend with the stigma of disciplinary action by securities regulators. For investors, it may be OK to forgive--but maybe not so wise to forget.
Thomas James Associates, a Rochester, N.Y.-based penny stock broker that has had several run-ins with regulators since 1989, merged two weeks ago with H.J. Meyers of Beverly Hills. Meyers, also an underwriter of “emerging” stocks, has been seeking a partner for the past year.
Although James is by far the bigger of the two firms, the Thomas James name has been retired and the merged brokerage--with more than 500 brokers nationwide--is now known as H.J. Meyers.
In another switch, Gene Morgan Financial, a small Los Angeles brokerage that was censured last year for misrepresenting a penny stock deal it underwrote in 1992, has disbanded. Its principal, Gene R. Morgan, has become an “independent representative” of Dallas-based brokerage Cullum & Sandow, he told clients in a recent letter.
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Thomas James’ history is colorful, to say the least. In 1990, the firm was the target of a Securities and Exchange Commission judgment that permanently barred its co-founder, Brian Thomas, from the securities industry. The other co-founder, James A. Villa, was ordered to pay $400,000 in penalties, but he kept his job. He also is the new chief executive of the merged H.J. Meyers.
The SEC’s 1990 case charged Thomas James with fraud in connection with four new stock issues it underwrote and alleged that the firm used high-pressure sales tactics to create an “artificially large demand” for the stocks.
Since 1990, Thomas James has continued to underwrite speculative penny stock deals--issues that usually sell for $5 or less and are typically hawked to small investors via telephone “cold calls.” While such stocks can be lucrative, many turn out to be dogs. For that reason, the Securities and Exchange Commission and the National Assn. of Securities Dealers have cracked down on penny-stock cold calling in recent years.
For most of the 1991-94 period, any problems Thomas James had with securities regulators were fairly minor, according to NASD records. But last August, the NASD itself filed a complaint against the firm alleging several broker infractions, including execution of unauthorized trades in client accounts; failure to supervise certain brokers, and failure to update records to show client complaints against certain brokers.
The NASD complaint is pending. Meanwhile, management of the “old” H.J. Meyers, whose own official NASD record is relatively clean, did not view the allegations as serious enough to merit turning down Thomas James’ merger offer, according to Meyers managing director F.D. (Chuck) Rogers in Beverly Hills. “There’s nothing that we’ve gone through in our relationship with these people that’s been negative,” he says.
“These guys have been very, very compliant” with brokerage regulations since 1990, Rogers contends. As for the practice of cold calling to sell penny stock issues, Rogers says Thomas James brokers “are not just cold callers. They’ve gone way beyond that to train these people to find out what customers’ priorities are.”
Why, then, did Thomas James officials feel the need to ditch their name after five years? The old and new CEO, Villa, didn’t return a phone call.
As for Gene Morgan, he will serve a 45-day suspension from the securities business beginning in May under his settlement with the NASD. (He will retain his KWHY-TV show “Charting the Market” during the suspension.) His new employer, Richard Sandow, says Morgan’s “sales ability” convinced Cullum & Sandow to accept him as an independent broker under the firm name.
But Sandow says his firm “has never done and will never do penny stocks” and that he assumes Morgan “recognizes that it would be better in the future if he had a more mainstream approach” to investments. Morgan didn’t return a call.
