Re: 6/14/00 - FBI: Five Organized Crime Families of La Cosa Nostra in the New York City area, have been charged with securities fraud and related crimes.
(Part 1 of 2)
For Immediate Release
Date: June 14, 2000
Contact: Joseph Valiquette (212) 384-2715
James Margolin (212) 384-2720
FBI - NEW YORK OFFICE - PRESS RELEASE
MARY JO WHITE, the United States Attorney for the Southern District of New York and BARRY W. MAWN, the Assistant Director in Charge of the New York Office of the Federal Bureau Of Investigation ("FBI"), joined by RICHARD WALKER, Director of Enforcement of the United States Securities and Exchange Commission ("SEC"), and MARY L. SHAPIRO, President of NASD Regulation, announced today that 120 defendants, including members and associates of the five Organized Crime Families of La Cosa Nostra in the New York City area, have been charged with securities fraud and related crimes. Sixteen Indictments and seven criminal Complaints unsealed today in Manhattan federal court allege fraud in connection with the publicly traded securities of 19 companies and the private placement of securities of 16 other companies. Included among the defendants are 10 alleged members and associates of organized crime; a former New York Police Department detective; 57 licensed and unlicensed stock brokers; three recruiters of corrupt brokers; 12 stock promoters; 30 officers, directors or other "insiders" of the companies issuing the securities involved in the frauds; two accountants; an attorney; an investment adviser; and a hedge fund manager. According to the charges, 21 broker-dealers or other financial adviser firms were either involved in the frauds, or employed stock brokers or other persons who were involved in the fraud. The various schemes resulted in total losses of more than approximately $50 million, and many tens of millions more would have resulted had the schemes been completed. According to Ms. WHITE and Mr. MAWN, this is the largest number of defendants ever arrested at one time on securities fraud-related charges, and one of the largest number ever arrested in a criminal case of any kind. In coordination with today's arrests, search warrants were executed at four locations in New York, one in Dallas, Texas, and one in Salt Lake City, Utah.
Twenty-one defendants are charged with participating in a RICO Enterprise consisting of members and associates of the Bonanno and Colombo Organized Crime Families of La Cosa Nostra in the New York City area, that allegedly perpetrated massive securities fraud over a five-year period by forging corrupt alliances with members and associates of the remaining three New York City Organized Crime Families; controlling and infiltrating broker-dealers; conspiring with issuers of securities and individual stock brokers; scheming to defraud union pension plans; and employing tactics of violence, including threats, extortion, physical intimidation, and the solicitation of murder to further the illegal goals of the RICO Enterprise. The schemers used traditional boiler-room operations and current Internet techniques to carry out their alleged crimes.
The racketeering defendants include, among others: ROBERT A. LINO, a/k/a "Little Robert," an alleged capo in the Bonanno Crime Family; FRANK A. PERSICO, an alleged associate of the Colombo Crime Family, and a registered stock broker who controlled crews of brokers at various brokerage firms, including First Liberty Investment Group, Inc., William Scott & Company, Inc., and Bryn Mawr Investment Group; ANTHONY P. STROPOLI, an alleged soldier in the Colombo Crime Family who controlled crews of stock brokers; STEPHEN E. GARDELL, who is alleged to have corruptly exploited his positions as a New York City Police Department Detective and Treasurer of the Detectives' Endowment Association ("DEA"); GENE PHILLIPS, who controlled Basic Capital Management, the investment adviser to American Realty Trust, a New York Stock Exchange-listed real estate investment trust, or REIT; and WILLIAM P. STEPHENS, the Chief Investment Strategist of Husic Capital Management, a San Francisco-based investment adviser, who agreed to manage up to $300 million in union pension funds knowing that a portion would be invested in corrupt deals for the purpose of funding kickbacks to members of the RICO Enterprise and corrupt union officials. The RICO Enterprise is alleged to have engineered manipulation schemes in eight publicly traded securities and to have defrauded investors in connection with three private placements of securities, including one by Ranch*1 Inc., a company that operates fast food restaurants in the New York City area and elsewhere. Two officers of Ranch*1, SEBASTIAN RAMETTA and JAMES F. CHICKARA, have been named as defendants in the RICO charges and are alleged to be associates of the Colombo Crime Family.
In addition to the racketeering charges, the other Indictments and Complaints unsealed today charge a wide array of stock market schemes designed to fleece the investing public. Sales of stock in private placements are alleged to have been fraudulently rigged for the benefit of insiders and corrupt brokers. The Internet was allegedly used to further the schemes through the fraudulent promotion of stocks on Internet websites, or the use of companies that were touted as Internet or "dot.com" companies in order to induce investors to capitalize on the Internet boom.
