Charged in Mob Fraud Crackdown
Wed Jun 14 18:22:00 EDT 2000
NEW YORK, Jun 14, 2000 (AP Online via COMTEX) -- More than 100 reputed
mobsters, stock promoters and executives of Internet start-ups were accused
Wednesday of strong-arming brokers and manipulating penny stocks in the
country's largest crackdown yet on securities fraud.
Sixteen indictments and seven criminal complaints unsealed in federal court show
how just how deep organized crime has dug its nails into the stock market of the
Internet era, said Richard Walker, director of enforcement of the Securities and
Exchange Commission.
Among the 120 people named are members of all five New York crime families, he
said.
By Wednesday, 98 suspects had been arrested in 13 states, and more arrests were
expected, FBI officials said.
The indictments accuse the suspects of engaging in racketeering, conspiring to
use bribery, extortion and even soliciting murder to further frauds reaping more
than $50 million in illegal profits. The charges carry between five and 80 years
in prison.
In some cases, brokers were bribed to push worthless stocks, often through cold
calling, in an effort to raise the shares' prices, Walker said. He said the 120
suspects "otherwise lied, cheated or stole from innocent investors."
Anyone who reneged on a deal was subjected to beatings, intimidation and
threats, authorities said. According to the indictments, no one was killed.
Barry W. Mawn, FBI assistant director in charge of the New York office, said the
mob's tactics were nothing new.
"No matter what market the mob tries to infiltrate, from the fish market to the
stock market, the methods it uses are always the same: violence and the threat
of violence," he said. "The public should be assured that the FBI has and will
remain vigilant against the mob's use of our financial markets as their
playground."
As part of the scheme, the Internet was sometimes used to promote stocks, and
companies were falsely touted as dot.com companies to induce investors to
capitalize on the Internet boom, prosecutors said.
Trading in two companies Walker described as "the latest e-commerce wonders" was
suspended Wednesday by the SEC as part of the investigation.
Wamex Holdings Inc., valued at $184 million, claimed it was about to begin
operating an alternative trading system so customers could trade directly with
one another.
But the indictment said Wamex "has never obtained, much less even filed, for an
application for required regulatory approval." Company executives allegedly
issued phony news releases that drove the stock's value from about $1 in
December to nearly $20 by February.
E-Pawn.com, which describes itself as a Web site designer and e-commerce
software developer valued at $198 million, is controlled by a convicted felon,
Walker said. An E-Pawn.com principal and the company's president were charged
with using 1 million shares of the company to bribe brokers and drive up the
price.
In court papers, prosecutors said the FBI learned about the illegal schemes by
secretly recordings about 1,000 hours of conversations at a DMN Capital
Investments Inc., a company U.S. Attorney Mary Jo White described as an
"investment banker to the crooked and the corrupt."
She said that mobsters used the company to launch schemes to secretly control or
infiltrate various New York City brokerage firms, and that it offered "its
services to anyone and any deal as long as it was illicit."
A telephone call to DMN seeking comment Wednesday was not answered.
In the past year, the racketeering machine allegedly tried to defraud union
pension funds by employing corrupt securities industry professionals to manage
union pension funds and taking kickbacks.
The scheme recruited an allegedly corrupt money manager, William P. Stephens,
the chief investment officer of Husic Capital Management, a San Francisco
investment adviser, who allegedly agreed to manage up to $300 million in union
pension funds so that some could be kicked back illegally, prosecutors alleged.
It also recruited a former New York City detective, Stephen E. Gardell, so it
could gain illegal kickbacks from the Detectives' Endowment Association, which
serves New York City detectives, prosecutors alleged.
Prosecutors said Gardell leaked confidential law enforcement information
concerning organized crime investigations to members and associates of organized
crime and provided New York City law enforcement parking permits to alleged
mobsters.
In return, prosecutors said, Gardell received cash and property, including
$8,000 to build at swimming pool at his home, trips to Las Vegas and Atlantic
City and a fur coat.
Arrests were made Wednesday in New Jersey, New York, Connecticut, Pennsylvania,
Maryland, Virginia, Georgia, Florida, Alabama, Texas, Illinois, Utah and
California.
By LARRY NEUMEISTER
Associated Press Writer
Copyright 2000 Associated Press, All rights reserved
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