Re: 11/2/99 - Stock Slayings Call Attention to Brutal Turn in White-Collar Crime
New York Times
November 2, 1999
Stock Slayings Call Attention to Brutal Turn in White-Collar Crime
By DIANA B. HENRIQUES
When two young stockbrokers were found shot to death in an affluent New Jersey suburb last week, the headlines may have conjured up an image of well-tailored suits and polished wingtips, a carpeted blue-chip world where violence is usually a stranger.
In fact, both victims, Albert Alain Chalem, 41, and Maier Lehmann, 37, worked in the seedy world of "penny stocks," cheap but very risky securities that are easily manipulated by insiders at the expense of naive public investors. This is not an elegant world: The now-indicted penny-stock brokerage firm where Chalem had worked once arranged to receive its mail at Body by Boris, a commercial gymnasium in Red Bank, N.J.
But until recently, even this gritty stretch of Wall Street had been considered relatively safe territory, where bribes were far more likely than bullets. The killings last week, although still not definitively linked to the victims' business life, nevertheless underscored what people who have studied the industry for years had already concluded: Violence among people involved in stock fraud is on the rise.
Criminal cases prosecuted against penny-stock figures in the past two years have offered many examples that point to this new brutality:
Claudio Iodice, a stock promoter, was accused by federal prosecutors in Manhattan of threatening a knife attack against the family of a penny-stock company's chairman. He strongly denies the charge but has been unable to stand trial because he swallowed what his lawyer called "a very caustic substance" that required the removal of his esophagus. His lawyer said that the injury was accidental.
Barclay Davis, another New York City stock promoter, has pleaded guilty to charges that he tried to hire a hit man to attack his 67-year-old accountant, who had agreed to testify against Davis in a stock manipulation case.
On a tape recording in that case, Davis directed the hit man, actually an undercover agent, to attack a speculator who he thought was trying to drive down the price of the penny stock Davis was promoting: "I want him hospitalized. Broken legs, whatever," he said.
Ian Richard Hosang pleaded guilty in March to federal conspiracy and money-laundering charges in a stock manipulation case in which, prosecutors said, he and some associates had beaten up a rival stockbroker and hung him from his heels out of the ninth-story window of a Manhattan office building.
The defendants in a federal penny-stock fraud conspiracy case filed this summer in Tampa, Fla. -- including Philip Abramo, identified in the indictment as a member of the DeCavalcante crime family -- were accused of using their "relationship to the Mafia" to threaten uncooperative brokers, threats that became more potent after the murder of a Bahamian connected to a company controlled by the defendants.
The same defendants were also accused of taking handguns and a baseball bat into the Drake Hotel in Manhattan to threaten another penny-stock operator whom they suspected of swindling them out of $1.7 million. The defendants deny the charges.
"The profits in penny-stock fraud can be as good as the profits in cocaine, prostitution and loan sharking, and it's always been a lot safer," said John Woods, the editor of Stock Watch, a news service based in Vancouver, British Columbia, that monitors that region's penny-stock industry. "Now, with this frothy market, it is a lot more profitable than it has ever been before, but it is no longer as safe."
The killings, which were a hot topic of conversation last week in circles ranging from securities law to Internet chat rooms, occurred late on the evening of Oct. 25 in the scenic horse-country town of Colts Neck, N.J.
The two victims, their cellular phones nearby, were found inside the lavish mansion where Chalem lived with his girlfriend, whose family owned the home. Both men had been shot repeatedly in the head, and there was no sign of forced entry or burglary.
Investigators have not ruled out the possibility that a personal motive, unrelated to their business dealings, may have led to the deaths. But John Kaye, the Monmouth County prosecutor, who is overseeing the case, said that investigators strongly suspected that the killings stemmed from the men's tangled and clearly questionable business activities.
They operated an Internet stock-promotion Web site -- StockInvestor.com -- that featured an analyst's reports that were outdated and, according to the analyst, pirated from other Web sites without permission. Lehmann had a criminal record for mail fraud and, without admitting or denying his guilt, had paid $630,000 to settle regulatory charges that stemmed from a 1997 stock manipulation case.
