An appeals board of NASD Regulation, the self-regulatory agency governing the brokerage industry, on Wednesday upheld penalties imposed on the former La Jolla Capital--once a major Southland penny-stock dealer.
The decision was issued by NASD Regulation's National Adjudicatory Council after an appeal of an earlier decision by its Los Angeles-area conduct committee.
NASD Regulation said La Jolla's successor, San Diego-based Pacific Cortez Securities, is barred from selling penny stocks. Also, three of the firm's senior officials were sanctioned for violating federal laws governing the trading of penny stocks, which are unlisted, over-the-counter securities typically priced at less than $5.
The appeals board upheld the earlier decision that Pacific Cortez President Harold B.J. Gallison and branch manager Christopher S. Knight be permanently barred from the penny stock industry for "participating in a 17-month-long scheme promoting unlawful sales of penny stocks to unsuspecting investors" in 1994 and 1995.
They and the firm also were ordered to pay fines and costs totaling more than $500,000. Separately, the firm and Gallison are jointly responsible for repaying more than 100 investors nationwide almost $400,000, NASD Regulation said.
Gregory K. Mehlmann, the firm's national branch compliance officer, was fined $10,000 and suspended as a supervisor for 10 days.
Irving Einhorn, an attorney representing Gallison, said his client did nothing wrong, adding that some problems "likely" stemmed from La Jolla Capital brokers who misled customers.
"Based on what I saw, my client is a victim and he and the firm shouldn't get whacked," Einhorn said. He said he is appealing the decision to the Securities and Exchange Commission.