Has Daniel D. Purjes been punished with fines totaling $3.3 million for scamming customers?

Daniel D Purjes
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Customers who had been deceived by Josephthal and its then-CEO, Daniel D Purjes, were ordered to receive close to $1.5 million in reparations plus interest, which is now more than $750,000.
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Daniel D Purjes

Daniel D Purjes, claims that he is a native New Yorker who was raised by a cab driver and a housewife, graduated with bachelor’s and master’s degrees in computer science, and completed the requirements for a doctorate. He founded, grew, and sold a software development company and oversaw the software development for several significant businesses.

Before selling them to larger organizations, Daniel D Purjes established several businesses from scratch to profitable revenues in the tens or hundreds of millions of dollars. Daniel D Purjes acquired ownership of a small NYSE member securities company, grew it by 50 times, and then sold it to one of the biggest banks in the nation. He continued to expand additional prosperous enterprises, including those in digital printing, software, and solar energy.

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Daniel D Purjes now spends a lot of his time working for The Purjes Foundation, a nonprofit organization he and his wife started and support. He not only donates money to worthy projects, especially those that concern health, but he also actively supports them. The American Tinnitus Association, the Abraham Fund, the Plantrician Project, Plant-based Utah, and other organizations are just a few of the national and local charities that Daniel D Purjes has served on the boards of.

Along with being the stepfather of an adult daughter, Daniel D Purjes is the father of an adult son and daughter. He enjoys biking, hiking, snowshoeing, and skiing a lot. He enjoys reading, concerts, operas, museums, and scientific talks. He is an amateur astronomer and enjoys riding his original 1970 Triumph Bonneville motorcycle. He studies Zen and has a deep interest in all religions.

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Daniel D Purjes: Fraud And Unfair Dealing With Customers

A NASD Regulation Hearing Panel has ordered New York City-based Josephthal & Co., Inc. and its two top executives to pay $3.3 million in fines, restitution, and interest to more than 360 victims who were defrauded in a scheme utilizing what the Panel referred to as “tactics typically associated with “boiler room” operations.” The Panel determined that Josephthal broke both NASD conduct regulations and federal securities laws in 1996 during a major sales campaign intended to liquidate the company’s position in around one million common shares of VictorMaxx Technologies, Inc.

Customers who had been deceived by Josephthal and its then-CEO, Daniel D Purjes, were ordered to receive close to $1.5 million in reparations plus interest, which is now more than $750,000. Additionally, Josephthal, Daniel D Purjes, and Paul H. Fitzgerald, the president of Josephthal, were each fined $500,000, $500,000, and $100,000. The overall monetary fines exceed $3.3 million including the interest that has accrued on restitution, which will also be paid to investors. 

In all, Daniel D Purjes was suspended up until he was requalified as a general securities principal and representative, respectively. His ban will turn into a permanent bar from the profession if he doesn’t requalify within two years of the ruling being final.

According to the Hearing Panel, Josephthal launched a significant sales campaign in May 1996 to sell its VictorMaxx stake. As the primary market maker for the stock and the underwriter of VictorMaxx’s initial public offering, Josephthal supported the stock from August 1995 until the start of May 1996 by continuing to snatch up available quantities in the market. However, by mid-May 1996, the corporation had lost more than $2.5 million trading the stock, and an additional $1.3 million had been lost due to unrealized losses on sizable positions owned by the company and its holding company.

Acting through Daniel D Purjes and Fitzgerald, Josephthal decided to sell the position to the company’s clients to reduce its losses. But up until mid-May, the company’s salesmen had not shown much enthusiasm about selling the stock in retail.

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Daniel D Purjes and Fitzgerald made the stock accessible to the sales force at a quarter-point below the then-current bid of $1.75 to persuade them to move the shares. This “special” led to gross commissions of nearly 29% of the stock’s total purchase price, which is far higher than the sales team would have earned from selling any other product. This “selling blitz” had “immediate and significant” results. striking,” in the Panel’s opinion, and left a “stampede” on the members of the sales team.

