Lorenzo Formato was a plant in one of Lionel Reiflers past swindles. Here is a good article which all should read. Lorenzo went into the witness protection program. Lionel Rieflers troubles continue as he was involved in the Mob Stock FinancialWeb.com sting through his company Fortune Investment
'PENNY' STOCKS NO CHEAP DEAL FRAUD REPORTEDLY COSTING BILLIONS
Published on FRIDAY, September 8, 1989
© 1989 The Arizona Republic
Byline: Republic Wire Services, Compiled from Knight-Ridder and The Associated Press.
Consumers lose about $2 billion a year investing in so-called penny stocks, according to a 50-state survey of security regulators issued Thursday that concludes the industry is in the grip of con artists and organized crime.
A convicted stock swindler corroborated the report as he told a House subcommittee Thursday that penny-stock brokerages routinely manipulate stock prices, and that organized crime controls the industry.
''I needed the protection and I needed the strength of organized crime,'' said Lorenzo Formato, a former New Jersey stockbroker and promoter who is serving a six-year prison term for tax evasion, wire fraud and illegal conversion of funds.
''They needed me to be a money machine. And that's just what I was.''
The North American Securities Administrators Association report was released at a hearing of the same subcommittee, the House subcommittee on telecommunications and finance. The association is a Washington-based organization of state securities regulators responsible for investor protection.
''The penny-stock industry increasingly is dominated by utterly worthless or highly dubious securities offerings that are systematically manipulated by repeat offenders of state and federal securities laws and other felons, some of whom have been identified as having ties to organized crime,'' the report concluded.
Rep. Edward J. Markey, D-Mass., the subcommittee chairman, called Formato's testimony ''a blistering, scalding indictment of the entire penny- stock market.'' He said he would press for tougher regulation of the industry.
Formato, a participant in the federal Witness Protection Program, wore a gray hood to hide his face when he entered the subcommittee meeting room and removed it only after he was seated behind orange wall dividers that shielded him from spectators, but not lawmakers. His voice was altered electronically to prevent identification.
He testified that penny-stock brokers prey on unsophisticated investors contacted by telephone and subjected to hard-sell sales pitches. Firms routinely manipulate the price of a company's stock, he said, and even sell stock in non-existent companies.
Formato said he helped sell stock in a Laser Arms Corp., which he said was the invention of stock swindler Marshall Zolp.
''This company was completely fictitious,'' he said. ''There were no directors of the company. The people that he (Zolp) used as directors were simply pictures of actors that he had taken.''
The pictures were printed in reports to shareholders, which also included made-up sales and earnings figures. Stockholders lost $2.4 million before the scheme collapsed; Zolp and Formato were sentenced to prison for their parts in the scam.
Although their price -- a few cents up to a few dollars a share -- makes penny stocks attractive to small investors with limited funds, many are prone to abuse because information about the issuing company often is hard to obtain and fraudulent claims are difficult to dispute.
Small or young companies, or those that trade infrequently or in a limited area, are often listed only on ''pink sheets'' published by the National Quotation Bureau rather than with larger and more stable companies. Roughly 13,000 stocks are traded this way.
Brokers and investors must call a broker that deals in a specific company's shares to get a price quote.
Penny stocks are considered highly risky. Investors lose all or part of their money 70 percent of the time, according to the security regulators' report. When penny-stock prices are being manipulated by a brokerage house, investors lose money 90 percent of the time, according to the report.
''Comparing this to a night at the casino seems an unfair slap at casino operators,'' Markey said.
According to a survey by state securities regulators, American investors have been cheated out of at least $2 billion a year by crooked schemes involving penny stocks.
The National Association of Securities Dealers, a self-regulating organization that oversees over-the-counter stockbrokers, said any investigation of organized crime links to the industry was in government hands.
''We're cracking down hard on unscrupulous penny-stock brokers, but we're not Elliott Ness,'' said Robert Ferri, a spokesman for the security dealers' group.
''If an investigation has to go farther than our purview, the law enforcement agency we're dealing with will take it from there. And that's quite often the FBI or the Justice Department.'' |
