Stock fraud scheme allegedly defrauded investors $100 million
By David Kravets, Associated Press, 9/6/2001 22:32
SAN FRANCISCO (AP) A California couple was indicted by a federal grand jury Thursday on charges they profited on investors' demand for Internet stocks by creating shell companies, selling unregistered securities and falsely touting their performance to potential investors.
Thomas Eck and Zahra Gilak were arrested Thursday. Gilak was arrested by FBI agents at her home in Pengrove, Calif. Her husband, Eck, turned himself in to authorities hours later.
Federal prosecutors claim the couple made as much as $15 million, and defrauded investors of $100 million, from the methodically planned venture that included fraud on nearly every aspect of stock sales for shell companies between February 1999 and January 2001.
In a related action, the Securities and Exchange Commission sued the pair and others allegedly involved in the fraud.
''They were capitalizing on the frenzy in demand of dot-com stocks,'' said federal prosecutor Leslie Caldwell. ''At the time, the phrase 'dot-com' was their ticket to wealth.''
Eck's attorney, Bill Goodman, said his client is expected to plead innocent when he is scheduled to appear in federal court here Friday.
''We intend to try the case before a jury,'' Goodman said.
Gilak's attorney did not immediately return phone calls.
Caldwell said an investigation was continuing, and more arrests were possible.
''There are a fair number of people involved,'' she said. ''There's a core group of key players and some with a more peripheral role not privy to what's going on.''
The indictment also asserts ''stock and cash payoffs to professional stock promoters, and payoffs to securities analysts in return for favorable research reports recommending the stocks to investors.''
Caldwell declined to elaborate on those allegations.
The sham companies' stock in question were M&A West Inc., a Liberty, Texas-based company purported to be an Internet incubator to help other start-up companies develop businesses; and its subsidiaries VirtualLender.com, a purported online mortgage broker and Digital Bridge Inc., a purported Web site developer.
The SEC sued Eck, Gilak and several others involved in the alleged fraud because, it said, they sold millions of dollars in unregistered stock and reported some of the gains as revenue for non-existing operations with the
assistance Scott Kelly of Chandler, Arizona and Salvatore Censoprano, of Foster City, Calif. Those two men were listed respectively as the former president and chief financial officer of the sham companies.
Kelly and Censoprano were not immediately available for comment.
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