Pasciuto went on to his next pump-and-dump shop: Sovereign Equity Management.
Sovereign, based in New York with an office in Tampa, was controlled by Philip Abramo. Federal prosecutors say Abramo was a reputed captain in the DeCavalcante family, the New Jersey-based mob that is said to be the inspiration for The Sopranos. In 1999, Abramo would face a 45-page indictment in Tampa that accused him of engineering multimillion-dollar pump-and-dump and short-selling stock manipulation schemes from 1993 to 1999.
Last month, Abramo and others were found guilty in New York court of a slew of racketeering charges related to murder, extortion and loan-sharking. He will be sentenced in October.
And Pasciuto? He fell under the control of a low-level mobster who exploited the stock promoter for money and abused him. Eventually, Pasciuto hit the wall. Arrested for securities fraud in 1999, he wore a wire and testified against several Wall Street figures with mob ties. He then escaped into the federal witness protection program. Pasciuto's story is now optioned as a Warner Brothers film to actor Mark Wahlberg.
In the shadows of the bull market
By ROBERT TRIGAUX, Times Business Columnist
© St. Petersburg Times
published July 14, 2003
Organized crime on Wall Street. Mob infiltration of investment banking. It's a world that prospered in the bull market of the 1990s, and continues today. But it remains largely beneath the radar screens of regulators and the mainstream press.
And why not? Few regulators or business reporters familiar with Wall Street know much about organized crime. Fewer want to. Besides, given the increasingly sleazy tactics of highbrow Wall Street firms, reporters are busy enough filling newspaper and magazine pages with sordid tales of fraud and cheating by the best-known names in investment banking.
Exposing the mob-Wall Street connection is one of several reasons to applaud the effort of investigative business reporter Gary Weiss, author of the recent book, Born To Steal: When the Mafia Hit Wall Street. The book is a remarkable glimpse into the essentially lawless, virtually unregulated turf of easily manipulated penny stocks, boiler-room investment firms and "pump and dump" broker strategies. As investor mania hit America in the 1990s, it did not take long for organized crime to realize that behind the facade of Wall Street was a place to make easy money. Lots of it.
Weiss is no amateur. A long-time senior writer for Business Week magazine, he started reporting extensively about the mob's rapid involvement in Wall Street banking in the mid 1990s. His early work culminated in a Dec. 16, 1996, cover story headlined "The Mob on Wall Street."
His new book, which follows the New York life of a young, mob-connected, street-smart stock hustler named Louis Pasciuto, was favorably reviewed in these business pages last month.
But the Born To Steal review missed something important around these parts. Some former and current Tampa Bay area companies and business characters play prominent roles in Weiss' book, perhaps more than any of us living here would like to see.
Their presence in the book offers some key lessons to readers and investors. First, Wall Street may seem a thousand miles away, but its financial impact - to investors, companies and communities - can be quite local.
Second, most Tampa Bay area residents may think of organized crime as little more than an HBO show called The Sopranos, but the investment scams and frauds are quite real and have struck this Florida market, repeatedly, in different ways.
And third, the threat of criminal involvement in the stock world means the cliche "buyer beware" is no longer enough of a warning to investors. Not by a long shot.
Let's take a closer look at this Wall Street underworld as reported by author Weiss.
Louis Pasciuto, the "star" of Weiss' tale, landed on Wall Street as a 19-year-old former Staten Island gas station attendant whose love of shock jock radio phenom Howard Stern was second only to his insatiable urge for easy money.
Pasciuto quickly learned to rip off investors in pump-and-dump scams - in which cheap company stocks are "pumped," or hyped to artificially high prices, then sold by brokerage insiders, leaving investor clients with near-worthless shares. He caught the eye of Wall Street mobsters and made (and lost) several fortunes before the age of 25. Arrested in 1999 for securities fraud, Pasciuto wound up broke and spilling his guts to federal agents investigating organized crime.
