A special counsel appointed under court order to investigate the operations of First Jersey Securities Inc. has recommended two dozen changes in the stock sales practices of the nation's largest over-the-counter securities dealer.

Special counsel Benjamin Lubin said he found the number of customer complaints filed against First Jersey "meaningfully higher than would be the norm" for the industry.

Blaming the complaints on "inconsistency of local management" and lack of internal controls, Lubin suggested that First Jersey should tighten controls over branches and "should consider" appointment of a new chief operating officer to assist Chairman Robert Brennan.

"I was unable to discover any real infrastructure or chain of command which would indicate the existence of an internal system of accountability," Lubin said in his 80-page critique of the company that was made public yesterday by the Securities and Exchange Commission.

Brennan, who founded First Jersey and rides his helicopter in its TV commercials, was out of the country yesterday and could not be reached for comment on the report. First Jersey issued a statement before the report was made public praising Lubin's work and saying it already was implementing some of his recommendations.

Lubin was appointed in January by a federal judge to look into First Jersey's operations as part of the settlement of a lengthy legal action by the SEC. Without admitting or denying it had violated the law, First Jersey, along with Brennan, signed an agreement not to engage in stock fraud or manipulation and agreed to appointment of the special counsel.

SEC officials, who have 30 days to respond to the special counsel report, yesterday declined to discuss the specifics of Lubin's study but said, "The report raises questions in a number of key areas."

The counsel's report submitted to U.S. District Court Judge Milton Pollack in New York this week makes no allegations about violations of federal laws or regulations. But Lubin cited instances that he said "raise questions" about possible violations.

The special counsel said some First Jersey customers appear to have been permitted to buy stock and then sell it quickly at a profit without ever paying for it. That practice is known as "free riding" and is "not in accordance" with federal regulations, Lubin noted.

In three public stock offerings, the report said, First Jersey sold shares to its customers and within a week bought the stock back at a slightly higher price. Lubin said such an unusual transaction "raises a question as to whether it creates an inference of a prearrangement to repurchase the shares at a profit."

The report noted that First Jersey itself frequently holds large stakes in companies whose stock it is selling -- as much as 46 percent in one case. Such a large stock position, Lubin said, "raises questions concerning the possibility of domination and control of the marketplace which concomitantly might permit the firm to establish the price levels at which the subject securities trade."

The counsel also was critical of the research and sales staffs of First Jersey. First Jersey's salesmen do not have access to stock market ticker tape machines or news wires that are standard in most brokerage offices, he noted.

First Jersey generally picks persons with no previous experience in the securities business to be brokers and sends them to a correspondence school for training, Lubin said. The brokers receive no salary or fringe benefits of any kind and make commissions only when they sell stock to a customer.

Though First Jersey advertises itself as a specialist in researching new companies, neither of the two men who run its research department is an accredited financial analyst, Lubin noted.

Lubin said a veteran stock analyst hired to review First Jersey's research work concluded that "the reports were generally poorly arranged, and had no uniformity, consistency or cohesion . . . financial data were presented out of context . . . and sometimes traditionally relevant financial information was not included in the reports." He said the data given customers by First Jersey "fell short of providing the analysis, data and information required to make an intelligent investment decision."

Lubin said First Jersey's research reports failed to comply with two provision of the rules of the National Association of Securities Dealers: They are not dated to show whether the facts in them were current, and they did not offer to provide additional information. He suggested that First Jersey hire an accredited research supervisor "to assure total compliance" with NASD rules.

Lubin offered 24 other recommendations for changes in First Jersey's operations, including better supervision of brokers, additional record keeping and improved handling of customer complaints.