Doom TRAV!: "Lawyer Pleads Guilty to Securities Fraud
By GRETCHEN MORGENSON
artley T. Bernstein, a well-known securities lawyer in New York,
pleaded guilty Thursday to securities fraud conspiracy and perjury
in Federal District Court in Manhattan and agreed to forfeit $850,000 in
illegal proceeds made as an insider in five fraudulent public stock
offerings, Federal prosecutors said.
Bernstein's guilty pleas were the latest development in the investigation by
Mary Jo White, the United States Attorney for the Southern District of
New York, into Sterling Foster, a defunct brokerage firm in Melville,
N.Y. Last November, Ms. White secured an indictment against
Randolph Pace, the former principal of Rooney Pace, a brokerage firm
expelled from the industry in 1988, which charged that Pace and
associates had obtained more than $100 million in illegal profits through
six purportedly fraudulent offerings taken public by Sterling Foster. The
indictment also charged that Pace, who had been barred from the
securities industry, secretly controlled Sterling Foster.
Pace has denied wrongdoing in the matter. But the guilty pleas by
Bernstein, who prosecutors say was part of the Sterling Foster inner
circle, almost certainly increase the pressure on Pace. Robert G.
Morvillo, the lawyer representing Pace, expressed shock when told of
the pleas. He declined to comment until he had read the pleadings.
Bernstein, 49, the former partner of Bernstein & Wasserman,
represented Sterling Foster and various companies that issued stock to
the public through the brokerage firm between 1994 and 1996. But in
addition to providing legal advice to his clients, according to the United
States Attorney, Bernstein made loans totaling $150,000 to four
companies that were later taken public by Sterling Foster: Advanced
Voice Technologies Inc., Com/Tech Communications Technologies
Inc., the Embryo Development Corporation and Applewoods Inc.
Bernstein also received shares in Perry's Majestic Beer Inc., before it
became a public company in an offering underwritten by VTR Capital
Inc. and Investors Associates.
As part of a secret agreement, Bernstein received securities in advance of
the public offerings in return for his loans. Under the arrangement,
Bernstein agreed to sell his securities back to Sterling Foster at the time
of each offering at prices substantially above his cost but below those
paid by the investing public. As a result, the underwriters earned tens of
millions of dollars in illegal profits, representing the difference between the
below-market price paid to Bernstein for his shares and the market price
paid by public investors.
The scheme was kept secret from investors because in each offering
statement it was noted that those who had received stock from the
issuers in return for preinitial public offering loans were subject to lock-up
agreements prohibiting them from selling their securities until as long as
two years after each offering.
In addition, following the Applewoods stock offering, Bernstein sold his
securities through other brokerage firms at prearranged times. He then
kicked back the proceeds from these sales indirectly to Sterling Foster,
prosecutors said.
Finally, Bernstein committed perjury in testimony he gave before the
Securities and Exchange Commission in January 1998 relating to whether
any agreements existed surrounding the sale of his stock in Perry's
Majestic Beer.
A former assistant in the Manhattan district attorney's office, Bernstein
represented small investors in securities arbitration cases against
brokerage firms during the 1980's. He changed sides in the 1990's when
he began representing small brokerage firms. Bernstein represented
Stratton Oakmont, a brokerage firm that was closed by regulators in
1996, and Biltmore Securities, a brokerage firm in Fort Lauderdale, Fla.,
which has also been the subject of numerous regulatory actions.
Announcing the plea deal, Ms. White said: "Complicated criminal
schemes such as these often require the expertise of lawyers, accountants
and other professionals, whose credibility and expertise are used to sell
the scheme to the unsuspecting public. For that reason, dishonest
professionals pose a special danger to the investing public and will
continue to be aggressively prosecuted."
Bernstein faces a total of 15 years in prison and fines of $750,000 as a
result of the guilty pleas. His lawyer, Scott Edelman of Milbank, Tweed,
Hadley & McCloy, did not return a phone call seeking comment. |
