Another article on Patterson and Rachfall by The Globe and Mail. However, this one is not available at The Globe and Mail website. I found this one in the WSJ Interactive Business Publications archives. This article is far more detailed than the previous articles I've posted, and actually names other brokerages alleged to be involved in this scheme. You almost feel sorry for these guys. Almost...
In the interests of preserving privacy, I have replaced personal information and spouse's names with the "@" character.
The brokers, the mob, the FBI informant Dirk Rachfall and Michael Patterson are back in Vancouver to await trial for fraud as part of what police say is an international stock manipulation and money laundering ring.
PETER KENNEDY, ANN GIBBON and PAUL WALDIE
07/10/1999
The Globe and Mail
Metro
Page B1
All material copyright Thomson Canada Limited or its licensors. All rights reserved.
Seattle, Vancouver and Toronto -- PETER KENNEDY in Seattle ANN GIBBON in Vancouver PAUL WALDIE in Toronto
After a nightmare week in a Seattle jail, Dirk Rachfall and Michael Patterson are back in Vancouver, thanks to the unyielding support of their families.
As they sat handcuffed and ashen-faced in a tiny courtroom on Tuesday, a U.S. Attorney said the two Pacific International Securities Inc. stockbrokers should remain locked up until they are tried later this year on charges of conspiracy to commit securities mail and wire fraud, conspiracy to launder money and conspiracy to engage in unlawful monetary transactions.
But the judge accepted the argument of their lawyer that Mr. Rachfall and Mr. Patterson are unlikely to "thumb their noses" at the U.S. justice system after their families agreed to provide much of the total $650,000 (U.S.) needed to bail them out.
"We love you," cried Mr. Rachfall 's wife, @@@@@@, who had to be escorted out of a courtroom packed with family and friends who had travelled south from British Columbia.
It was an unreal scene for the two Vancouver brokers, used to the high life, but who by all accounts appear to have been small players in a very big league. The Federal Bureau of Investigations alleges Mr. Rachfall and Mr. Patterson were involved in stock manipulation and money laundering, caught up with a New York crime family and the Russian mob.
The men are back home in suburban Vancouver now, under police supervision. They have been suspended from Pacific International, where they have spent much of their careers. Later this year, they will answer charges in a New York district court.
Mr. Rachfall , 38, and Mr. Patterson, 43, were arrested June 29, after being lured to a restaurant near Seattle's Sea-Tac airport by an FBI informant. They had their golf clubs with them, suggesting they anticipated a round or two at a nearby course before heading back to Canada.
After the pair left the restaurant and crossed the parking lot of a nearby hotel, a host of FBI agents swooped down on them, arrested them and whisked them away to the Federal Detention Center near the airport, an FBI source said.
The FBI's informant, who has since pleaded guilty and reached a deal with the U.S. government, has been identified in court documents only as CW-1, but is believed to be a New York stock promoter.
Mr. Patterson's and Mr. Rachfall 's lawyer, Marvin Storrow, said the arrest happened so quickly that, "I think they were shocked by the process."
The two are among 91 people alleged to have been part of the stock manipulation and money-laundering scheme that defrauded investors of about $10-million.
Allegedly launched in 1995 by the Colombo organized crime family and the Russian mob, the illegal operation was set up in so-called "boiler rooms" in branch offices of five brokerage firms located in New York, California and British Columbia. Stocks are alleged to have moved through Vancouver-based Pacific International and other Canadian brokerages that have not been identified.
Profits generated from these operations were disbursed through wire transfers and cash payments utilizing nominee accounts to hide the proceeds.
The crews of brokers and "cold callers" who participated in this scheme allegedly used false and misleading statements to sell stocks to unsuspecting investors, and received undisclosed cash kickbacks for doing so.
One of the allegations filed in court says that Mr. Rachfall and Mr. Patterson managed several nominee accounts maintained by CW-1 (which stands for co-operative witness 1) at Pacific International, including those in the name of Debra Lee and Associates and Nyack Partners. CW-1 allegedly used these accounts to park stocks whose prices he and others were manipulating.
Among the allegations, a criminal complaint says Mr. Patterson and Mr. Rachfall were in trouble in August, 1997, when a "kiting" scheme by two of their clients went sour. In a telephone conversation, they explained that two clients -- named Mr. Wright and Mr. Williams -- had been buying stocks on margin and trading them through several Canadian brokerage houses in a kiting scheme, which occurs when brokers try to avoid or put off paying for a stock by using credit practices through the use of a series of other accounts.
When Mr. Wright and Mr. Williams encountered legal problems, they ended it. By then, the shares had little value, supposedly leaving Pacific International with $300,000 (Canadian) worth of debt. Pacific International says it is unaware of this debt.
Mr. Rachfall and Mr. Patterson allegedly then enlisted CW-1 for help.
He told Mr. Rachfall to get all the shares he could of Orlando Supercard Inc., a Florida company said to be in the business of marketing prepaid discounted telephone cards, travel discounts and mini-vacations.
At the time, there were about 900,000 shares outstanding, trading between 80 cents (U.S.) and $1. CW-1 said he would buy all the stock and artificially inflate its price to about $5 or $6 to cover the Pacific debt. He allegedly sold them through First National Equity Corp., one of the brokerages used to carry out the stock manipulation scheme. Mr. Rachfall , of German descent, lives in suburban @@@@@ @@@@@@@, B.C., with his wife and children in a modest beige-coloured home, distinguished from the other unremarkable houses on the street by its German clapboard style. It was purchased for $238,500 (Canadian) in 1990, and is decorated with flowers and hanging baskets. The couple have a $150,000 mortgage on the house. The only signs of any wealth are the family's two vehicles: a metallic tan four-door Lexus LX 470, worth about $85,500, which sits in the one-car driveway, and a BMW 540 IA, worth about $75,000.
