News Release

NASD Regulation Charges Biltmore Securities, Inc., and Two Principals With Fraud

Washington, D.C.—NASD Regulation, Inc., today announced that it issued a complaint charging Biltmore Securities, Inc.; its Chief Executive Officer, Elliott A. Loewenstern; and its President, Richard B. Bronson, with fraud in connection with the sale of United Restaurants, Inc. A and B warrants. The complaint alleges that profits from this misconduct amounted to more than $2.1 million, of which Loewenstern and Bronson personally received almost $1.5 million.

In the complaint, NASD Regulation charges that the firm, Loewenstern, and Bronson carried out this fraud by failing to disclose to potential customers that they, and other Biltmore employees, were in the process of selling their personal holdings of United Restaurant warrants while simultaneously recommending that customers buy them. They also failed to disclose to the potential customers that they had obtained the warrants without paying for them. The complaint claims that profits from this misconduct amounted to over $2.1 million of which Loewenstern and Bronson personally received almost $1.5 million.

Warrants entitle the holder to buy a proportionate amount of common stock at a specified price, usually higher than the market price at issuance, for a specified period of time.

Biltmore Securities had co-underwritten the initial public offering of United Restaurant, Inc. in April of 1994. The complaint alleges that in October 1994, Biltmore transferred approximately one million United Restaurants, Inc. B warrants to 19 Biltmore employees, including both Loewenstern and Bronson, who received 425,000 each. According to the complaint, the warrants were transferred to the individuals, without cost, in lieu of a cash bonus at a time when the warrants were trading for approximately $1.25.

The complaint alleges that, between November 14 and November 22, 1994, Loewenstern sold virtually all of the warrants back to the firm from the employee accounts without their knowledge. The firm repurchased the warrants at a price of $1.75 per warrant (when the bid price was only $1.50 per warrant). This resulted in a profit of more than $1.8 million dollars to the 19 employees, of which Loewenstern and Bronson each received approximately $750,000 (or about $1.5 million collectively). During this time, it is alleged that Biltmore dominated the market in these warrants. The repurchases covered the firm’s sales efforts in recommending and selling these warrants to its customers. The complaint alleges a similar course of misconduct with respect to the A warrants, which were given to 10 Biltmore employees in late 1994 and which generated profits to these employees of almost $250,000.

In the complaint, NASD Regulation asks that the respondents be ordered to relinquish the profits that were illegally obtained and make restitution to defrauded investors. Other potential sanctions include a fine, suspension, individual bar, or firm expulsion from the NASD. Under NASD rules, the individuals and the firm named in the complaint can file a response and request a hearing before an NASD Regulation disciplinary panel.

The issuance of a disciplinary complaint represents the initiation of a formal proceeding by the NASD in which findings as to the allegations in the complaint have not been made and does not represent a decision as to any of the allegations contained in the complaint. Because this complaint is unadjudicated, you may wish to contact the respondents before drawing any conclusion regarding the allegations in the complaint.

NASD Regulation oversees all U.S. stockbrokers and brokerage firms. NASD Regulation, and the Nasdaq Stock Market, Inc., are subsidiaries of the National Association of Securities Dealers, Inc. (NASD), the largest securities-industry self-regulatory organization in the United States.