NASD Fines O.C. Brokerage Targeting Asians, Owner Out

A boutique Orange County brokerage that peddled day-trading services to Asian Americans was sanctioned and fined $115,000, and its chairman agreed to be barred permanently from the industry, regulators said Friday.

Providential Securities Inc. in Fountain Valley, which came under U.S. Senate scrutiny for alleged day-trading abuses, agreed to the fine to settle numerous charges of violating securities laws and the rules of the National Assn. of Securities Dealers, an industry group with quasi-governmental regulatory powers.

Irving M. Einhorn, attorney for Providential Chairman Henry Fahman, said the case illustrates the hard line NASD and the Securities and Exchange Commission increasingly have taken against brokers who don’t toe the line.

“The mood has changed dramatically. You don’t see one-week or two-week suspensions any more,” Einhorn said. “The sanctions and the fines are pretty severe these days.”

Fahman previously had expressed hope that his parent company, Providential Holdings Inc., could remain in the brokerage business by acquiring the San Francisco investment firm Holt & Collins, which has no day-trading operations.

But his agreement with NASD rules out anything but a passive minority stake in any retail broker-dealer operation. “Fahman shall be barred, in all capacities, from associating with any NASD member,” the agreement says. The ban is the most severe punishment the agency can impose.

“He could be an investor but not anything more,” said Einhorn, who was an SEC regulator for 17 years. “He can’t have anything to do with decisions about how a broker-dealer is run.”

Fahman tried to carve a niche by providing brokerage services to immigrants. But a Senate panel heard testimony that his employees overstated potential profits and downplayed risks as investors lost large sums engaging in day trading--computer-driven, rapid-fire buying and selling of securities. Fahman said in October that Providential Securities would cease operations.

NASD said Fahman also had operated unauthorized offices, employed unregistered workers, misled customers who invested in a private placement of Providential Holdings stock and misused the funds generated by the stock sale.

In its settlement, the company agreed to return funds to customers who invested in the private placement between December 1998 and June 1999.

The agency also accused Providential of posting misleading ads on its Web site, including failing to disclose that Fahman had ownership stakes in investments his operations were touting.