Today's charges are the result of a highly successful, one-year undercover operation conducted by the FBI's New York Office, in coordination with the SEC and with assistance provided by NASD Regulation, Inc. The undercover investigation involved, among other things, surveillance, the use of undercover purchases of securities, the use of a series of cooperating witnesses who posed as willing participants in ongoing criminal schemes, and the installation of court-authorized eavesdropping devices in the office of DMN Capital Investments, Inc. ("DMN Capital"), a financial adviser firm that held itself out as providing investment banking and stock promotion services. Pursuant to court order, the FBI recorded approximately 1000 hours of conversations occurring in DMN Capital's office between December 1, 1999 and May 4, 2000. Ms. WHITE stated: Today's charges result primarily from the FBI's successful infiltration of a company that served as investment banker to the crooked and the corrupt. By offering its services to anyone and any deal, as long as it was illicit, the company attracted allegedly mobbed-up broker-dealers, top-shelf investment advisers, unscrupulous issuers, unethical lawyers and accountants, and microcap manipulators B a virtual Who's Who of securities violators. Their tentacles of fraud reached into every corner of the public and private securities markets, and they preyed on their victims using both traditional boiler-room tactics and contemporary Internet-based manipulations. As today's charges show, fraud in the markets will not be tolerated, no matter how big, how organized, or how creative.
Mr. MAWN stated:
The FBI investigation code named "Uptick" has uncovered a laundry list of stock manipulation schemes by which the defendant brokers took their victims to the cleaners. This investigation uncovered once again La Cosa Nostra's efforts to infiltrate the securities markets. 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. We will continue to investigate securities fraud schemes whether they be the work of typical white collar criminals or of organized crime.
Mr. WALKER stated:
The securities fraud involved in today's actions is among the most egregious witnessed in recent years. These manipulations of numerous microcap stocks were designed for the sole purpose of stealing investors' hard-earned dollars. The prosecutions announced today rid the vital market for low-priced securities of unscrupulous operators and reaffirm regulators' commitment to keeping this market safe and fair.
Ms. SHAPIRO stated:
Today's actions by United States Attorney Mary Jo White again demonstrate her commitment to help rid securities markets of manipulative and fraudulent schemes. NASD Regulation previously brought actions against a number of firms and individuals named in the Indictments unsealed today and will continue to work closely with the United States Attorney's Office and other law enforcement and regulatory agencies to insure investor confidence and the integrity of our markets.
Certain of the charges are outlined below.
Racketeering
In United States v. Lino, et al., 00 Cr. 632, 21 defendants are charged with being members and associates of a RICO Enterprise consisting of DMN Capital and a "joint venture" among members and associates of the Bonanno and Colombo Crime Families, with the assistance of associates of the other three New York City crime families, as well as others. In addition to LINO, PERSICO, STROPOLI, GARDELL, RAMETTA, CHICKARA, STEPHENS, and PHILLIPS, the other alleged members of the RICO enterprise include: JAMES S. LABATE, a/k/a "Jimmy"; SALVATORE R. PIAZZA, a/k/a "Sal"; CARY F. CIMINO; RALPH DEMATTEO, a/k/a "Ralphie"; ROBERT P. GALLO, a/k/a "Bobby"; MICHAEL GRECO; JOHN M. BLACK, Jr.; ANGELO CALVELLO, a/k/a "Tony"; JOSEPH A. MANN, a/k/a "Andy"; GLENN B. LAKEN; A. CAL ROSSI; VINCENT G. LANGELLA, a/k/a "Vinny"; WILLIAM F. PALLA; and TODD NEJAIME. The Lino Indictment charges the defendants with various crimes, including those described below:
1. Manipulation of Publicly Traded Securities: Between 1995 and 1999, members of the RICO Enterprise fraudulently obtained and controlled large blocks of free or substantially-discounted, publicly-traded securities in violation of various SEC rules and regulations. These securities included those issued by: (1) Spaceplex Amusement Centers International Ltd., which operated amusement parks and was located in Great Neck, New York; (2) Reclaim, Inc., which was in the business of recycling roofing shingles and was located in Tampa, Florida; (3) Beachport Entertainment Corp., which was in the business of producing ice skating entertainment and was located in Los Angeles, California; (4) International Nursing Services, Inc., which was in the business of in-home nursing care and was located in Denver, Colorado; (5) Leasing Edge Corporation, which was in the computer leasing business; (6) Globus Int'l Resources Corp., an import-export company; (7) Innovative Medical Services, a manufacturer of waste purification systems; and (8) Accessible Software, Inc., a software developer.