Chalem had spent more than a year as a broker for A.S. Goldmen & Co., a penny-stock firm based in Iselin, N.J., that was charged with fraud and racketeering in a case filed in July by the Manhattan district attorney's office. Officials of the firm have denied any wrongdoing. Goldmen is the firm that had its mail occasionally forwarded to the Body by Boris gym.
Moreover, people who have reviewed the two men's dealings with regulators say that both victims had provided information to law-enforcement or regulatory agencies in recent years, prompting some speculation that the killings were carried out either in retribution or as a way of preventing further cooperation.
Penny-stock swindles have been a fixture of every stock-market boom since World War II, several white-collar crime experts pointed out. But in the past, such schemes were typically carried out without visible violence, perhaps as a way of ensuring that securities fraud, as a nonviolent crime, would remain a low priority for law enforcement.
"Cooler, wiser heads knew that you didn't want to attract attention by having people showing up dead in million-dollar mansions," said Howard Sirota, a defense lawyer experienced in white-collar crime cases. "But this new, younger breed has all come of age in a market that goes up and up and up. They feel invincible, and they have gone completely over the top now."
Christopher Bruno, who was one of the federal prosecutors that handled the Davis case, said that it has become increasingly dangerous to interfere in stock promoters' carefully choreographed efforts to manipulate the prices of penny stocks.
"In this current environment, anyone who seeks to undermine the carefully structured penny-stock deals places themselves at risk of suffering extremely violent consequences," Bruno said Monday. One factor contributing to this rise in violence, several former law-enforcement officials said, may be the invasion of the penny-stock business by organized-crime figures from Russia and Eastern Europe, who have a reputation for extraordinary ruthlessness.
"The rules of engagement have changed dramatically," said Martin Pollner, a former director of law-enforcement for the Treasury Department who is now with the Manhattan firm of Loeb & Loeb. "We sort of 'tamed' other elements of organized crime, but with the new wave coming in, those old rules no longer apply. We are back to the old Al Capone days."
But even the traditional crime families seem to be resorting to increasingly violent methods to enforce stock-fraud activities, perhaps because of growing competition from the recent arrivals, suggested Norman Willox, chief executive of the National Fraud Center, a consulting firm in Philadelphia.
"The Russians have redefined what organized crime is in the United States, helping to create an environment in which any organized-crime group will work with any other for common ends, but with very little or no trust between them," he said. "As a result, there clearly has been an increase in violence in this area, and I think it is going to increase. We haven't even seen the tip of the iceberg yet."
Federal regulators have acknowledged at Senate hearings this year that elements of organized crime have made visible, although limited, inroads into the penny-stock world. But balancing that ominous development, they said, has been the increased cooperation between the federal Securities and Exchange Commission and federal and state prosecutors around the country, especially in the New York region and in Florida.
"We have felt in the past that our civil remedies were simply not enough to achieve deterrence in the penny stock world," said Richard Walker, the director of enforcement for the commission. "They were just considered a price of doing business."
But now the risk that convicted penny-stock swindlers will go to prison has greatly increased, Walker said. "I think our efforts have had bite and impact," he said.
The increased enforcement pressure may even be one factor contributing to the increased violence, especially regarding attacks on people believed to be cooperating with the authorities, Walker said. "Clearly, the consequences are far more serious for people if they are caught, and it may well have led to greater desperation among the people involved," he said.
But Woods, the Vancouver editor, said that crime figures are no doubt balancing any perceived increase in the riskiness of stock manipulation against the "absolutely astronomical" rewards being generated by the extraordinary stock-market boom. That boom is luring neophyte investors who are easy prey for the unscrupulous, especially those hiding behind the anonymity of the Internet, he said.
Whatever the sources of this new violence, many experienced securities lawyers are predicting that the killings last week will merely intensify the federal interest in pursuing penny-stock cases, especially those involving organized-crime connections.
"I think you're going to see a huge effort to crack down on everyone who is involved in organized crime on Wall Street," said Sirota, the lawyer. "You just can't go around killing cooperating witnesses."
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