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NASD Charges Irvine Brokerage With Fraud

National Capital Securities allegedly touted firms to investors without saying they risked bankruptcy.

October 18, 2002|Walter Hamilton | Times Staff Writer

Securities regulators charged an Irvine brokerage Thursday with touting penny stocks to investors even though the companies in question were flirting with bankruptcy.

National Capital Securities Inc. issued fraudulent research reports on 25 companies without telling investors that the firms had been warned by their auditors that they might go out of business, according to the complaint by the NASD. The NASD, formerly known as the National Assn. of Securities Dealers, is the brokerage industry's self-policing organization.

National Capital, formerly known as Donner Corp. International, also did not disclose that 15 of the 25 companies, as well as three dozen others, paid Donner to write the complimentary reports to drum up investor interest, according to the complaint. It is a violation of NASD regulations -- as well as federal law -- to receive such compensation without informing investors.

The complaint also names Donner owner Jeffrey L. Baclet; Vincent Michael Uberti, an analyst who allegedly wrote many of the reports; and Paul A. Runyon, an analyst whom the NASD accuses of writing misleading reports with Uberti after the two men founded another brokerage.

Uberti declined to comment and Baclet and Runyon couldn't be reached. Baclet's attorney did not return calls seeking comment.

On its Web site, Donner describes itself as a full-service brokerage that "is poised to become a true world-class organization."

The Web site also has a religious theme, with biblical quotes scrolling across its home page and a link to a religious Web site.

From March 1999 to May 2002, Donner published reports with "fraudulent, exaggerated and unwarranted claims," according to the complaint.

Most of the reports described the stocks as "highly undervalued" but did not reveal that the companies had extensive financial problems, including lack of capital and well-entrenched competitors, the complaint said.

Many of the stocks traded on the over-the-counter Bulletin Board, an electronic trading venue for companies that don't meet the financial qualifications for a listing on Nasdaq.

Many of the firms surged briefly in late 1999 and early 2000 at the height of the stock market "bubble" but have since fallen dramatically and now trade for pennies on the dollar.

Donner was based in Santa Ana for most of the period covered by the NASD complaint. The firm recently moved to Irvine but lists its main address as being in Oklahoma City, according to the complaint.

Donner and the individuals charged can request a hearing before an NASD disciplinary panel to dispute the charges. If the panel rules against them, they could be fined, suspended or permanently barred from the financial industry.

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