First Montauk Securities, based on Newman Springs Road in Lincroft, has been hit with a $475,000 fine, and the firm’s top two officials have resigned, as part of a settlement of fraud charges brought by the New Jersey Bureau of Securities.
The settlement resolves allegations that First Montauk failed to supervise an employee, made misrepresentations to investors and participated in market manipulation in the resale of Nextel junk bonds. Those actions caused “substantial” investor losses, according to a news release on the matter posted in the Division of Community Affairs website.
Without admitting or denying the allegations, 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. According to the Asbury Park Press, William Kurinsky is Herbert Kurinsky’s nephew, and the two men are the firm’s founders.
First Montauk lied to its customers and committed securities fraud, all in an effort to protect the company from losses, said Division of Consumer Affairs Acting Director Stephen P. 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.
From the state’s announcement:
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.