D.H. Blair and Top Officials to Pay $4.9 Million in Fines and Restitution
Washington, D.C.-- NASD Regulation, Inc., today announced that D.H. Blair & Co. Inc., has been fined $2 million, and will repay almost $2.4 million to investors who were overcharged as the result of excessive mark-ups in 16 securities, and of other fraudulent conduct. D.H. Blair’s Chief Executive Officer and Head Trader were also fined a combined $525,000.
More than 3,100 retail customers from 43 states including the District of Columbia will receive restitution payments from D.H. Blair within 120 days. The overcharging was uncovered after a lengthy investigation by the national NASD Regulation Enforcement Department and its District Offices in Boston and Philadelphia.
In their settlement with NASD Regulation, D.H. Blair neither admitted nor denied the allegations that from June 1993 through May 1995 the firm charged excessive markups in 16 Nasdaq SmallCap securities whose Initial Public Offerings (IPOs) were underwritten by D.H. Blair Investment Banking Corp., a formerly related company. NASD Regulation found mark-ups in excess of 10 percent (a level considered fraudulent) had occurred in 14 of the 16 securities in more than 1,100 transactions.
D.H. Blair placed virtually all of the offerings with its own customers. In addition, the firm dominated and controlled the after-market trading in all 16 securities, in some cases for up to four and a half months after the IPO effective date.
NASD Regulation also found that D.H. Blair fraudulently increased the price of two of the 16 securities (Skyline Multimedia and Video Update) shortly after trading began without sufficient purchase orders to support those increases. As a result, D.H. Blair created an artificial "profit" in the securities that allowed the preferred customers of one of the firm’s senior managers to benefit by selling their stock back to the firm. Thereafter, D.H. Blair’s brokers used the artificial increase to solicit new investors to purchase these securities, without disclosing the circumstances of the price increase.
"Every investor, large or small, has the right to expect that the prices they pay for securities are fair and honest. We have the responsibility to make sure that’s the case," said NASD Regulation President Mary L. Schapiro.
D.H. Blair’s Chief Executive Officer Kenton E. Wood was fined $225,000 and suspended in all capacities for 60 days; and Head Trader Vito Capotorto was fined $300,000 and suspended for 90 days in all capacities. Following their suspensions, Wood must retake his supervisory exam and Capotorto must retake his general qualification exam. Wood and Capotorto are still employed at the firm. D.H. Blair and Wood were cited for inadequate supervision.
The 16 securities involved were: Amerigon Corp. common stock; Telepad Corporation units; AquaCare System units; Symbollon Corporation units; Skyline Multimedia units; Linda’s Flame Roasted Chicken units; Skysat Communication units; Video Update units; U.S. China Industrial Exchange units; Montbatten common stock; U.S. Diagnostics Labs units; Premier Laser System units; Infosafe System units; In-Time System units; Interactive Flight units; and Sepragen Corporation units. There is no suggestion that the affected companies knew of, or were involved in these violations.
As part of the settlement, D.H. Blair is also required to hire an independent consultant to review and monitor the firm’s trading, sales, supervision, and other compliance-related policies and practices for two years. This consultant will also recommend necessary improvements, which the firm must implement. For the next year, the firm also agreed not to sell more than 60 percent of a securities offering in which it participates.
D.H. Blair will make full restitution of the $2,065,520 it made through the excessive and fraudulent mark-ups, and pay $329,336 in interest to affected customers.
D.H. Blair is a New York City-based broker/dealer firm that has been an NASD member since April 1975.
NASD Regulation oversees all U.S. stockbrokers and brokerage firms. NASD Regulation, along with The Nasdaq Stock Market, Inc., are subsidiaries of the National Association of Securities Dealers, Inc. (NASDÒ), the largest securities-industry self-regulatory organization in the United States.
Investors who have questions should contact NASD Regulation at (301) 590-6500.