Beverly Hills-based discount brokerage JB Oxford Holdings Inc. has agreed to pay $2 million to settle a federal criminal investigation into its relationship with convicted stock swindler Irving Kott, the U.S. attorney’s office announced Tuesday.
The Oxford probe, part of a broader ongoing federal investigation, began at least three years ago and has appeared primarily focused on whether Oxford’s previous management accurately reported Kott’s role in the business, as well as on Oxford’s trading in securities with which Kott was involved.
Oxford’s new management, which took over in May 1998, was not a subject of the probe.
“We’re happy it’s over,” said Chris Jarratt, the brokerage’s chief executive. Although the firm maintains its innocence, “This settlement was a way of getting rid of this cloud of uncertainty over the potential financial impact of this investigation,” he said.
Jarratt’s Third Capital Partners, based in Nashville, owns a controlling interest in Oxford.
Kott, father of Oxford’s former Chief Operating Officer Ian Kott, became a consultant to the firm and its board in 1994. Irving Kott had a controlling interest in Reynolds Kendrick Stratton Group, a now-defunct Beverly Hills-based firm that opened Oxford in 1993.
Kott is a stock promoter who was fined $500,000 by a Canadian court in 1976 after pleading guilty to conspiracy to commit stock fraud. He also paid a fine of nearly $4 million to Dutch regulators in 1990 to settle a criminal probe into his activities there.
One element of the U.S. probe apparently focused on whether Kott’s true role in Oxford was disclosed to shareholders by former management. Oxford’s current management said it believes the company met legal requirements in terms of disclosure.
As to the issue of Oxford’s trading in stocks tied to Kott, the brokerage said it believes former management suffered losses of $7 million in the securities involved. All those positions were liquidated in late 1998, the firm said.
The Oxford case became public after FBI agents raided two of the firm’s offices in July 1997.
Assistant U.S. Atty. Christopher Painter said Oxford has agreed to continue cooperating in the ongoing broader probe.
In a related case, Rafi M. Kahn, a former Los Angeles stock promoter, last summer was allowed to plead guilty to filing a false tax return in exchange for his cooperation in an undisclosed number of U.S. fraud probes. Khan worked for Reynolds Kendrick in the mid-1990s.
As part of its settlement, Oxford has consented to an audit by an independent expert who will ensure it complies with federal and state securities laws.
Still ongoing is a Securities and Exchange Commission investigation of the firm. Oxford said it is cooperating with the SEC.
Oxford now focuses mostly on online trading. Its shares rose 41 cents Tuesday to $6.50 on Nasdaq.