One of Wall Street's fastest growing firms is virtually unknown to most investors. The company is First Jersey Securities Inc., which grew from nothing in 1974 to sales of $12.5 million last year - up 300 percent from 1977.

With success has come further growth. Recently, First Jersey opened its first office in the Washington area.

None of this puts First Jersey in a league with Merrill, Lynch or E. F. Hutton.But the cold public figures do not tell the real story of First Jersey.

Investigators have spent years putting that story together. What they have found - stripped of all the complexities - is that First Jersey buys up often near-worthless stock for pennies a share. That stock is then turned over to high-pressure telephone salesmen who peddle the stock to unsuspecting investors at wildly inflated prices.

When the investor eventually tries to sell the stock, he often finds that there is no market for it - that no one wants it, even if the investor is willing to take a loss.

Wall Street and regulatory sources see these types of operations proliferating at a troubling rate, capitalizing on the gambling mentality of investors who are willing to write off the loss of a few hundred or even a few thousand dollars. But some regulators worry about the broader effects.

"First Jersey and others like it are driving one hell of a stake into the heart of the financial community," says one state securities regulator.

From 16 offices dotting New York, New Jersey, Pennsylvania, Delaware, California, Georgia and Massachusetts, about 300 First Jersey salesmen comb telephone books and other directories looking for anyone with a few dollars and the patience to listen to their high pressure sales pitch.

First Jersey's new Washington area office is in Falls Church. The manager, Robert Payne, predicts that soon he will have 20 salesmen manning the phones.

First Jersey specializes in stock that is not the blue chip variety found listed on the two major exchanges. It sells stocks traded over the counter (OTC), a vast marketplace for the stocks and bonds of about 30,000 companies.

The operations of the OTC market are overseen by an industry-financed, self-regulatory organization called the National Association of Securities Dealers. The Washington-based NASD, in turn, is policed by the federal Securities and Exchange Commission.

Heading up First Jersey's operations is Robert E. Brennan Jr., the 35-year-old chairman of the firm. He is by all accounts a financial and motivational genius.

Brennan and other members of First Jersey refused repeated requests to be interviewed for this article. A spokesman for the firm cited court proceedings now under way as the reason.

According to knowledgeable insiders, it is Bob Brennan and his closest advisers who decide at what price the firm's salesmen will sell stock to the public. And that price, say these sources, has little to do with the financial performance of the issuing company. Indeed, in at least one instance First Jersey salesmen were vigorously peddling stock in a company called Van Dyke Research for $7 a share a month after it had filed for reorganization under the federal bankruptcy laws, the records show.

The NASD and the SEC currently are investigating First Jersey. Sources say both investingations have turned up a pattern of apparent violations of the securities law. Among them:

Manipulation of the Market - raising and depressing the price of stock by artificial means with the intent to defraud. Also, failing to disclose to customers that there may not be a market for the stock they are buying from First Jersey.

Rigging markets. For example, First Jersey officials allegedly persuaded customers to buy stock at inflated prices. At the same time, insiders at First Jersey and other Wall Street-wise professionals would "sell short" the same stock - that is, sell stock they didn't own because they knew the price for the stock was inflated and when inevitably it plunged they could then buy, or "cover", their sales.

Selling stock while knowing that the offering was based on false claims.

Here are examples of typical Brennan financial transactions that are under investigation. The details were provided by sources knowledge about First Jersey's operation who asked that their names not be used:

In December 19778 Brennan paid 2 cents a share for 15 million shares of stock from a little company called Sequential Information Systems Inc. of Elmsford, N.Y. Then his salesmen, who had been told to inform would-be customers that a "big deal" was coming, began offering them Sequential Information stock and guaranteeing profits.

Soon, the stock was selling for 25 cents at the Red Bank office, then 38 cents at Cherry Hill, N.J., and 50 cents to 62 cents in Buffalo, creating the illusion of demand. "We peddled a ton of it," says a former salesmen.

Indeed, the offering was so successful that Brennan bought another 12 million shares, which his salesmen promptly sold. Recently, Sequential Information was quoted at 12 1/2 cents a share.

In 1976, PK Management Corp., which then ran a string of 27 pizza parlors in Rochester and Buffalo, lost $328,820 on sales of $3 million. With the business outlook bleak for PK, its management, along with a top official at First Jersey, were holding thousands of shares of stock in the pizza operation for which they had paid pennies apiece when the company was formed.

