March 2, 2000
Wall Street Stock Fraud Ring Smashed
Filed at 5:48 p.m. ET
By Reuters
NEW YORK (Reuters) - Police and federal agents smashed a Wall Street stock fraud and money laundering ring involving Russian and New York mobsters that bilked investors of some $40 million, law enforcement officials said on Thursday.
Nineteen people were indicted in what police called a classic ``pump and dump' scheme in which unsuspecting investors were lured into buying stocks by crooked brokers at two defunct New York brokerage houses. Once the stock price was ``pumped up,' the defendants creamed off the profits and laundered the proceeds before the stocks were ``dumped' and the price plummeted, the officials said.
``We called this 'Operation Street Cleaner,' because it was designed to fight fraud on Wall Street,' New York Police Commissioner Howard Safir told reporters.
``But it could just as well have been titled 'GoodFellas Meet the Boiler Room,' he said, referring to two movies: 'Boiler Room' starring Ben Affleck in which unscrupulous brokers pressure investors into buying dubious stocks; and the 1990 ``GoodFellas' about mobsters.
Loretta Lynch, U.S. attorney for the Eastern District of New York, told a news conference in Brooklyn that several of the 19 defendants were to be arraigned later on Thursday. They face up to 20 years on racketeering or money laundering charges and 10 years for securities fraud dating from 1993-96.
A police spokesman said 13 were arrested on Thursday morning, while three were surrendering and two more were already in federal prisons. One defendant, a suspected Russian mob figure, was believed to be overseas.
Safir said four of New York's five ``Cosa Nostra' organized crime ``families' were represented among the defendants -- the Bonnanos, Genoveses, Colombos or Gambinos. The mob role was to add ``muscle,' protecting and promoting the fraud scheme.
In addition to the 20-count indictment on criminal charges, the regulatory arm of the Nasdaq stock trading exchange charged the chief and 11 former brokers of the defunct broker State Street Capital Markets Corp. with fraudulent sales practices and other violations of its rules. They face fines, suspension or expulsion from the NASD.
Safir said the police and federal investigation uncovered fraud at two brokerage firms in the Wall Street district -- State Street Capital Markets and White Rock Partners & Co.
The indictment alleged White Rock and State Street secretly acquired large blocks of stock and warrants in four companies -- Country World Casinos Inc., which was developing a casino in Black Hawk, Colorado; Holly Products Inc. a New Jersey carpentry firm; U.S. Bridge of New York Inc., a sub-contractor on New York roads; and Cable & Co. Worldwide Inc., an importer of men's shoes.
Lynch said typically investors paid between $1,000 and $10,000 to buy stock, which often rose $6-$7 before the defendants dumped it and the share price fell to virtually nothing. The defendants netted around $41 million, she said.
Safir said the significance of the case was the involvement of Russian organized crime, which was moving into more sophisticated crime. ``The mob goes where the money is.'
nytimes.com
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