education lesson for the novices, page-2

At it's extreme this is what Brabus is refering to. Now not all brokers are this bad but IMO alot of manipulation goes on in this and many other markets. The smaller the mkt cap the easier it is to "make the market" if you control enough of the co's stock that is.

Just making sure those new to the market understand it's not sugar and spice and all things nice. Remember it's your money after all.

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The N.A.S.D. expels Stratton Oakmont, ordering repayment

LESLIE EATON
Published: December 6, 1996
STRATTON OAKMONT, R.I.P.?

The National Association of Securities Dealers announced late yesterday that it had expelled from the securities industry Stratton Oakmont Inc., the Lake Success, L.I., brokerage firm that regulators contend is an egregious boiler room that manipulated stock prices and defrauded investors.

''This firm has time after time after time shown a total disregard for its customers and for the integrity of the marketplace,'' said Mary L. Schapiro, president of the N.A.S.D.'s regulatory arm. Stratton, she added, poses ''an ongoing risk to the investing public.''

The association also barred from the business two of Stratton's executives: Daniel M. Porush, its president, and Steven P. Sanders, the head trader. And the regulators told the firm to repay investors more than $400,000, and levied a $500,000 fine.

The expulsion and bar take effect at once, but lawyers for Mr. Porush and Mr. Sanders said they would ask the Securities and Exchange Commission to put the measures on hold while it considers Stratton's appeal of the association's action. In the past, the commission has seldom granted stays of such serious penalties.

Charles A. Stillman, a lawyer for Mr. Porush, said in a statement that the N.A.S.D. action would prevent the firm from repaying investors who were injured in the past. ''By making Stratton a scapegoat, the N.A.S.D. prevents Stratton from meeting its obligations to customers who are the true victims of this decision,'' he said.

State regulators have negotiated with the firm to get it to settle customer complaints; Mr. Stillman said Stratton had agreed to pay $10 million into a fund established by the states and had already paid $18 million in settlements this year.

But the association decided it would be inappropriate to allow Stratton ''to commit fraud in order to use the revenues to pay prior customers,'' Ms. Schapiro said.

Stratton's current customers will not lose money as a direct result of the suspension; their accounts will continue to be held at J. B. Oxford, a Los Angeles brokerage firm that has cleared Stratton's trades. But investors holding Stratton's ''house stocks'' are likely to find that their shares lose value because few other brokerage firms make markets in them. Stratton served as market maker for the securities of 18 companies, including J. B. Oxford itself.

The expulsion is the climax of a long-running effort by both the N.A.S.D. and the S.E.C. to shut down Stratton, which has an extensive history of regulatory problems back to 1989.

The particular incident that prompted the N.A.S.D. action occurred in 1993, when Stratton underwrote an offering for Master Glazier's Karate International Inc. As has often been the case with Stratton's deals, the offering was of units, in this case 2.07 million packages of one share of common stock and two different warrants, class A and class B, to buy stock in the future.

After the units were sold, Stratton started buying and selling the warrants separately from the units, at prices far above prevailing market prices, according to the association.

Not only did Stratton and Mr. Sanders, the trader, engage in abusive pricing, the N.A.S.D. said, but they ''discouraged the sales force from allowing customers to sell their securities back to Stratton, thus reducing the firm's risk and enhancing its ability to dictate prices arbitrarily.''

The N.A.S.D. faulted Mr. Porush, the salesman with the biggest allocation of Master Glazier securities, for failing to supervise brokers properly.