The Securities and Exchange Commission accused a Chicago broker yesterday of originating a complex plan to manipulate the stock of four corporations.
The broker, R. Jack Bernhardt, was charged in U.S. District Court in Chicago with a "scheme to manipulate, dominate and control the market price and supply" of the stock of Olympia Brewing Co., Lawrys Foods Inc., Stange Co. and Fays Drug Co.
In a separate administrative action detailing its accusations, the SEC named Bernhardt and 13 others, including his two former employers, Loeb, Rhoades, Hornblower & Co., the major brokerage firm, and Swift, Henke & Co. Inc., a small Chicago firm.
Bernhardt apparently plans to challenge the SEC's suit, as do three codefendants who were his customers. These codefendants, and four other customers who settled with the SEC, were accused of buying and selling stock without sufficient funds, relying on Loeb Rhoades to cover their bank overdrafts.
The SEC alleged that Bernhardt's plan was to buy stock for himslef and customers in the four companies, each of which had a relatively small amounts of stock outstanding. Bernhardt allegedly arranged "illegal bank loans" for customers, who used the funds to buy stock, the SEC said.
From June 1976 through January 1977, Bernhardt allegedly controlled trading in Olympia Brewing stock, causing Loeb Rhoades to handle as much as 90 percent of trades in those shares.
At about the same time, the stock prices of Olympia Brewing, as well as Lawrys and Fays, more than doubled, and the price of Stange jumped by more than 90 percent.
According to the SEC, "Berhnardt, many times without prior authorizaton, executed purchases for the accounts of certain of his customers to buy virtually all of the shares offered."
The SEC alleged that Bernhardt sometimes simultaneously would buy and sell the same number of shares of Olympia Brewing for a customer who didn't have money to pay for the stock. This created a false volume of trades, making it appear to others that there was a great deal of interest in the stock.
The SEC also accused Bernhardt of misleading customers by telling them there was a likelihood of takeovers or tender offers involving the four companies.
All of those involved in the administrative action agreed to SEC-imposed remedial sanctions. Loeb Rhoades, which fired Bernhardt in February 1977, agreed to establish a $600,000 escrow account to cover any possible claims from customers.
The SEC found that 10 former officers of the firm failed to supervise Bernhardt properly, and it suspended them from the investment business for up to 30 days.