Because of this, Josephthal’s sales team aggressively recommended VictorMaxx stock to its clients from May 17 to May 31, 1996, using “tactics typically associated with ‘boiler room’ operations,” such as erroneous price forecasts, failing to disclose their significant compensation arrangement, unauthorized trades, and other violations of sales practice. Customers’ confirmations revealed that the product was indeed being sold markup-free.

In approximately 400 transactions over the course of these ten business days, Josephthal brokers sold about one million shares at an average cost of $2.10. During these 10 days, sales accounted for almost 36% of the tradable shares of the common stock. Over the course of the fraudulent sales operation, Josephthal continued to be a market maker in the security. 

Josephthal’s sales team kept selling after using up all of its inventory, shorting an additional 277,000 shares, which it covered with shares owned by Josephthal’s holding firm. The market price of VictorMaxx fell shortly after Josephthal sold its holding. It fell to under $1 in less than a month and kept dropping as more time went by. The stock was removed from the Nasdaq SmallCap Market on October 24, 1996 because it failed to meet minimal listing requirements.

As a result, an investor who bought during the May sales campaign and held onto that stock for no longer than 45 days would have suffered a loss of more than 50%.

The Panel concluded that by failing to comply with their duty of fair dealing, Josephthal, Daniel D Purjes, and Fitzgerald letting their clients know that they intended to rapidly rid of through a significant retail sales campaign, they are regaining their inventory position. VictorMaxx was not accused of any wrongdoing by NASD Regulation or having knowledge that Josephthal was disposing off its stock in the open market.

The Hearing Panel specifically determined that the wrongdoing of Josephthal, Daniel D Purjes, and Fitzgerald was egregious, causing significant harm to more than 360 individual investors in its evaluation of the sanctions it imposed.

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False testimony given at the hearing by Daniel D Purjes and Fitzgerald regarding, among other things, their knowledge of and involvement in the fraud, added to the severity of the infractions. Furthermore, Josephthal and Daniel D Purjes had reached a settlement with the NASD in a case involving comparable violations only a few days prior to the launch of the VictorMaxx sales effort.

Additionally, the Panel found that Daniel D Purjes‘ broken promises and Josephthal’s disciplinary history demonstrated “a grave disregard for their compliance obligations, which warrant[ed] the imposition of more severe sanctions than the maximum suggested by the [NASD Sanction] Guideline[s].” 

In the most recent ruling, Josephthal was required to engage a qualified independent consultant who has been given the go-ahead by NASD Regulation to review the firm’s policies, practices, and procedures, paying particular attention to those about compliance with Regulation M, the federal anti-manipulation statute adopt and put into practice any suggested improvements.

In this case, Josephthal was the target of a complaint that was submitted in December of 1999. The Chief Hearing Officer typically appoints a Hearing Panel to conduct the hearing(s) and deliver a ruling following the filing and service of a complaint. A three-member Hearing Panel is where formal disciplinary hearings are placed. 

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The Panel is presided over by a qualified Hearing Officer from the Office of Hearing Officers, a separate division of NASD Regulation charged with hearing disciplinary cases. The hearing officer makes sure that everything is done quickly and fairly. The National Adjudicatory Council (NAC), the Securities and Exchange Commission (SEC), and finally the relevant U.S. Court of Appeals are all available to respondents as avenues for appeal.

The Hearing Panel’s judgment becomes final after 45 days unless the NAC is appealed to or requested to examine the case. During this time, the Hearing Panel’s sanctions are not still in place. Sanctions may be increased, lessened, amended, or reversed if the decision is appealed or requested to be reviewed.

(Case No. C3A990071 on NASD)

Has Daniel D. Purjes been punished with fines totaling $3.3 million for scamming customers?
Has Daniel D. Purjes been punished with fines totaling $3.3 million for scamming customers?

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