The impending sale of American Stock Exchange trading firm GHM to competitor Bear/Hunter was sparked by the exchange's plans to impose serious sanctions on one of the firm's principals, according to three people familiar with the situation.
Two people close to the Amex and another with knowledge of the negotiations to sell GHM say the exchange plans to bar GHM partner Joseph Giamanco from the securities industry and censure his two sons, Joseph Jr. and Christian, in addition to levying a six-figure fine. The Amex is owned by the
National Association of Securities Dealers
. The penalties are expected to be handed down in March.
While the specifics of the purported charges against Giamanco and his sons won't be known until the exchange makes public its penalty, questions have been raised about Giamanco's trading activities in shares of companies such as
, a biotech at the center of a battle between shareholders and short-sellers, primarily the outspoken Manuel Asensio. GHM is the specialist for Hemispherx. The Amex probe, says one person familiar with it, was broader in scope than trading in Hemispherx.
Specialists are mandated to maintain an orderly market by buying and selling stock to meet public demand. They can run afoul of rules governing their activities when they trade stocks they are assigned for personal gain, because they have access to order information (the prices at which investors are willing to buy and sell) that isn't available to public customers.
Giamanco was cited in a 1999 article in
magazine as a trader who engaged in that practice, although at that time there was no formal investigation of his trading. It's unclear whether that sort of trading is the focus of the Giamanco probe.
Calls to Giamanco weren't returned and his lawyer couldn't be reached. On Monday, a GHM executive declined to comment on any information regarding a potential sale of the company or potential regulatory actions against Giamanco.
Along with Hemispherx, GHM is the equity specialist on several subsidiaries of
as well as
. It also runs the options books on listings such as
In the Hemispherx situation, Asensio has made allegations of stock manipulation and fraud at the company and ended up embroiled in a long-running lawsuit over his statements.
Giamanco, GHM and Hemispherx also are included in a study the
U.S. General Accounting Office
is conducting on listing standards at the American Stock Exchange, according to Roger Kolar, who's heading up that study for the agency.
The GAO, the investigative arm of
, began looking into the Amex last fall at the request of U.S. Rep. John Dingell, D-Mich., a senior member of what then was called the
House Commerce Committee
. Dingell had directed the GAO to study allegations raised by Asensio that the Amex was continuing to list companies that didn't meet its minimum listing requirements, and allegations of fraud concerning Hemispherx. Hemispherx disclosed in a filing with the
Securities and Exchange Commission
last March that the SEC was investigating whether it or its officers had committed securities fraud. It's unclear where the investigation stands.
Kolar said Dingell forwarded the materials from Asensio to the GAO.
"In our discussions with folks, the name
Giamanco has come up. And to the extent that that's the case I guess, he's the specialist for Hemispherx on the American Stock Exchange, and so in that context obviously he would be included in the scope of the work we're doing," Kolar said.
The GAO hasn't set a deadline for its report on the Amex, but Kolar said he expected the work to be completed in the late spring or summer.
In his letter to Dingell, Asensio also said Giamanco held ownership interests in three companies that were brought public by
, a firm whose president, Judah Wernick, was indicted by the
U.S. attorney for the Southern District of New York
in 1999, on charges of stock manipulation. The stocks in question are