From this week's Barrons:
Bubble Trouble
Broker Cashed In on Hot IPOs; His Customers Didn't, SEC Says
EDITED BY ROBIN GOLDWYN BLUMENTHAL
Pennsylvania physician Neil Niren probably was ecstatic when he saw United Parcel Service stock jump to 70 on its first trading day. He was sitting on a $116,000 profit after having plunked down $290,000 for 5,800 UPS shares weeks before. Or so he thought.
Niren was among a dozen or so investors from Ohio, Michigan, Kentucky and Texas, who pumped up to $5 million into an alleged IPO scam run by Milan Capital of Melville, New York, according to the SEC. The investors believed they were investing with Milan Capital to get insider allocations in red-hot IPOs such as UPS, Fogdog and Freemarkets, and received confirmations. But none of the investors received any shares. More remarkably, the alleged scam took place while Milan Capital's president, Ira Monas, was in the Adirondack Correctional Facility in New York for grand larceny.
The SEC obtained a temporary restraining order in a Manhattan federal court against Milan Capital on grounds the firm wasn't registered to sell securities. The agency -- using hand-written checks and signed confirmations on Milan Capital letterhead as evidence -- alleges that Milan Capital improperly sold investors on the IPO scheme. Morgan Stanley and Goldman Sachs, underwriters of the hot IPOs, both said they knew nothing of Milan Capital or Monas.
The order froze assets of $3.8 million, mainly in a New York bank account over which Monas and his wife, Rita, the firm's secretary, held authority, according to court papers. Anthony Djinis, who represents Milan Capital, said the firm was cooperating with the SEC but declined further comment. Ira Monas couldn't be reached for comment.
One broker familiar with Monas said that Milan Capital's program began with last year's World Wrestling Federation offering, prior to Monas' incarceration. "I still don't know how [he] could have run such an operation from prison. Don't they check these things?" asks the broker. Not that Monas was always forthcoming. "He told us he'd be in Europe for the next few months," the broker recalls, when he actually entered prison on October 29.
As for Milan Capital's investors, they want their IPO winnings. Barked Tim Green, a Dallas insurance company president: "I bought UPS at 50. Someone's going to prison if they stole my money." Or perhaps staying in prison.
-- Jack Willoughby
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