Manipulated Abex Share Price : 3 Businessmen Plead Guilty to Stock Fraud

An Orange County businessman and two associates pleaded guilty Thursday to federal fraud charges stemming from an attempt to manipulate the stock price of a Newport Beach-based holding company.

Lee Roy Shrout, president of Abex Ltd., was indicted by a federal grand jury last June. He was accused of causing investors to lose at least $550,000.

Shrout and two colleagues were charged with setting up brokerage accounts in the names of friends and relatives to buy and sell shares of Abex stock to increase its market price.

The price of Abex stock rose from less than 10 cents a share in August, 1983, to $5 a share in January, 1984, the indictment said. Soon after that, the price crashed and Abex stock was considered worthless, according to the indictment. Abex was a holding company that invested in small companies. It still has an office in Newport Beach, but company officials could not be reached for comment.

Shrout, who pleaded guilty to two counts of securities fraud and one count of mail fraud, faces up to 15 years in federal prison.

E. Michael Furlong, a stockbroker, pleaded guilty to two counts of securities fraud in the case and faces a maximum sentence of 10 years. Ralph Ernstsen, who owned and controlled three companies involved in the scheme, pleaded guilty to one count of securities fraud. He faces a maximum five-year prison term. All three also may be required to pay fines.

A trial on the complex case began last October. In November, Shrout collapsed outside the courtroom and later underwent heart surgery. The trial proceeded without him, but the jury failed to reach a verdict. A federal judge declared a mistrial in late November after the jury deliberated for six days.

Chief Assistant U.S. Atty. Richard E. Drooyan said the case represents the first criminal market-manipulation case prosecuted in the Central District of California. The Securities and Exchange Commission, the FBI and the U.S. attorney’s office all worked on the case, he said.

Chief U.S. District Judge Manuel L. Real set a Sept. 9 sentencing hearing for all three men.