3 Firms Accused of Failing to Carry Out Stock Transactions

SAN DIEGO â€”  San Diego Securities and two other securities firms failed to properly execute buy and sell orders during the avalanche of stock trades that followed the Oct. 19 market crash, according to a federal lawsuit filed Monday by an insurance company.

The suit demands more than $660,000 in actual damages in addition to unspecified damages. Also named are Thomas Green & Associates, a Los Angeles-based securities firm, and Broadcort Capital Corp., a Merrill Lynch, Pierce, Fenner & Smith Inc. subsidiary that handles stock transactions for many securities firms.

Just days after the Oct. 19 crash, Thomas Green acquired the assets of San Diego Securities. San Diego Securities, which remains a separate company from Thomas Green/San Diego Securities, retained its liabilities.

According to the suit, filed in U.S. District Court in Tulsa, Okla., by Professional Investors Life Insurance Co., the three securities firms failed to properly complete the purchase and subsequent sale of 30,000 shares of Telex Corp. common stock shares for Professional Investors on Oct. 20 or Oct. 21.

Professional Investors “got confirmation from San Diego Securities on Oct. 22 that the 30,000 shares had been purchased at $37 a share,� according to John Frieden, a Topeka lawyer who represents the insurance company.

On Oct. 28, San Diego Securities confirmed that it had, as ordered, sold 20,000 of those shares for Professional Investors at a $1.50 per share profit, Frieden said.

Early in November, the stock shot up to $57.50 per share, and Professional Investors ordered Thomas Green/San Diego Securities to sell the remaining 10,000 shares, Frieden said.

However, Thomas Green/San Diego Securities then responded that San Diego Securities had failed to complete the initial acquisition of 30,000 shares of Telex common stock in October, according to Frieden.

But the securities firm also said that it had followed Professional Investors’ order to sell 20,000 shares of Telex. The securities firm then billed Professional Investors for the cost of that transaction, which involved buying Telex shares, which were then sold at a loss.

To help pay that bill, the securities firms involved said they would hold a $350,554 payment that Professional Investors had made in October to pay for the original 30,000 shares of Telex, Frieden said. And, San Diego Securities has been “holding nearly $1 million in (unrelated) securities that (Professional Investors) owns,� Frieden said.

Jose A. Arvizu, Thomas Green/San Diego Securities’ financial officer, declined Tuesday to comment on the suit. Broadcort, which conducts trades for Merrill Lynch as well as Thomas Green and San Diego Securities, was not available for comment Tuesday night.

“This is an incredible story,� according to Frieden. “Broadcort says that, according to New York Stock Exchange rules, they’re not responsible. San Diego Securities and Thomas Green have taken the position that they are not responsible, that the consumer bears the burden of the loss.

“If that’s the case, which I don’t think it is, then the system is in need of serious repair,� Frieden said.