BAD BOY BROKER NEWS!!
Copyright 1998
New Jersey Online ©
Investor swindlers spared no excess
11/19/98
By Anthony S. Twyman
STAFF WRITER
They lived like kings and queens off other people's money.
Expensive vacations, the finest wardrobes, fancy perfumes and home furnishings -- all paid for through an elaborate pyramid scheme involving $100 million in phony securities and more than 1,750 unsuspecting investors, many of them from the ranks of New Jersey's elderly.
But yesterday the lavish world of Richard Goettlich, the president of First Interregional, a Millburn securities brokerage, and two of his colleagues, came to an end.
"Guilty" is how each responded in open court to charges that they stole municipal bonds and sold bogus investments in office equipment leases, ones already sold to other investors.
The trio -- Goettlich, Anthony Gianninoto, First Interregional's controller and treasurer, and Eileen Laine, who supervised the company's data processing department -- entered the pleas to securities fraud, money laundering, tax evasion and other charges.
At one point, the 42-year-old Goettlich, who had lived in Mendham but now resides in Sarasota, Fla., even used an illegal wiretap on a phone used by U.S. Securities and Exchange Commission investigators gathering information on First Interregional's operations.
Perhaps the most glaring example of the lavish lifestyle funded by investors' money, authorities said, was the $670,000 worth of suits and accessories from Boyd's, an exclusive men's clothing store in Philadelphia, that Goettlich, Gianninoto and two unnamed "conspirators" purchased.
"This was a massive fraud committed against investors large and small," said Faith Hochberg, the U.S. attorney for the District of New Jersey. "Goettlich even defrauded his close friends. In this case, greed had no limits."
In an afternoon news conference, Hochberg said Goettlich and his colleagues -- the 50-year-old Gianninoto of Califon, and the 46-year-old Laine of Millburn -- walked away with about $20 million, money laundered through a money-market account called TDC Financial Services and a phony business called Sports Entertainment Group.
Because of the complexity of the case, the three are not scheduled to be sentenced until March 23. They could face millions of dollars in fines and more than a decade in prison, authorities said.
Gianninoto and Laine were released yesterday on their own recognizance. Goettlich was expected to post bail. Each has signed a cooperating plea agreement and will help the authorities continue the investigation.
Their pleas came nearly two years after 50 FBI agents raided the Millburn brokerage. Yesterday, in a Newark courtroom, Goettlich and his colleagues sat nervously providing one-word answers to the series of charges read by U.S. District Judge Maryanne Trump Barry.
Goettlich's father, Herbert Goettlich, who founded First Interregional in the late 1970s, has not been charged. His brothers, David and Peter, who are said to have helped run the company, also have not been charged. Neither the father nor the brothers were in court yesterday.
Asked at a news conference after the hearing whether they would be charged, Hochberg would say only that they are continuing to investigate.
First Interregional bilked investors through two companies: First Interregional Equities, which sold municipal bonds, and First Interregional Advisors, which sold the phony leases, authorities said.
The two companies worked out of the same Millburn office and shared a staff of fewer than 100 employees. Both companies stopped doing business on March 6, 1997, when the FBI raided their Millburn office, seizing boxes of records.
Since then, some 5,400 people have filed claims against First Interregional Equity and about 1,750 people have filed claims against First Interregional Advisors, authorities said. Both companies filed for Chapter 11 bankruptcy protection last year.
Customers' investments varied from a few thousand dollars to millions of dollars. The average investment was $44,000, according to the SEC.
Richard Hill of the Newark law firm McCarter & English, who is the bankruptcy trustee for First Interregional Equity, said that thus far about $300 million has been paid back to nearly 4,000 customers of that company.
"Almost all investors with valid claims have been paid in full," Hill said, adding that anyone who has a valid claim of $1.1 million or less will be paid in full.
Harrison Goldin, New York City's former top financial officer and the bankruptcy trustee for First Interregional Advisors, could not be reached for comment.
It is unclear whether investors in the leases will ever recoup their losses because the company was not registered with the SEC and the leases were not backed by the Securities Investors Protective Corp., a private, quasi-governmental agency that reimburses swindled customers.
The bonds were SIPC-backed.
Starting in 1992, the leasing company began selling customers groups of leases in office equipment, such as copiers and fax machines, that had been rented to the FBI, the IRS, and other government agencies.
Customers were misled into believing that the "lease assignments," which supposedly made money as the government paid off the leases, were safe and tax-exempt. In reality, the investments were taxable and unsecured. Indeed, most had been sold to as many as two other investors, authorities said.
First Interregional paid its investors by raising money from other sources, including selling more fictitious leases, authorities said. "The underpinnings of this Ponzi scheme were bogus lease contracts that weren't worth the paper they were written on," said U.S. Attorney Hochberg.
Authorities said First Interregional Equity started off as a legitimate company, but in the late 1980s began selling bonds without customers' approval and pocketing the proceeds. Without customers' knowledge, the company also pledged bonds as collateral for more than $1 million in bank loans.
In one instance, the company sold $1 million in securities that belonged to a customer who had recently died, pocketed the proceeds and falsified records to make it look like the dead man had authorized the sale before his death, authorities said.
An elderly South Orange couple, who asked that their names not be used but who knew Goettlich and his family, said they invested $2 million (about $500,000 in leases and the rest in bonds) in First Interregional. They've gotten back about $1 million, thus far.
"The worse part of it is, at this stage in our lives, you cannot replace it," said the wife. "It's sad because we were honest and we didn't deserve this kind of thing."
Editor's Note: Those wishing to file claims to recover money from First Interregional Equity Corp. may contact Patricia Mullon at McCarter & English, Four Gateway Center, 100 Mulberry St., Newark, N.J. 07102, (973) 622-4444.
Those wishing to file claims with First Interregional Advisors Corp. should contact Alex Barron at Sills Cummis Zuckerman Radin Tischman Epstein & Gross, One Riverfront Plaza, Newark, N.J., 07102, (973) 643-6500.
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