Here is Tim Connor
"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. "
Stocks touted by firm lead investors down trail of tears
Don Bauder
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.
More accusations
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.
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"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.
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