NEWARK
- First Montauk Securities Corp. (“First
Montauk”) has been ordered to cease
and desist from violations of the New Jersey
Uniform Securities Law and has paid $475,000
in civil monetary penalties, under the terms
of a consent order announced today by Attorney
General Stuart Rabner, Consumer Affairs
Acting Director Stephen B. Nolan and Bureau
of Securities Chief Franklin L. Widmann.
Under the terms of a separate agreement
with the New Jersey Bureau of Securities,
Chairman Herbert Kurinsky and Vice Chairman
William Kurinsky each agreed to resign from
those positions and the Board of Directors
of First Montauk’s parent company,
First Montauk Financial Corp.
“First Montauk lied to its customers
and committed securities fraud, all in an
effort to protect the company from losses,”
said Acting Director Nolan. “Under
this consent order, First Montauk must evaluate
its business practices and institute reforms
aimed at preventing this very type of fraudulent
conduct. The resignations of Herbert and
William Kurinsky are among the reforms that
will be put into place to ensure consumers
are protected in the future.”
The settlement resolves allegations that
First Montauk, based in Red Bank, failed
to supervise an employee, participated in
misrepresentations and omissions of key
facts to investors that resulted in securities
fraud, and participated in market manipulation
with respect to the resale of below investment
grade bonds that caused substantial losses
to investors, which included New Jersey
residents.
“Because
of this settlement, First Montauk has made
changes in its management and supervision
practices and will hire an outside expert
to examine and reform its supervisory practices,”
Acting Director Nolan said. “We are
confident that, through this continuing
process, our goal of reforming First Montauk
will be realized.”
From the fall of 1997 through the spring
of 2001, a First Montauk agent sold high
concentrations of Nextel International Bonds
to his clients. It was during this time
that the agent, despite not being registered
with the Bureau, sold the bonds to New Jersey
residents with the assistance of another
agent, in direct violation of the New Jersey
Uniform Securities Law.
In 2001, as the price of the Nextel International
Bonds began to fall, First Montauk, fearing
that they might bear ultimate responsibility
for mounting margin call obligations due
to the agent’s actions, stepped in
to purchase the bonds from the agent’s
clients and sell them out to other First
Montauk clients. The agent left the securities
business in 2001.
The selling points used by First Montauk
to solicit sales of Nextel International
Bonds were misleading and failed to disclose
key information including the speculative
risk of the bonds, that the inventory was
coming from in-house accounts and that there
was little or no market for the bonds apart
from First Montauk’s own trading.
The State alleged that First Montauk’s
failure to disclose information regarding
certain risk factors of the Nextel International
Bonds and their failure to establish or
enforce procedures necessary to supervise
its agents constituted violations of the
New Jersey Securities Law and are grounds
to suspend or revoke the broker-dealer registration
of First Montauk.
“Time
and time again we see investors harmed by
the fraudulent activity of firms and their
representatives,” BOS Chief Widmann
said. “The message here is that the
Bureau will continue to enforce the law
and these parties will pay the price for
behavior that harms consumers.”
The consent order and agreement were entered
into without First Montauk or the Kurinskys
admitting or denying the Bureau’s
findings. The investigation was conducted
for New Jersey by Chief of Enforcement Richard
Barry, Supervising Investigators James Lane
and Michael McElgunn and Investigating Attorney
Peter C. Cole of the Bureau of Securities.
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