The RICO Enterprise is alleged to have secretly controlled or infiltrated various New York City-area brokerage firms, including Monitor Investment Group, Inc., Meyers Pollock and Robbins, First Liberty Investment Group, Inc., William Scott & Company, and Atlantic General Financial Group. The RICO Enterprise then fraudulently engaged in prearranged trades, paid secret bribes to corrupt stock brokers, and used "no net sale" and other "boiler room" tactics, among other devices, to create artificial retail demand for these securities, and then sold their holdings into that inflated demand at considerable profit. Members of the RICO Enterprise, in order to enforce discipline among the brokers allegedly involved in these schemes, and to punish those who reneged on their agreements to sell stock in return for bribes, subjected brokers to beatings, intimidation, and threats. To aid in the fraudulent schemes, CARY F. CIMINO, a New York-based stock promoter, arranged for secret bribes to be paid to corrupt brokers and, in 1999, CIMINO is alleged to have solicited the murder of a person he believed to be a cooperating witness.
2. Union Pension Funds Fraud and Kickback Schemes: From late 1999 to the present, the RICO Enterprise allegedly sought to defraud union pension funds by employing corrupt securities industry professionals to manage union pension funds, and then, with the knowledge and consent of those professionals, structuring investments for those funds in a manner that allowed for a secret diversion of a portion of the funds to members of the RICO Enterprise and to corrupt union officials. One such alleged fraudulent investment was a preferred stock offering of American Realty Trust, a NYSE-listed REIT that trades under the ticker symbol "ARB." The RICO Enterprise allegedly arranged this corrupt deal through GENE PHILLIPS, who controlled Basic Capital Management, Inc., a Dallas, Texas-based financial adviser firm that served as adviser to American Realty Trust, and A. CAL ROSSI, the Managing Director of Capital Markets for Basic Capital. According to the charges, union pension fund assets would be invested in the offering, and $2.0 million of every $10 million invested would be "kicked back" to the RICO Enterprise and corrupt union officials. In order to give an investment in ARB Series J preferred stock an air of legitimacy, and to convince honest union officials to permit such an investment, the Enterprise recruited an allegedly corrupt money manager, WILLIAM P. STEPHENS, the Chief Investment Officer of Husic Capital Management, a San Francisco-based investment adviser, who allegedly agreed to manage up to $300 million in union pension funds knowing that a portion would be invested in this corrupt deal for the purpose of funding kickbacks to members of the RICO Enterprise and corrupt union officials.
A second allegedly fraudulent investment deal designed to defraud union pension funds involved TradeVentureFund, a hedge fund that claimed to have a successful proprietary trading strategy, and whose principal manager was GLENN B. LAKEN. Here, kickbacks to the RICO Enterprise and corrupt union officials would allegedly be funded through the payment of excessive trading commissions and LAKEN's plan to invest the union pension funds in high-risk investments.
The pension funds targeted in these allegedly corrupt schemes include: the Production Workers Local 400, which is alleged to be influenced by the Colombo Crime Family; the International Union of Operating Engineers Local 137; and the Detectives' Endowment Association ("DEA"), which serves NYPD detectives. Integral to the success of the alleged schemes involving DEA and Local 400 were STEPHEN E. GARDELL and FRANK A. PERSICO, a/k/a "Frankie," the latter of whom was an alleged associate of the Columbo Crime Family who served as the Treasurer of Production Workers Local 400, each of whom is alleged to have agreed to accept illegal kickbacks to corruptly influence decisions at their respective unions. GARDELL is also alleged to have: (a) leaked confidential law enforcement information concerning organized crime investigations to members and associates of organized crime; (b) assisted in securing firearm "carry" permits for members of organized crime; (c) influenced the outcome of an NYPD investigation into the activities of a member of the RICO Enterprise; and (d) provided New York City law enforcement parking permits to members of organized crime. In return, GARDELL is alleged to have received, among other things, cash and property from organized crime figures, including $8,000 toward the building of a swimming pool at his residence, free and substantially-discounted rooms and meals at casinos in Las Vegas and Atlantic City, and a fur coat.
3. Private Placement Fraud: From approximately October 1999 to the June 2000, the RICO Enterprise allegedly sought to defraud investors in the private placement of securities by arranging for the payment of secret exorbitant sales commissions to brokers of up to 50 percent of the proceeds obtained from investors. These fraudulent private placements allegedly included stock of: (a) Ranch*1, a grilled chicken sandwich fast-food chain of restaurants operating throughout the New York City area and elsewhere; (b) World Gourmet Soups, Inc, d/b/a "The Manhattan Soup Man," a company that operates and franchises fast food restaurants and kiosks and sells prepared soups to the restaurant industry; and (c) Jackpot Entertainment Magazine, Inc., a Brooklyn-based company in the business of publishing a magazine about the casino industry. The defendants charged in this scheme include SEBASTIAN RAMETTA, a/k/a "Sebbie," the President and Chief Executive Officer of Ranch*1, and JAMES F. CHICKARA, the Vice-Chairman of Ranch*1, both of whom allegedly are associates of the Colombo Crime Family.
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