Twenty-one securities brokers were arrested yesterday and charged with defrauding thousands of investors of more than $10 million by rigging prices of several small companies' stocks in the computerized, over-the-counter market.

Four senior executives of three small brokerage firms -- Wakefield Financial Corp. and Kelly Trading Co. of New York and G.K. Scott and Co. of Plainview, N.Y., -- carried out the swindles from 1987 to 1990, according to an indictment made public in New York State Supreme Court.

The defendants staged prearranged trades among the brokerage firms to fix artificial prices for various stocks, and then fed the phony prices into the electronic price quotation network known as Nasdaq, the indictment said.

"By fixing the prices, the enterprise defrauded the persons from whom they bought stock at artificially low prices, and the persons to whom they sold stock at artificially high prices," Manhattan District Attorney Robert M. Morgenthau said.

He said the defendants once earned more than $1 million by manipulating a market so that a stock's price doubled in three hours for artificial reasons.

The case came at a particularly inconvenient time for the securities industry, which is eager to convince individual investors that the marketplace is honest after the big insider trading scandals of the past four years. Wall Street, which in 1990 had its least profitable year in nearly two decades, is concerned about a decline in stock trading by small investors.

Asked about the case, officials at the Washington-based National Association of Securities Dealers, which operates the Nasdaq system, said that they actively pursue those who abuse their system and that safeguards against abuses have been strengthened in the last three years.

"We think we're state of the art," in terms of computerized systems to detect fraud, said Jim Cangiano, head of Nasdaq's market operations system in Rockville. But he cautioned, "We don't have a system yet that can say, 'Hey, this guy's a crook.' "

The case marks the first time that New York state prosecutors have used the 1986 Organized Crime Control Act in an investigation of financial market crimes. The state law is similar in many ways to the federal anti-racketeering act, which was used in the federal investigation of junk bond king Michael Milken.

Thirteen of the 21 defendants were charged under the act and face a possible maximum sentence of 25 years. The 13 also face 120 other charges, including grand larceny and scheme to defraud. The other eight defendants face charges of grand larceny, conspiracy and other felonies.

The indictment alleged that the four "principals" or leaders of the scheme were Alexander Minella, 31, president of Wakefield Financial; his brother, Keith Minella, 30, president of Kelly Trading; George Kevorkian, 61, president of G.K. Scott; and his son, John Kevorkian, 33, head trader at G.K. Scott.

All 21 defendants pleaded not guilty at their arraignment in New York yesterday afternoon and were released while awaiting trial.

The companies whose stocks were manipulated included Topologix Inc., ComponentGuard Inc., Weaver Arms Corp., R.W. Technology Inc. Phoenix Advanced Technology Inc. and Media Products Inc. None of the companies was suspected of wrongdoing, Morgenthau said.

Much of the evidence against the defendants was gathered by New York state investigators from electronic eavesdropping on phone conversations in which the brokers allegedly conspired to manipulate stock prices, according to the indictment.

John Pinto, executive vice president in charge of Nasdaq compliance, said that Nasdaq is seeking to raise the standards for listing companies on its system, partly to make it harder to manipulate the markets. The Securities and Exchange Commission is considering the change, he said. McCartney reported from New York.