Brennan came up with a solution. He bought their shares, reportedly for 50 cents each, then priced the stock at $4.50 on what his salesmen call the BBX - Bob Brennan Exchange. There followed what sources say is known in First Jersey as "the roll". Here is how it worked:

First Jersey customers earlier had been sold stock in a company called URT Industries at $4 a share. It had risen to $6 on the "BBX," then split 3-for-2; that is, the stockholders got three shares for every two they held, and the price of each share returned to$4.

These URT shareholders were told by First Jersey salesmen that if they sold their URT shares, they could use the "profit" from the 3-for-2 split, plus an additional investment of 50 cents a share, and get in on a hot new issue called PK Management, being offered at $4.50 a share.

The offering was a great success, according to a former First Jersey employe. And in the end, URT shareholders came out with a slight paper "profit," but with a further cash outlay of 50 cents a share to acquire PK Management. On the other side, Brennan and First Jersey got the case, the salesmen got the commissions and the insiders got out of their PK Management stock at a handsome profit.

Now there are only 10 pizza restaurants still in business. And if the investors wanted to sell their $4.50 PK Management stock, it is being quoted at 12 1/2 cents a share over the counter.

In March 1975, just after Chefs International of Pt. Pleasant, N.J., was incorporated, Brennan acquired 500,000 shares of its stock for 20 cents a share. When Chefs began offering shares to the public, First Jersey salesmen peddled the stock for as high as $4.50 a share.

During the past several months, The Washington Post has reviewed public documents and interviewed dozens of former employes as well as various regulators charged with overseeing First Jersey's business practices.

What emerges is a portrait of First Jersey as one of the most successful "boiler room" operations in recent history, where salesmen, equipped only with a desk and a telephone, earn big commissions for each share of stock they can persuade a customer to buy.

What also is apparent is that regulators have been slow to crack down on First Jersey. While the NASA and the SEC have carried out their prolonged investigations, First Jersey's Brennan and others have reportedly made fortunes by, in effect, turning back the clock to the free-wheeling days before the federal securities laws were passed in 1933 and 1934.

NASD senior vice president and general counsel Frank J. Wilson said "it is terribly unfair to criticize the NASD when it is trying to correct this situation." Beyond that, he said, he could not comment because First Jersey case is suing NASD.

State securities authorities say they long have been troubled by First Jersey's business practices but say the lack the resources of either the SEC or the NASD to call the firm to task. Said one Pennsylvania official: "All the regulators have known about it for at least four years. We pleaded with the SEC to act, turned over our files to them, and still it goes on."

The New York office of the SEC, the federal agency that is supposed to make sure the NASD fulfills its self-regulatory role, has been probing First Jersey for more than two years. Finally, last month, the office reported its findings to the SEC headquarters in Washington, which now will decide whether to take action against the firm.

The NASD, the association of OTC firms that is supposed to regulate its member firms, always has been a reluctant critic of members of its its family, according to knowledgeable sources.

About 2,600 OTC stocks enjoy large enough daily trading volume for their movement to be recorded by what is called the NASDAQ system - the National Association of Securities Dealers Automated Quotation system. The volume of trades as well as the bid and ask prices for these NASDAQ-OTC stocks appear daily in newspapers.

But the vast number of OTC companies - about 28,000 of them - are not carried on the NASDAQ system. With these stocks, it's strictly up to the broker to decide whether trades will be recorded.

If he decides to record a trade, the broker calls in the price and the number of shares traded to an organization called the National Quotation Bureau, which publishes a daily record of these transactions in a volume called the "pink sheets."

It is in these so-called "pink sheets stocks" - mostly tiny companies earning little or no profit - that First Jersey does most of its business.

The NASD has been investigating mounting allegations of impropriety against First Jersey for no less than four years.Recently, the association leveled a private complaint against First Jersey. The firm reacted last month by suing the NASD, charging a "gross abuse of self-regulatory investigative, prosecutorial and adjuticating power."

After The Washington Post requested certain documents in the case, both sides asked that the record be sealed, and the presiding judge agreed.

