The Business Gazzette
Article published on June 17, 2005

Broker faces charges in alleged extortion
by Kevin J. Shay

Germantown telecom company was target

Officials from a Germantown company did the right thing when they promptly reported a Florida stockbroker's alleged attempt to extort confidential information by threatening to drive down its stock price, a regulatory official said.

This week, NASD, a private securities regulator, charged Shawn E. Aaron, a stockbroker with Gunnallen Financial of Tampa , with attempted extortion and recommended that he be barred from the industry. The case involves Optelecom-NKF, a Germantown telecommunications company that trades on the Nasdaq market.

Herb Perone, a spokesman for the organization formerly known as the National Association of Securities Dealers, said he didn't know of any previous similar cases.

"Any business faced with a similar situation should do exactly what this firm did -- report the incident to the proper authorities," Perone said.

The case unfolded about a year ago when Aaron, a registered broker with NASD since 1995 who had worked for Gunnallen since 2000, bought 5,180 shares of Optelecom stock, according to the NASD complaint against him. He started recommending that clients purchase the company's stock, and within two weeks in April 2004, Aaron's customers controlled an additional 134,540 shares, NASD says.

Aaron then called Optelecom CEO and President Edmund D. Ludwig, leaving a message for him to call. Ludwig asked Richard Alpert, Optelecom's director of investor relations, to call Aaron, according to NASD.

When Alpert called, Aaron falsely told him that he and his customers had acquired 300,000 shares of Optelecom stock, or about 10 percent of the company's total shares, NASD says. Aaron then threatened Alpert that he "would or could" drive down Optelecom's stock from $13.65 to $6 per share if he dumped those shares on the market, the complaint says.

Aaron then tried to obtain confidential company information and said he wanted to take Optelecom's stock "to the next level," NASD says. Aaron also claimed to have substantially driven up the stock prices of Checkers Drive-In Restaurants and Reston , Va. , high-tech company IPIX Corp., and said that at one point he owned 90 percent of those companies' stock shares, according to the complaint.

Alpert declined to comment on the case.

NASD's complaint says that Alpert "believed that Aaron called him with the intention of threatening, coercing, intimidating or extorting him and Optelecom," and that Aaron, by mentioning IPIX and other companies, "intended to demonstrate to Alpert Aaron's ability to affect or manipulate the price" of Optelecom stock.

Aaron referred questions to his attorney, Liam O'Brien, founding partner of Liam O'Brien & Associates of New York .

"Shawn Aaron has faithfully served his clients for nearly 10 years and has dedicated himself to helping his clients achieve their financial goals," O'Brien said. "Shawn intends to vigorously defend himself against the unsubstantiated allegations contained in the NASD press release and is confident he will prevail at a hearing on the merits."

O'Brien added that the NASD release failed to note that Aaron had requested a hearing.

Gunnallen released a statement saying the company has "taken the allegations very seriously" and placed Aaron "under heightened supervision where every trade, transaction and e-mail is reviewed" after NASD officials informed the company in January about the allegations.

"GunnAllen Financial remains committed to maintaining the highest standard of compliance supervision over its advisers with over 40 compliance personnel overseeing 900 representatives, one of the highest ratios in the securities industry," the company's statement says.

NASD says Aaron made false statements and tried to threaten Optelecom in violation of the association's rules and also could have violated federal laws regarding interstate communications. NASD recommended that Aaron be barred permanently from practicing in the industry, along with "other fitting sanctions," which include a fine.

NASD, which is headquartered in Washington, D.C., with its regulatory arm in Rockville, can file only civil charges and lacks authority to bring criminal charges against Aaron or other brokers, Perone said. "Whether any other regulatory or law enforcement agency has interest in this case, I don't know," he said.

John Heine, a spokesman with the Securities and Exchange Commission in Washington , said the SEC does not comment on any potential or current investigations. Officials with the district attorney's office in Hillsborough County , Fla. , could not be reached for comment.

NASD can and has imposed fines and suspended the licenses of brokers and associated companies. In one recent instance, NASD fined 15 broker-dealers at mutual fund companies more than $34 million in a preferential treatment case.

Brokers can file a response and request a hearing before a NASD panel, which O'Brien said Aaron has done.

This was not Aaron's first brush with NASD regulators.

In 1998, NASD charged Aaron and some other employees of a previous company he worked for with not being registered to sell securities in Massachusetts and with selling unregistered securities. Aaron agreed to not apply for registration in that state for 25 years, according to NASD records.

Between 1996 and 1999, Aaron was registered with five other firms, according to NASD.

Besides reporting any alleged misconduct through its Internet site, phone number or fax, NASD recommends that anyone considering using a broker check him out thoroughly. The organization has a search database that was used last year to conduct more than 3.8 million searches and request about 200,000 reports.

Under federal law, almost every securities firm doing business with the public must be a member of NASD. The $500 million organization oversees about 5,200 brokerage firms, 100,000 branch offices and 660,000 registered securities representatives. NASD also has a staff of about 2,000 and processes more than 8,000 arbitrations and 1,000 mediations a year.