Cockroaches of the Investment Business
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Back in February 2000, the Dallas Business Journal wrote a story about a hot little broker/dealer that was growing like a lard-hog before the slaughter. That b/d was Salomon Grey. In 1998, when Kyle Rowe bought the company, it was a one-broker operation with almost no clients and offices only in Texas, the paper wrote. By 2000, it had 11 offices, 60 brokers and was registered to do business in 48 states. In an interview with the paper, Rowe offered the secret to his success: Attract veteran brokers by offering them fat pay packages.
Turns out they were veterans all right. Many had worked for a series of shady brokerage operations with numerous regulatory violations. In fact, a look at the CRD records for brokers who worked at Salomon Grey shows many of them had worked for 20 or more firms in a 10-year period, and some interesting names popped up on those lists: LH Ross, Weatherly Securities, First United Equities and Preferred Securities, among others. All of these firms were boiler-room operations that had already been, or would later be, shut down for securities fraud. Just this April, Salomon Grey was expelled from the industry (it's the most recent firm to be expelled), and Rowe was expelled from the business for life for committing securities fraud in a pump-and-dump scheme and other violations. (Salomon Grey and Rowe neither confirmed nor denied the allegations.)
Rowe himself was no stranger to boiler rooms. Before Salomon Grey, he had worked as a broker at a San Diego, Calif., b/d called Pacific Cortez Securities, which was accused of manipulating penny stocks in the late 1990s, costing some 400 victims $2.5 million. In 2003, the firm's principal, Harold Bailey “B.J.” Gallison, was sentenced to five years in prison for securities fraud. (He has since been released on parole, but is barred from association with any b/d or from participating in any offering of a penny stock.) Pacific Cortez was taken over by the state of California, and Gallison was barred from the securities industry. But Rowe wasn't charged in that case, and he and a number of the brokers who worked for Pacific Cortez ended up at Salomon Grey. (The lawyer for one of Salomon Grey's customers has speculated that, in fact, Gallison was running Salomon Grey from behind the scenes.)
Another alumnus of Pacific Cortez, albeit one who was actually fired from that firm, Ronald Duane Brouillette, is now in a California prison, sentenced to 14 years in 2004, for his role in a penny-stock swindle. Brouillette took Pacific's sucker lists with him when he left, and although he had already been banned from the industry, he set up shop in local hotels.
LH Ross, a Boca Raton-based b/d that was shut down in February of last year for numerous violations — including sales of unregistered offerings of its own stock in which investors lost over $12 million, as well as running pump-and-dump schemes — is another classic cockroach case. Seven of nine reps ultimately named in NASD fraud charges against a boiler-room operation named Florida Discount Securities were later employed by LH Ross — the majority of them immediately following their employment at Florida Discount. (They moved to LH Ross before they were named in the case against Florida Discount.)
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