Regulators Crack Down on Stock Sales Abuses

Prosecutors and securities regulators in 20 states Thursday unveiled a series of enforcement actions intended as a crackdown on high-pressure penny-stock sales abuses by small brokerages.

Fourteen firms were named in a total of 37 enforcement actions, officials said. None of them are based in California.

It was the biggest nationwide crackdown ever by state authorities against brokers selling stocks over the telephone, according to North American Securities Administrators Assn., an umbrella regulator group.

The actions, which followed an investigation that began last fall, centered on telephone sales practices that officials said were used to dupe unwitting individual investors into buying stocks.

“Reading from scripts, employees of these firms pressure their victims to buy stock in unknown companies,” said association President Mark Griffin. “Once the price is driven high enough, insiders sell the stock, making fortunes for themselves and wiping out the savings of innocent investors.”

The nationwide actions were disclosed at a news conference at the office of New York Atty. Gen. Dennis Vacco. New Jersey Atty. Gen. Peter Verniero also participated.

One firm cited in both New York and New Jersey was Hackensack, N.J.-based Investors Associates Inc. The firm, which declined to comment, was named in actions in a total of 16 states, making it by far the hardest-hit among those named.

The enforcement actions varied widely from state to state, but in some cases, temporary orders to cease business were handed down.

The 20 states participating in the sweep were Alabama, Connecticut, Delaware, Illinois, Indiana, Maryland, Massachusetts, Missouri, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Texas, Utah, Vermont, Washington and Wisconsin. Additional actions are expected to result from the investigation, officials said.

“This is the overture, not the finale,” Verniero said. In the interim, he said, consumers must be aware that “an investment that seems too good to be true probably is.”