Bob Brennan, the creator of First Jersey, is an accountant who worked for a time after graduating from Seton Hall University with Haskins & Sells, a major accounting firm. Now a millionaire many times over, Brennan lives in a mansion at Brielle, along the Jersey shore, complete with racquetball and tennis courts, swimming pool and dock for his yacht. One recent visitor to the estate said that in the garage are three Jaguars and a Cadillac limousine that Brennan uses to commute to First Jersey's headquarters at Broad Street in Manhattan's financial district.

Brennan's empire depends on sales, of course. And sales, in turn, depend on the persuasiveness of the salesmen, not necessarily the quality of the stocks.

When investors pay money to First Jersey for shares of such unknown OTC-traded companies as National Apparel Co., Chiefs International or Centurion Oil & Minerals Co., more than 40 percent of what the customer pays for the stock goes toward commissions, according to the firm's 1978 public filings. Former employes say commissions sometimes reach 75 percent of the price of the stock.

By contrast, the major brokerages earn commissions of up to 4 percent in trades of blue chip stocks on the major exchanges.

Moreover, most brokers earn a total of 4 percent in commissions on the purchase and sale of a stock. In contrast, First Jersey salesmen get commissions only when they sell stock.

Besides big commissions, Brennan is known to reward particularly productive salesmen with Cadillacs, bonuses of $25,000 and trips to Freeport, the Bahamas, according to sources. Some even get a portion of the cheap penny stock - where the real money is made.

The management of First Jersey has had several brushes with federal and state regulators.

In the early 1970s, Bob Brennan was president of another operation called Mayflower Securities Co. In 1973, he was suspended by the New Jersey Bureau of Securities for selling to an "unsophisticated" investor a mutual fund the buyer thought would cost him $1,300 but which turned out to cost $18,000.

On Nov. 12, 1974, the SEC suspended Mayflower for 15 business days for allegedly selling worthless stock without disclosing that the issuing company was bankrupt, its assets distributed to creditors and its corporate charter revoked.

But four days earlier, on Nov. 8, customers of Mayflower were notified that their accounts had been transferred to a new firm called First Jersey Securities Inc. At the same time, about 40 of Mayflower's 100 salesmen and all its officers joined First Jersey.

As a result, the SEC suspended a shell of a company, while Brennan continued business under the new name.

In 1977, the NASD's New York regional office petitioned the association's district business committee, made up of executives from member firms, to censure Brennan for his dealings at Mayflower Securities. Brennan was given a full year to reply to allegations - during which time he continued the practices for which he was being criticized.

At end of the year, the committee dropped all charges.

Robert Berkson, a First Jersey vice president, was found guilty in July 1976 of criminal charges of stock fraud. He is still on probation.

Anthony Nadino, who heads the firm's trading department, was permanently enjoined by the SEC from violating federal securities laws.

Jamie C. Spangler Jr., recently named manager of a new First Jersey branch in Rochester, was indicted two weeks ago, along with two First Jersey salesmen, on charges of conspiring to defraud auto insurance companies.

Judging by the dearth of complaints on file with authorities, First Jersey's customers are a complacent lot. Explains one state regulator: "We have literally thousands of victims who lost $300 to $400, but nobody complains. They simply say, "Well, I took a flyer and I lost on it.'"

This assessment is backed by interviews with several First Jersey investors, most of whom didn't even know where the company in which they lost their money was located. Said one Trenton, N.J., investor who lost "I just filed [the stock] away as a bad investment."

Occasionally, however, First Jersey customers are not willing to write off their losses in silence. Such was the case with two New Jersey investors who lost a reported $60,000 on investments. They complained last year to their state's regulatory authorities.

Michael Grossi, who said he lost money he had saved for his son's education, had taped the sales talk from the First Jersey salesman. The salesman had spent more than 100 hours selling him stock, including making personal visits to Grossi's house.

Initially, First Jersey agreed only to pay back $5,000 to Grossi and the other investor, David Prairie, according to their attorney, Robert Farkas. They rejected the offer. But then, in January, The Washington Post asked Farkas, whose practice is in Scotch Plains, N.J., for a copy of the tapes, a request he repeated to Brennan and his attorney.

Within days, Farkas reported that his clients "have been made whole."

What about the tapes? he was asked. "They've more or less tied our hands," he replied.