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The former vice chairman of Pryor, McClendon, Counts & Co. (PMC), once the nation’s largest black-owned investment bank, is facing up to 60 months in a federal prison.
This past summer a federal court in Atlanta convicted Raymond J. McClendon of 28 counts of mail fraud on claims that PMC illegally got business to manage $9.8 billion of city of Atlanta investments. The specific mailing of an investment document such as a check or trade confirmation generated each mail fraud charge.
“The mail fraud statute is broad and covers ambiguous conduct not clearly defined or proscribed by a specific statute,” says McClendon’s attorney Larry Thompson of the Atlanta firm, King & Spalding. “It gives the government a lot of latitude to say something is criminal, when in fact it is conduct in the gray area or perhaps even unethical-but that does not make that conduct criminal.”
Established in 1981, PMC closed its Atlanta office in 1997, at which time McClendon resigned. Philadelphia-based President and Chairman Malcolmn Pryor remained in the clear, and the firm became Pryor, Counts & Co. Inc. (No. 15 on the black enterprise investment banks list with $11.12 billion in co-managed issues in 1999).
The federal jury in Atlanta found that McClendon used his ties to an Atlanta city official to “monopolize the city’s investment activity.”
The Securities and Exchange Commission, a U.S. government agency, began a wide-ranging investigation of PMC and McClendon in 1992. The SEC probed accusations that long-term links between McClendon and city of Atlanta investment officer Theresa A. Stanford had been used for investment misconduct. During the early 1980s, McClendon was Stanford’s boss in the city’s finance department. In 1992, Montclaire Financial Group Inc., the finance company owned by Stanford’s husband, Charles Stanford, was hired to do consulting work for PMC.
Atlanta requires city officials to fill out a conflict of interest form, but between 1992 and 1994 this form had no spousal provisions. During that period, PMC handled more than 90% of the city of Atlanta’s transactions of U.S. Treasury zero-coupon securities known as STRIPS (Separate Trading of Registered Interest and Principal Securities).
“It’s very interesting that the government only saw the need to change the rules once minority firms emerged as legitimate players in the business. I would suppose that is no coincidence,” says McClendon. Thompson believes the SEC has no rules making it illegal for PMC to have had a lock on city funds.
The prosecution argued that even though Theresa Stanford had not violated any specific provisions of the city’s ethics code, she violated her “independent duty” to act in the city’s interest.
The SEC alleged that Theresa Stanford was a conduit for PMC, and that she concealed Atlanta’s STRIPS holdings from competing broker-dealers and that the STRIPS portion of Atlanta’s securities portfolio had been turned over eight times in unnecessary buying and selling transactions. The alleged churning earned PMC $15.3 million in extra commissions.
Sentencing for McClendon was originally scheduled for November and has since been postponed to January 2001. Maximum punishment is 60 months in a
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