Some of his dealings depended upon or involved Tampa Bay area players.
Early in his "career," Pasciuto worked for a boiler-room brokerage called Hanover Sterling off Wall Street. It was awash in high school-educated kids like Pasciuto who learned high-pressure telephone sales techniques, selling a handful of cheap stocks that Hanover wanted to pump and dump at a profit. Pasciuto knew little about business or securities. In fact, he had no license to sell stocks. But he would sell the chosen stocks to some distant, unsuspecting (and often rural) buyer, borrowing the name of a licensed broker, then collect inflated commissions - called "rips."
At Hanover, back in 1993, one of those chosen stocks to hype was a tiny Tampa company called Eagle Vision Inc. The company, which initially described itself as an environmental consulting and clean-up business, was traded over-the-counter but had applied to trade on the more reputable Nasdaq. The company also was a banking client of Hanover Sterling.
None of that mattered to Pasciuto. His sole aim was to sell shares in any way possible over the phone and collect his inflated commissions. As he explained in Born To Steal: "We would get crazy rips at Hanover. Eagle Vision was eleven with seven (meaning an $11 stock that paid a $7 rip). It was paper - a Bulletin Board piece of s-- paper stock."
In the '90s, Eagle Vision was also invisible locally. Neither the St. Petersburg Times nor the Tampa Tribune ever mentioned the tiny company. Eagle Vision's CEO, Alan S. Lipstein, also avoided media attention. For a while. In 2000, Lipstein pleaded guilty to laundering money obtained through fraudulent securities transactions involving two other companies. And in 2002, federal regulators shut down Tel-One, a Tampa video-conferencing company that sold at least $1.7-million of stock, after "false claims." Lipstein was an owner of Tel-One, the SEC says.
Pasciuto was motivated, earning $1,500 a week. Around him at Hanover Sterling, the best brokers were pulling in $100,000 a month in 1993. Later, monthly payouts of half a million dollars were not uncommon. The young guys, like Pasciuto, started by learning high-pressure phone sales tactics. Lying was common, and encouraged. Everyone stood up while making cold calls to unsuspecting individuals; it made the calls more urgent. Those who sat were pinged in the back of the head with paper clips shot from rubber bands by Hanover bosses.
Pasciuto was hungry, rising up the pay ladder. He left Hanover Sterling and, typical of the need to jump often among boiler rooms, would work at 17 fringe-name firms. Before he left Robert Todd Financial, Pasciuto started each work day by playing the theme song to Rocky. Now making $100,000 a month, he took that musical habit with him in 1994 to his next gig at a tiny brokerage with some modest recognition on mainstream Wall Street: A.T. Brod.
That's where Pasciuto encountered Jugal "Jay" Taneja, who has emerged in recent years as an investor and entrepreneur of sorts in penny and micro-cap stock companies in the Tampa Bay area.
Taneja, Weiss wrote, was then a 50-year-old Cleveland financial executive and former engineer with "a clean record." Taneja had bought A.T. Brod in 1993, in conjunction with a local Cleveland brokerage official, with a plan to expand its business to individual investors from its base of selling to institutional clients. That meant recruiting and hiring more brokers.
Enter Pasciuto. He and a fellow brokerage buddy flew to Cleveland to see Taneja over dinner at a posh restaurant.
"It was nice, like in Pretty Woman, with the couch seats," Pasciuto told Weiss. "Elegant. We didn't pay. He had a 500-class Mercedes, a huge house. We were psyched, 'cause we were going to work with somebody who had more money than us... This guy had a nice ring, nice watch. He was like a flashy little guy."
Taneja, according to Weiss, acknowledged the 1994 meeting but denied any knowledge of wrongdoing in the New York office of Brod.
With a fellow broker at Brod, Pasciuto came up with a plan dubbed Nobodies and Celebrities. Pasciuto would pursue famous people as clients with whom he wanted to hang around. Howard Stern and New York Jets football players topped the list. They were the Celebrities.
