NASD Regulation Charges R.D. White & Co., Inc. and Its Principals with Fraud and Receiving Illicit Profits in Excess of $3.5 Million
Nancy A. Condon
(202) 728-8379 (202) 974-2850
Washington, D.C.—NASD Regulation, Inc., today announced that it issued a complaint charging R.D. White & Co., Inc., New York, NY; its Chief Executive Officer, Louis J. Pagano, Staten Island, NY; and its President, John R. Piscopo, Staten Island, NY; with fraud in connection with transactions in Genisys Reservation Systems, Inc. Class A and B warrants and Capital Beverage Corp. common stock and Class A warrants. Illicit profits from this activity netted the firm more than $3.5 million.
According to the complaint, R.D. White, after acting as the managing underwriter of both companies’ 1997 initial public offerings, dominated and controlled the trading in their securities. On the first day of trading when R.D. White purchased Genisys Reservation and Capital Beverage securities from its customers in 142 separate transactions, it underpaid them by charging fraudulently excessive markdowns. Excessive markdowns occur when a firm does not pay its customers a fair price for securities the firm purchases from them.
The Capital Beverage IPO also registered for sale securities owned by 26 individuals who had previously provided financing to the company. A total of 325,000 shares of common stock and 650,000 warrants were sold by these individuals to the firm within the first three minutes of trading. These securities were then redistributed to the public in solicited transactions throughout the remainder of the day. The firm’s brokers received several times their normal compensation for selling this large block of stock. According to the complaint, while engaged in this activity, the firm, Pagano, and Piscopo violated the anti-fraud and distribution provisions of the federal securities laws and NASD rules. These anti-manipulative provisions prohibit a firm from artificially conditioning the aftermarket for a security by bidding for or purchasing securities while it is engaged in a distribution of those securities. Additionally, R.D. White failed to submit, for approval by NASD Regulation, as required, the maximum proposed underwriting compensation and collected over $1 million in excessive underwriting compensation.
The firm, along with Pagano and Piscopo, was also charged with failing to establish, maintain, and enforce adequate written supervisory procedures designed to prevent the alleged misconduct.
In the complaint, NASD Regulation does not allege any wrongdoing on the part of Genisys Reservation Systems, Inc. or Capital Beverage Corporation.
The issuance of a disciplinary complaint represents the initiation of a formal proceeding by NASD Regulation 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.
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. Possible sanctions include a fine, suspension, bar, or expulsion from the NASD.
Investors can obtain the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999, or by sending an e-mail through NASD Regulation’s Web site.
This matter was investigated by NASD Regulation’s Enforcement Department with assistance from its Corporate Financing Department. NASD Regulation oversees all U.S. stockbrokers and brokerage firms with public customers. NASD Regulation and The Nasdaq-Amex Market Group, Inc., are subsidiaries of the National Association of Securities Dealers, Inc., the largest securities-industry self-regulatory organization in the United States.