"Two brokers named in the suit, Douglas Pollicino and James Mahoney, "have proven themselves callous, greedy, and barely cognizant of the securities laws," DOC says."
State wants receiver named for troubled securities firm
DON BAUDER Union-Tribune library researcher Beth Wood assisted with this column.
Published: December 3, 1998
The Department of Corporations yesterday asked a Superior Court judge to appoint a receiver at the newly renamed Pacific Cortez Securities, nee La Jolla Capital Financial, the high-pressure peddler of speculative stocks that's constantly in trouble with regulators.
The DOC also asks Judge William C. Pate for an injunction against alleged abusive securities sales practices. At the Jan. 8 hearing, the DOC will ask that a receiver be named to "take over the firm, marshal assets, make restitution (to aggrieved investors) and make reports to the court," says G.W. (Bill) McDonald, the DOC's chief enforcement officer.
Among many things, DOC charges that over the years the company has consistently engaged in unauthorized trading, unfair trade practices, sale of unsuitable securities, failure to disclose its disciplinary history, conflicts of interest and fraud.
Such charges are nothing new to this firm. Last December, the Securities and Exchange Commission charged that the firm and its then-chief executive, Harold Bailey (B.J.) Gallison Jr., and others took a bribe to run up the stock of a Utah company.
In September 1997, a unit of the National Association of Securities Dealers permanently barred the firm from selling penny stocks, and sanctioned five officials, including Gallison, who was fined $401,380. The firm is appealing this action.
In February of this year, the NASD barred Gallison from any supervisory or principal capacity for failing to maintain proper supervisory procedures after brokers pushed a worthless stock on naive customers.
The firm has also been disciplined or banned in such states as Ohio, Massachusetts, Texas, South Carolina, Iowa, Indiana, New Hampshire, Colorado and Illinois.
The new chief executive is Christos Kiziroglou. Neither he nor Gallison could be reached for comment about the DOC's action. Brokers and executives are at their annual bash in Puerto Vallarta, according to a receptionist.
Los Angeles lawyer Irving Einhorn, who represents both the firm and Gallison, says he can't comment until he receives the papers.
The DOC provided the court with numerous declarations by clients who say the firm used deceitful sales practices in pushing unsuitable, highly speculative securities on them.
"They (La Jolla Capital) are cold-calling small investors, putting them in risky securities unsuitable for them," McDonald says. On new account forms, customers are falsely "listed as high-income, sophisticated investors when in fact they are low-income, unsophisticated investors. They (La Jolla Capital) are fabricating those new account forms."
The DOC also charges that the firm sold restricted shares in the secondary market without disclosing the restrictions, says Eric Benink, the DOC's corporations counsel in San Diego.
"Those shares may have been sold to the initial purchaser (possibly a broker) for pennies and resold in the secondary market for dollars," Benink says.
La Jolla Capital's activities have been chronicled in this column since early 1994. In 1996, the firm got national notoriety for its role in the fast runup and rundown of Orange County's Comparator Systems on record volume. In the DOC suit, a La Jolla Capital broker is charged with putting a customer in 70,000 shares of Comparator without his knowledge.
One adventure noted in the lawsuit involves Carv Industries (nee Natural Born Carvers), a maker of sporting equipment that relocated from Carlsbad to Huntington Beach in October.
According to the DOC suit, Troy Flowers, a La Jolla Cap broker, was chairman of Carv, but in touting the stock La Jolla Cap's brokers never told people that.
According to a memorandum accompanying the DOC's filings, DOC states that through the years Gallison and La Jolla Capital "have fostered an environment where abusive sales practices are condoned and approved and where fiduciary duty is non-existent."
Two brokers named in the suit, Douglas Pollicino and James Mahoney, "have proven themselves callous, greedy, and barely cognizant of the securities laws," DOC says.
This is the third DOC action in two years against a brokerage dealing in micro-capitalization stocks, McDonald says. The other two were not based in California.
"We want to send a message to the brokerage industry that there are a lot of new investors in the market, and these sales practices abuses are unacceptable," McDonald says.
Don Bauder's e-mail address is don.bauder@uniontrib.com
Copyright 1998, 2007 Union-Tribune Publishing Co.
