Using money misappropriated from his father's small town bank, an Iowa stock broker manipulated the price of a New York Stock Exchange company and cost some of the Wall Street's biggest brokers $22 million, the Securities and Exchange Commission charged yesterday.
The bank was declared insolvent last night by the comptroller of the currency.
A federal judge in New York immediately issued a temporary restraining order blocking any further stock trading by Gary Vance Lewellyn, who ran his own brokerage firm, G.V. Lewellyn & Co., in Des Moines, and authorizing the SEC to seize Lewellyn's assets and records.
Lewellyn was accused of artificially inflating the price of the stock of Safeguard Scientifics Inc., a Pennsylvania computer and vehicle component maker.
Lewellyn ran the price of Safeguard stock from $9 a share on Dec. 31 up to $16 a share on March 16, before the scheme collapsed, the SEC said. The next day the stock plunged to $11 and after a 10-day halt in trading, it fell to $6 a share.
During the 10-week period, Lewellyn allegedly inflated the price of Safeguard shares by placing order after order for the stock, buying through several New York Stock Exchange members who clear orders for smaller brokers like Lewellyn who are not exchange members. Lewellyn's purchases accounted for 85 percent of the Safeguard stock sold during the period, the SEC said, and by the middle of March he had accumulated 58 percent of the company.
Most of the stock was purchased on credit. Lewellyn put up the standard 50 percent cash down payment for some of the stock and placed orders for additional shares but never paid for them.
He got some of the cash, the SEC charged, by selling government bonds that belonged to First National Bank of Humboldt, of which his father was president.
The Federal Deposit Insurance Corp. was named receiver of the bank, a spokesman for the comptroller of the currency said last night.
The manipulation was halted when New York Stock Exchange members through which Lewellyn & Co. had placed orders demanded payment and refused to let the firm buy more stock. Without the steady flow of orders from Lewellyn, the price of the Safeguard Scientifics collapsed, the SEC says.
The SEC said Lewellyn owes brokers $22 million.