To attract them as Brod clients, Pasciuto pitched them on stock deals, basically guaranteeing them big returns. How? By stiffing the Nobodies. They were the uninformed folks at the other end of the endless cold calls, who typically lived in rural America. Their losses were meant to subsidize the gains for the Celebrities.
By 1995, Pasciuto's first alma mater - Hanover Sterling - was in financial trouble. The stocks Hanover had "pumped" to create false value were now being attacked by short sellers who were betting those stocks would decline in value. The short sellers deflated the "pump" value, preventing Hanover from its profitable "dump" of those shares. The company collapsed.
A month later, Pasciuto confronted Brod owner Taneja. The broker said he was owed his "commissions" but Taneja countered that he did not have the funds, saying Kemper Securities owed Brod money.
Ever low on patience, Pasciuto vowed revenge, Weiss wrote. Back in Brod's New York office, Pasciuto wrote up phony "buy" orders for his customers that he knew the customers would soon cancel. But not before Pasciuto received $120,000 in commissions. When the orders were later canceled, the money already was gone. Brod failed to meet minimum capital requirements of the stock exchange and regulators. The firm was out of business.
"It served him right," Pasciuto says of Taneja.
In Weiss' book, Taneja says he lost millions on Brod because he did not know enough about the business to avoid the firm's cash squeeze. He says his name was cleared in the follow-up investigation by regulators. But who was watching "brokers" such as Pasciuto?
Says Taneja: "I started a book myself. Wall Street Mafia." He wrote three chapters, then stopped "because it was so scary."
Taneja, who once called himself "a typical guy who came to this country with $8 in my pocket and worked my tail off," soon showed up in Tampa Bay business circles.
Among the companies once in Taneja's empire are two local ones that A.T. Brod took public: NuMed Home Health Care Inc. in Clearwater, and National Diagnostics Inc. of Brandon. NuMed went bankrupt in 2000. National Diagnostics declared bankruptcy in 2001.
In addition to his other pursuits, Taneja currently chairs two publicly traded companies in Largo - Innovative Companies Inc., which formerly was called Go2Pharmacy.com Inc., and DrugMax Inc. Both are involved in drug and beauty care product distribution.
When Pasciuto left Brod, he figured - finally - that he should get a broker's license of his own. His solution? Pasciuto provided a smart colleague with false IDs and paid him $10,000 to take the NASD Series 7 brokers license test. He passed, and Pasciuto went on to his next pump-and-dump shop: Sovereign Equity Management.
Sovereign, based in New York with an office in Tampa, was controlled by Philip Abramo. Federal prosecutors say Abramo was a reputed captain in the DeCavalcante family, the New Jersey-based mob that is said to be the inspiration for The Sopranos. In 1999, Abramo would face a 45-page indictment in Tampa that accused him of engineering multimillion-dollar pump-and-dump and short-selling stock manipulation schemes from 1993 to 1999.
Last month, Abramo and others were found guilty in New York court of a slew of racketeering charges related to murder, extortion and loan-sharking. He will be sentenced in October.
And Pasciuto? He fell under the control of a low-level mobster who exploited the stock promoter for money and abused him. Eventually, Pasciuto hit the wall. Arrested for securities fraud in 1999, he wore a wire and testified against several Wall Street figures with mob ties. He then escaped into the federal witness protection program. Pasciuto's story is now optioned as a Warner Brothers film to actor Mark Wahlberg.
Pasciuto was never one to read about business news. He did not need it to sell empty promises. But in 2002, he began reading about Enron, WorldCom, Arthur Andersen, lying Wall Street analysts, and investigations of the top-tier Wall Street firms.
That's when the former con artist realized his view of Wall Street wasn't quite as different as he once thought.
For too-trusting investors, there's a lesson here.
-Robert Trigaux can be reached at trigaux@sptimes.com or 727 893-8405. |
