|Thursday, March 31, 2005
Nancy Condon 202-728-8379
Herb Perone 202-728-8464
Florida Brokerage Firm LH Ross Expelled, Owner Franklyn Michelin Barred for Life to Settle NASD Charges of Widespread, Ongoing Fraud
Washington, D.C. — NASD announced today that it has expelled Boca Raton, FL-based brokerage firm LH Ross from the securities industry and barred its owner and president, Franklyn Michelin, for life to resolve charges of manipulation, fraud, excessive markups, sales of unregistered securities, books and records violations and supervisory violations in two pending enforcement actions against the firm. Both matters were scheduled to go before NASD hearing panels in coming weeks.
As part of the settlement, LH Ross and Michelin agreed to withdraw their appeals of three previous NASD hearing panel decisions that found, among other things, that LH Ross and Michelin had engaged in widespread fraud in the sales of unregistered self-offerings and had failed to cooperate with NASD investigators. Those previous decisions imposed sanctions that included expelling LH Ross (twice), barring Michelin, ordering the payment of more than $11.45 million in restitution and interest to harmed investors, and imposing $550,000 in fines. With the appeals dropped, those sanctions are now final.
In recent months, NASD has used two of its emergency powers for the first time to protect investors from LH Ross's ongoing fraudulent and illegal sales activities - by issuing its first temporary cease and desist order last August, and it first summary suspension of a securities firm in February.
"Using its cease and desist authority, NASD put an immediate halt to the firm's continuing fraudulent sales activity," said NASD Vice Chairman Mary L. Schapiro. "Later, NASD used its summary suspension authority to halt the firm's remaining operations. Through its vigilance and dedication to investor protection, NASD succeeded in bringing this fraudulent enterprise to an end."
At its peak, LH Ross operated 17 branch offices around the country and employed approximately 180 brokers.
As part of its settlement with NASD, LH Ross and Michelin have also agreed to:
The two pending cases resolved in the settlement announced today involve:
LH Ross and Michelin have dropped their appeals of NASD hearing panel decisions in these cases:
The brokerage is also at the center of numerous state disciplinary actions. In recent weeks, citing a variety of securities violations, regulators in Texas, Connecticut, New Hampshire and Maine have revoked LH Ross's licenses to do business in their states. Utah regulators recently issued an emergency order suspending LH Ross's license, while regulators in Colorado have scheduled an April 8 hearing on possible revocation the firm's license.
LH Ross and Michelin settled the two pending enforcement actions without admitting or denying the allegations, but consented to the entry of NASD's findings. By dropping their appeals of the prior hearing panel decisions, LH Ross and Michelin are no longer challenging the findings of fraud and other violations in those cases.
NASD's investigation of individuals associated with LH Ross and its fraudulent sales activities is continuing.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2004, members of the public used this service to conduct more than 3.8 million searches for existing brokers or firms and requested more than 190,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web Site at www.nasd.com.