Instigator of stock scam gets 14 years
Saturday, May 13, 2006
By PRASHANT GOPAL
STAFF WRITER
A homeless man was listed as the gold mining company's vice president of finance and a member of its board.
A South Florida stripper, who happened to be a native of Canada, was listed by the company as a consultant in charge of finding investors in her home country.
Another consultant, "Harry Tramp," did not exist. He was named after a luggage store in Amsterdam.
The company, Orex Gold Mines Corp., was worthless, with no assets or revenue, but cheated investors out of millions through a pump-and-dump scheme in 1999. The man behind the company, John W. Surgent, 64, of Franklin Lakes, was convicted last year of money laundering and securities fraud.
On Friday, in federal court in Brooklyn, Judge John Gleeson sentenced Surgent to 14 years in prison for orchestrating the Orex fraud with the help of Russian and Italian mobsters and "boiler-room" swindlers who promised investors fantastic returns.
"You're a thief on a grand scale,'' Gleeson scolded Surgent. "You have no remorse, just arrogance. You are an incorrigible thief.''
A future hearing will determine how much victim restitution will be imposed on Surgent.
Surgent is the son of the deceased former Clifton mayor who shares the same name. His brother, Jay Surgent, is a prominent defense attorney who represented him for a while.
"Maybe he expected too much in a short period of time," Jay Surgent said of his brother in a telephone interview. "Sometimes when you come right up to the line, it doesn't take much to cross over. And all of a sudden some people are hurt and you pay the consequences for it."
Kickbacks to brokers
Prosecutors say John Surgent collected about $6 million and pumped more than a $1 million of that into his Franklin Lakes home. He also sent kickbacks to the mob-controlled "boiler rooms," which called investors and persuaded them to buy stock in the company, which, according to the pitch, patented a valuable new gold-extraction process. The stock, which was almost entirely controlled by Surgent, climbed from $1.50 a share in March 1999 to $7.86 in May 1999. By August of that year, prosecutors say, a share was worth about 10 cents.
When the stock began to plummet, investors tried frantically to sell. But the brokers, some of whom admitted to their roles in the scheme, did not return their calls or simply refused to execute transactions.
"I kept calling the brokerage firm trying to get out of the stock and couldn't get anyone to respond," said Patrick O'Reilly, 80, of San Antonio in a telephone interview earlier this week. "They kept saying, 'It's just a temporary thing. Somebody sold a big group of stock. It's going to turn around and go back up.' "
O'Reilly, who lost about $30,000 on Orex, responded "super'' when told of Friday's sentence.
"If you would have told me he got 20 years, I'd have been even happier,'' he said. "I feel sorry for his wife. I feel sorry for his children. But I don't have a bit of sympathy for him.''
Fred Kahl was 75 when he first heard the pitch in 1999 and the promise of tripling or quadrupling his money. "I even had my mother buy the stock," a broker told Kahl at the time, according to court records. Kahl invested most of his life savings and lost about $300,000.
Kahl said his broker sold his shares in Dell without his authorization and bought the Orex shares. Kahl testified in court that he immediately asked the broker to sell the shares, but he refused.
Soon after the stock began falling, mob-tied brokers accused Surgent of shorting them on kickbacks. Surgent agreed to have additional shares issued to them and cut them into another stock scam he was working on, prosecutors said during the trial.
Retrial rejected
During the trial, an expert witness testified that, by his calculations, Surgent cheated investors out of more than $46 million, but on Thursday he notified prosecutors there was an error in his calculations. Prosecutors used the $6 million number Friday in court.
Surgent's defense lawyer, David Weiss, asked for a retrial based on the now-dubious testimony, but the judge declined the request. Weiss then asked for a sentence of four to five years.
Weiss pointed out that other participants in the scheme, some of whom cooperated with authorities, were given relatively short sentences. One received 100 days and another 15 months, though another got 12 years.
But prosecutors said Surgent, a disbarred attorney who served 40 months in prison in the 1980s for cheating investors in a bogus gambling company he ran from his Clifton law office, was the invisible hand behind Orex.
He found others to represent the company, putting their names on company brochures and having them sign documents on behalf of Orex, prosecutors said.
According to prosecutors, the homeless "executive'' acknowledged that he did a day-and-a-half of work for Orex, paying bills and signing documents.
Gleeson's sentence came after a 30-minute rambling speech by Surgent in which he blamed others for his downfall.
At the end of the speech, Surgent, a father of seven, asked to be released Friday, arguing that he already had served nine months in jail and suffers from Parkinson's disease.
Assistant U.S. Attorney Suzanne McDermott responded, "We have a deep concern that if he is released, he will start all over again, and there will be more Mr. Kahls out there.''
E-mail: gopal@northjersey.com |
