NASD Charges National Capital Securities, Its President and Two Research Analysts with Issuing Fraudulent Research Reports
Washington, D.C. — NASD announced today that it charged National Capital Securities, Inc. of Irvine, CA, formerly Donner Corporation International, its President, Jeffrey L. Baclet and research analyst Vincent Michael Uberti with issuing research reports through its Web site, http://www.donnercorp.com, and in hardcopy between March 1999 and May 2002 that contained fraudulent, exaggerated and unwarranted statements, and failed to include critical information about numerous companies' financial and business operations. National Capital, Baclet and Uberti were also charged with failing to disclose that the firm was paid cash, stock or both by the companies in exchange for issuing positive research reports. All of the reports issued by the firm included a recommendation to buy the stock of the companies and were written to assist the companies in promoting themselves.
The complaint charged that for 25 research reports issued by National Capital between March 1999 and May 2002, the firm failed to report that independent auditors had issued "going concern" opinions about the companies, showing that the auditors had substantial doubt about each company's ability to stay in business. National Capital also failed to disclose in their buy recommendations for the stocks that many of the companies had significant accumulated deficits, lacked capital, had little or no operating experience and faced competition from better established and capitalized companies.
According to the complaint, National Capital's research reports recommending these 25 companies also contained unwarranted and exaggerated statements including representations about the size of the market, and the potential for penetration of that market by the company. The complaint also alleged that the research reports were misleading, in light of the material omitted and the fraudulent, unwarranted and exaggerated statements contained in them. Issuing such research reports violates the federal securities laws, as well as NASD rules.
NASD also charged that in 51 instances companies paid for the research reports issued by National Capital with either cash or securities or both. Some of these "paid for" reports included reports containing unwarranted and exaggerated statements. All of the reports recommended the purchase of the stock, but failed to disclose that National Capital received this compensation. NASD member firms are required to disclose that they have received compensation in connection with the issuance of a research report and National Capital's failure to make that disclosure violated federal securities laws and NASD rules.
Uberti and Paul Runyon were also charged with issuing two research reports in August and October of 2001 that failed to disclose auditors' going concern opinions and other negative information about two companies. Those reports were issued through Lincoln Equity Research, a firm that is not a registered broker-dealer, but at a time when both Uberti and Runyon were registered with NASD at a member firm. The complaint also alleged that the two research reports were misleading and contained fraudulent, unwarranted and exaggerated statements.
Under NASD rules, a firm or individual named in a complaint can file a response and request a hearing before an NASD disciplinary panel. Possible sanctions include a fine, censure, suspension, or bar from the securities industry, in addition to the request made by NASD in the complaint that the respondent give up any associated profits and pay restitution. Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999 or by sending an e-mail through NASD's Web site at www.nasdr.com.