The Securities and Exchange Commission charged yesterday that a New Jersey brokerage firm encouraged its salesmen to solicit business from investors who wanted to launder money and that the salesmen then stole some of the money from investors.
The company, J.B. Hanauer & Co. of Livingston, N.J., consented to an SEC order and to a court order enjoining the firm from violating antifraud and other provisions of federal securities laws without admitting or denying the allegations.
According to the SEC, the company encouraged its salesmen to seek business from individuals who, "for income tax avoidance or other reasons," bought bonds under fictitious names and paid for them in cash.
The SEC described transactions in which nearly $400,000 appeared to have been laundered and in which salesmen had stolen approximately another $24,000 by telling customers that the bonds purchased cost more than they did and then pocketing the difference.
The company, reiterating that it wasn't admitting or denying the SEC's charges, said that it consented to the imposition of sanctions "to terminate the longstanding investigation and avoid the costs of prolonged litigation of these matters, whatever the outcome."
John T. Feeney, who took over as president of the company in January, said that the firm is conducting its own investigation and has engaged a management consulting team and an audit team. He said that two of the firm's officers who were named in the SEC's order--former chairman Elliot Friedman, who was acting as a consultant to the company, and Executive Vice President Melvin Frank, had resigned by mutual consent.
The SEC order named 18 individuals, including nine officers and supervisors.
Under the SEC's order, the company's registration as a broker-dealer is suspended for 120 days, but the firm is permitted to continue stated activities during that period. It also ordered Hanauer to improve some aspects of its operations, record-keeping and supervision. The firm must contribute to the U.S. Treasury a sum equal to the alleged overcharges plus its net income after taxes on new business for the next four months.
Hanauer, which also has offices in Palm Beach, West Palm Beach and North Miami, has specialized in municipal bonds since 1931. In the past decade, the firm has grown from $125 million in sales and 30 employes to sales of $1.5 billion and 300 employes.