Underground Combine

To officials of the American Stock Exchange, something seemed decidedly fishy in the Wall Street firm of Re, Re & Sagarese. A year and a half ago, even though the Res had been cleared of wrongdoing by the Exchange's Board, the exchange launched an investigation into the activities of Gerard A. Re and his son Gerard Jr. Both are partners in their own house (Partner Sagarese was not involved) and were specialists on the floor of the exchange, meaning that they had the highly trusted responsibility of "making the market" or setting the price in some stocks.

Amex turned over its finding to the Securities and Exchange Commission, which was already conducting its own investigation of the Res, and suspended the Res as specialists after the SEC issued a complaint last May. Last week, after a year of further digging, SEC investigators agreed that something indeed was fishy. They filed a brief charging the Res with "deliberate and gross" violations of law that did "many millions of dollars of harm" to thousands of stockholders, urged the SEC to expel both men from the exchange and revoke their broker-dealer licenses. After further hearings, the SEC can also refer the case to the Justice Department, for criminal prosecution.

Dummy Accounts. The Res, according to testimony, used their inside position as specialists to set up an "underground business combine" that rigged markets in certain stocks, made the Res an estimated profit of $3,000,000 between 1954 and 1960. The Res would first arrange to buy stock at bargain prices from hard-pressed insiders in such companies as Thompson-Starrett, Skiatron Electronics. Silver Creek Precision Corp. and United Pacific Aluminum Corp. To avoid the SEC regulations that any company that wishes to sell stock publicly must register with the commission, the Res then funneled the stock into dummy accounts, some of them set up abroad. To spur demand for the stock, the Res touted it to investors, wined and dined customers' men to get them to push the stock, even offered them under-the-table kickbacks.

Losses. The Re operations often caused the stock to slump, and many a celebrity was reportedly victimized, including Restaurant Owner Toots Shor, Milwaukee Braves Manager Chuck Dressen and Vincent F. Albano Jr., Republican leader of Manhattan's East Side. Even Exchange President Edward T. McCormick turned up in the investigation as a onetime Re customer who spent $1,800 for over-the-counter stocks (which they were not licensed to sell).

McCormick. according to testimony given to the SEC, was upset when the board cleared the Res, pushed to have them suspended. Last week, although federal law already prohibited the actions of the Res, Amex announced that it had adopted "a series of rules and policies which, it is confident, will prevent the recurrence of a similar situation."

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