WASHINGTON -- A federal grand jury in Little Rock yesterday indicted the heads of bond firm Swink and Co. on 29 counts of conspiring to violate federal securities laws and other charges.
The grand jury found that Jim D. Swink Sr. and Jimmy D. Swink Jr. in early 1989 fabricated a story that University City, Mo., issued millions of dollars of industrial development authority bonds and that their firm had sold the securities to American Physician Securities Group Inc., according to a 23-page indictment.
The objective was to inflate the value of the bonds on a Dec. 31, 1988, report the firm was required to file with the Securities and Exchange Commission, according to Chuck Banks, U.S. Attorney for the Eastern District of Arkansas.
The grand jury noted that the firm closed its doors in December 1989 after defaulting on the payment for $240 million in U.S. Treasury bonds purchased from four broker-dealers, who lost roughly $2.5 million when the firm failed to complete purchase of the bonds.
The indictment charges that the senior Mr. Swink and another employee, Sam Jolly, created false trade tickets in government securities between July and December 1989 so that end-of-month financial reports would show the company in better financial condition than it was.
Mr. Swink senior's attorney, Timothy Dudley, a partner with Wilson, Engstrom, Corum & Dudley of Little Rock, said he had no comment on the indictment.
Samuel Perroni, of Perroni, Rauls & Looney, in Little Rock, who represents the junior Mr. Swink, said, "We are denying vigorously the charges and intend to meet them head on in the courtroom."
The grand jury said that at the end of July 1989, Mr. Jolly, at Mr. Swink's direction, delayed sending to Swink's operations department the trade tickets for the purchase of $96 million in U.S. Treasury bonds. The tickets were delivered in August 1989 and showed trade dates for August purchases, rather than the July actual trade dates. The process continued for several months, the grand jury found.
Jurors also say the Swinks conducted a conspiracy that involved buying low value municipal bonds and placing them in an account of the brokerage firm's clearing company, the Pershing Division of Donaldson, Lufkin & Jenrette Securities Corp. The Swinks, who knew the bonds would be overvalued by Pershing, simply borrowed back the surplus dollars without reporting it on Swink records, the grand jury said.
Overall, Jim Swink Sr. was charged in 26 counts, including three counts of conspiring to violate securities statutes, 11 counts of wire fraud, 10 counts of failing to maintain records and net capital, and on one count of criminal contempt for violating a Securities and Exchange Commission injunction against the firm and the senior Mr. Swink in 1984. Jimmy Swink Jr. was indicted on two counts of conspiracy counts and on one count of perjury.
The indictment says the Swinks should forfeit $674,887 that they removed from Swink and Co. in December 1989. About $200,000 of that was used by the junior Mr. Swink as initial capital for his current securities firm, First American Securities, which has operated since 1990 at the same location as Swink and Co.
Swink and Co. ended 18 years in business in late December 1989 after reportedly losing about $1.2 million trading government bonds when the Treasury's 30-year bond plummeted 1-1/4 point amid speculation the Federal Reserve would delay a move to ease interest rates.
The firm formally was expelled from the securities business by the National Association of Securities Dealers in October 1990 for allegedly "scheming to defraud" its clearing firm. NASD also fined the elder Mr. Swink $50,000 and suspended him from acting as an official in the securities business for four years and in any capacity for 18 months for allegedly failing to maintain minimum net capital and accurate reports to federal regulators.
The action followed a number of other enforcement actions, including a May 1989 $15,000 fine by the NASD for allowing an employee with a previous securities conviction to run a Florida branch office without association approval. In February 1984, the U.S. District Court in Little Rock issued an order permanently enjoining Swink & Co. from further violations of the SEC's net capital, customer protection, record-keeping, and notification rules.
The firm was censured and fined $50,000 on Nov. 30, 1984 on charges of failing to maintain adequate net capital, failing to state material facts in a bond prospectus, and making false statements in an advertisement.