Barry Goldsmith's Letter to the Editor of Business Week
December 12, 1996
Mr. Paul Raeburn
Letters To The Editor
1221 Avenue of the Americas
New York, NY 10020
After reading your December 16th cover story ("The Mob on Wall Street"), I was struck by the amount of information Gary Weiss had accumulated during his investigation - and by the inference that regulators do not regard illegal activity, particularly potential criminal activity, as serious. We do.
Vigorous enforcement of the nation's securities laws and oversight of The Nasdaq Stock Market are NASD Regulation's top priorities. In the last two months alone, NASD Regulation has worked closely and cooperatively with the FBI, Justice Department, and the Securities and Exchange Commission (SEC) in various operations, resulting in criminal charges filed against more than 70 individuals.
From the securities fraud and RICO indictments returned by a federal grand jury in Las Vegas last month (the Teletek case), to the 45 defendants recently charged in the New York stock promoters sting operation, NASD Regulation has provided the technical support and manpower commitment to make these prosecutions possible.
FBI Director Louis Freeh, less than three weeks ago, commended NASD Regulation for the "vital role" it played "during several substantial investigations involving the securities markets." Freeh called the work of NASD Regulation staff attorneys "tireless" over the last several years, and added that they "contributed immensely to the convictions of more than 30 persons." Director Freeh was referring to NASD Regulation's on-going work with the U.S. Attorney in New Jersey.
Already this year, NASD Regulation - on its own - has brought a record number of disciplinary actions, including this month's expulsion of Stratton Oakmont Inc., a notorious firm with an extensive and serious regulatory history. Major enforcement cases have also been levied against: Sterling Foster; Thomas James Associates; H.J. Meyers & Co.; Hibbard Brown & Co.; F.N. Wolf & Co.; A.R. Barron; LaJolla Capital; Reynolds, Kendrick, Stratton; and Government Securities Corp.
In 1995, we brought more than 1,000 disciplinary actions, barred 400 registered individuals from the securities industry, and suspended nearly 200 more. Firms and individuals alike have been sanctioned and expelled from the business for a single reason - they broke our rules to take advantage of the investing public through fraud and abuse.
These cases are the norm, not the exception.
The Nasdaq Stock Market is also moving to increase its listing standards, in the SmallCap sector. A recent proposal would increase the financial standards for listing by 50 percent; and raise corporate governance standards by mandating the appointment of at least two independent directors and an audit committee with a majority of independent directors. In addition, the proposal requires that an annual shareholders meeting be held; and that shareholders approve any large, below-market issuance of company stock.
These new proposals would also eliminate any stock that trades under $1. Already this year, Nasdaq has delisted 300 companies to protect and strengthen the market's quality.
Allegations of market manipulation, illegal behavior, and actions that occur contrary to our rules are investigated. In cases where we have the authority to act, the results will be swift and sure. In those cases where joint action or referrals are the preferred course, we will pursue them with others quickly and with resolve.
I hope this information adds to the public's understanding of our efforts to combat fraud, manipulation, and illegal activity in our marketplace or by our members.
Barry R. Goldsmith
Executive Vice President, Enforcement
NASD Regulation, Inc.