Bryant Cragun stock promoters James and Thomas Mahoney of his latest scam company MDTC have dubious boiler Room past.
SEC continues path of looking the other way!!
Stocks touted by firm lead investors down trail of tears
Published: February 11, 1996
Stocks only go up, right?
Well, since 1990, major stock averages have gone almost straight up, but many stocks, particularly wee ones, have crashed and burned.
Just look at the Golden Triangle's La Jolla Capital Financial, which last year was part of La Jolla Securities and is now part of La Jolla Capital.
La Jolla Securities and La Jolla Capital are both known for aggressively pushing highly speculative stocks. La Jolla Capital recently has been in trouble with the National Association of Securities Dealers (NASD, the private regulatory body), as well as state regulators.
La Jolla Capital Financial is the creature of three experienced brokers: brothers James and Thomas N. Mahoney and Timothy C. Connor. At one time, their operation was known as MCM (Mahoney-Connor-Mahoney) Group.
The firm, which has 10 employees, has raised seed money for companies, promising investors that there later would be a highly remunerative initial public offering (IPO). Also, the company has pushed new IPOs and very volatile stocks of small companies.
Unhappy people abound.
"I bought the Brooklyn Bridge three times," John C. Hatz complains. The $3,000 he plunked into San Diego's Exten Industries evaporated to $600 when he unloaded last month. In Golden Hemlock, $2,000 became $200. His $2,000 in Renaissance Golf contracted to $180.
Lee LaRosa says he put $107,000 in the pot, and his last statement showed him with a balance of $2,500. He got into such lovelies as China Tire, Star Signal and Fipro, which will be covered in more detail below.
In talking to James Mahoney, "It was always, 'Keep this under your hat, don't spread around what a good deal this is. My sister is buying it, my dad is buying it,' " the sadder and wiser LaRosa says.
Dropped a bundle
A San Diego businessman and his accountant have dropped a considerable sum into stocks touted by this firm. One is Exten. "Jim Mahoney assured us it would double in 30 days -- go to 40, 45, 50 cents," the accountant says.
Stock of the longtime San Diego company, now claiming it is developing an artificial liver, trades around 8 cents.
The two also bought a bundle of San Diego-based Trans-Pacific Group (TPCG), which is quoted at a yawning bid-asked spread of 13 to 50 cents. However, brokers report the stock is not available currently. The company, which helps other companies go public, would not return repeated calls for an explanation.
"There is a likelihood the stock will trade over a dollar some day soon," the irrepressible James Mahoney says. In 1992, he was censured and suspended for six weeks by the New York Stock Exchange for exercising discretionary power in a customer's account without written authorization and for "unauthorized, unsuitable and excessive transactions in a customer account," according to NASD records.
I asked the two businessmen if they have ever asked James Mahoney what happened to their stocks.
"Only 50 times," one laughs. "He always says to wait another week, another two weeks -- basically, he just uses stall tactics."
Mario Minervini bought 50,000 Fipro shares at $1 each, then got 10,000 more free for bringing his daughter and some friends into the deal. His daughter put down more than $100,000. "I am sorry I did that," Minervini says.
His savings were wiped out, and "I found out later that I shouldn't have been permitted to buy" because he didn't have adequate net worth, he says. (Timothy Connor replies that not all investors had to reach a certain wealth threshold to get in the deal.)
"We originally got in for $1 a share with the idea that it would go public; he (James Mahoney) said it would go to $5, $10, maybe $20," Minervini says.
Down in flames
James Mahoney admits the stock basically has no market value. But he has hope. Fipro, which distributed fire protection materials for industrial and construction uses, went down in, well, flames, after the chief executive died.
"We got fleeced," says Richard "Red" Repke, who was brought in by Minervini. The company and the then-MCM "lied to me," he says, in particular by claiming the company had territorial and product exclusivity it did not have.
The 100-plus investors who had put around $1 million into the deal were wiped out.
But then James Mahoney hatched a plan to raise $410,000 for Santee's American Fire Retardant, which in turn would issue shares to Fipro's beleaguered investors.
"The old Fipro people should be damned happy, otherwise they would be completely out in the cold," says Stephen F. Owens, president of American Fire Retardant.
However, Mahoney has raised only $165,000 (net $141,000 to the company), although there is still hope of a public offering of American Fire Retardant.
But battles, including family squabbles, persist. The Mahoneys brought in their uncle, Robert Mahoney, and an Orange County colleague, David Noyes, to help run American Fire Retardant.
But according to the prospectus, the money being raised for American Fire was to go into an escrow account instead of being distributed piecemeal. It didn't happen, Noyes says. Also, "they promised us stock" that they didn't deliver, he says.
When he confronted his nephews with the prospectus' escrow requirement, they simply wanted to drop it from the prospectus, Robert Mahoney says.
"So I resigned," he says. "These are my nephews, I still love them, but I don't like what they did. I backed out because I smelled a rat."
Noyes and Uncle Bob Mahoney "are crybabies," James Mahoney says. "They wanted to sign a big salary agreement, wanted a big block of stock. They haven't done anything to be paid," he says.
There are other charges. Paul Dencker, former chief financial officer of Fipro, suspects that 250,000 shares have not been distributed to Fipro investors. "They (the Mahoneys et al) delivered shares to whoever they thought deserved them," Dencker says. "Some people received shares that were not paid for." Some founders were excluded, he says.
James Mahoney says that original investors such as Dencker will get shares "once we earn them -- but they won't get theirs first, they will get them last."
Asked why MCM left La Jolla Securities, Mahoney says the former parent firm was raiding his brokers and not providing clerical support. But Bruce Biddick, president of La Jolla Securities, says, "we asked them to leave because they repeatedly failed to meet production goals."
James Mahoney realizes his ebullience and perma-optimism have steered some investors into the ditch. "Deep down" he feels sorrow, he says. "We may believe what we hear too much, you know. I wish I had never sold (limited) partnerships in the 1980s."
Copyright 1996, 2007 Union-Tribune Publishing Co.