When a reporter knocked on the door this week, Mr. Rachfall 's wife refused to open it, shouting "no comment, sorry."
Former colleagues of Mr. Rachfall describe him as pleasant and quiet, to the point of being a wallflower. His uncle, @@@@@@@ Rachfall , who has not had much contact with him lately, said that when Dirk was younger, he was "very playful and very smart."
Mr. Rachfall graduated from Simon Fraser University in June, 1985, with a degree in business administration. He got a job as a broker with Pacific International two months later and worked there until his arrest and subsequent suspension. There had been no previous disciplinary actions against him.
According to Vancouver Stock Exchange records, Michael Patterson began in the brokerage business in 1979, with a company called Continental Carlisle Douglas. He then worked for a series of brokerages, including Bond Street International Securities Ltd., which was raided and shut down by regulators in March, 1982.
In May, 1982, he began at Pacific International and has been there continuously, with the exception of a brief gap in 1987, after the stock market crash that year, and another brief lapse when he worked for Global Securities Corp. in 1991 (he was registered with Global for just three days). He returned to Pacific International in March, 1991, and has been there since.
Mr. Patterson has had one disciplinary action against him, in September, 1998, for improperly executing short sales in July, 1996. He was fined $3,000 and had to pay investigative costs of $1,200.
Mr. Patterson lives in suburban @@@@@, B.C., in more elegant digs than those of Mr. Rachfall . His residence is a long, ranch-style home that adjoins a large piece of property also belonging to the family. Both are at the end of a quiet cul-de-sac. The house and property were purchased in 1998, for $727,500.
According to property records, Mr. Patterson owns a 1998 Lincoln Navigator, a car that sells for about $67,000.
Mr. Storrow maintains his clients' innocence. The U.S. courts have yet to prove that either Mr. Patterson and Mr. Rachfall did anything wrong.
Senior officials at Pacific International, which has not been accused of any wrongdoing, said that all financial institutions face significant challenges in detecting unlawful activities. "We process thousands of transactions for hundreds of people every day," said Larry McQuid, a former RCMP officer who is now Pacific International's chief operating officer.
Owned 35 per cent by National Bank of Canada, Pacific International is a small brokerage that has recently been mentioned three times, but not charged, in cases against others involving alleged illegal stock manipulation and money-laundering schemes.
For example, the Vancouver Stock Exchange permanently banned Pacific International broker Jean-Claude Hauchecorne last month after discovering that he bought and sold stock for U.S. organized crime figures in 1995 and 1996.
Saying its compliance procedures exceed industry requirements, Pacific International -- after being most recently mentioned in a U.S. indictment involving a $5.3-million (U.S.) stock manipulation case -- has nonetheless hired an independent consultant to review its compliance measures with a view to making improvements if possible.
Yesterday, Pacific International said it has hired Dean Holley, a former executive director of the British Columbia Securities Commission, to head a team of consultants that will review the company's compliance procedures.
The team also includes former RCMP commissioner Norman Inkster and William Cotter, vice-president of KPMG Investigation and Security Inc.
A senior regulatory official in Vancouver said the allegations in these indictments has caught the commission's attention. "We are obviously concerned about what has happened here and will look into it," said Sasha Angus, director of enforcement at the B.C. Securities Commission.
He said part of the problem with the allegations involving Mr. Patterson and Mr. Rachfall was that the practices occurred in the over-the-counter market in the United States, which has no surveillance.
"The VSE has surveillance and we can oversee cases easily. It's more difficult to monitor U.S. trading than Canadian trading."
Court documents show that the arrest of Mr. Patterson and Mr. Rachfall may have resulted not from any action taken by regulatory officials, but rather from evidence provided by one of their own clients.
During a conversation that was recorded on Sept. 22, 1997, and obtained by the FBI, Mr. Patterson allegedly told someone identified in court documents as John Doe that Mr. Rachfall was responsible for raising the price of Orlando Supercard shares to $2 from 50 cents.
"[Mr.] Patterson further explained to John Doe in substance that they planned to retail the stock through a New York connection," says an FBI criminal complaint, which indicates the two Pacific International brokers were owed money by John Doe.
When John Doe expressed a reluctance to go along with the plan, Mr. Patterson stated in substance that he needed $1-million (Canadian) to clear Pacific's debt, and that if John Doe couldn't clear the debt he should consider going along with the plan.
Five days later, the FBI complaint alleges, a meeting was held in New York between John Doe, Mr. Patterson and the informant CW-1, who wanted to know how they could secure full control of Orlando Supercard by rounding up about 100,000 shares that were still outstanding at the time.
After securing control, CW-1 and others sold about "several thousand dollars of stock" at First National between September, 1997, and October, 1997, without disclosing the cash payments they received in exchange for doing so.
On June 22, 1999, the FBI requested that warrants be issued for the arrest of both Mr. Patterson and Mr. Rachfall.
THE BROKERAGES
Names and locations of the brokerages that the FBI alleges were conduits in a stock manipulation scheme. None of the brokerages have been charged with any wrongdoing.
Global
San Francisco, California Brooklyn, New York New York, New York
(2 locations)
Amerivet
Inglewood, California* Miller Place, New York New York, New York
Monterey Park, California -*Brokerage headquarters
First National
Point Pleasant Beach, New Jersey* New York, New York (2 locations)
Westbury, New York Newark, New Jersey
Three Arrows
Bethesda, Maryland New York, New York (multiple locations)
Pacific International
Vancouver, British Columbia
Source: FBI Indictment
KJC |
