Re: 6/14/00 - Feds nab 120 for fraud; Mob members, securities dealers, charged with bilking victims of more than $50 million
Feds nab 120 for fraud
Mob members, securities dealers, charged with bilking victims of more than $50 million
June 14, 2000: 6:23 p.m. ET
NEW YORK (CNNfn) - In what authorities are calling the largest securities-fraud bust in U.S. history, 120 defendants -- including members of all five New York City Mafia crime families and the treasurer of New York City's police-detectives pension fund -- were indicted Wednesday for allegedly participating in a securities-fraud scheme involving racketeering and physical violence and costing investors $50 million.
FBI and SEC officials said this case represents an emerging trend of the New York crime families banding together to infiltrate the securities markets. However, they pointed out that they have not infiltrated the mainstream securities markets, but a small portion of the low-price securities, or "micro-cap," market.
The result of a 10-month investigation called Operation Uptick were sixteen indictments and seven criminal complaints, issued in connection with the publicly traded securities of 19 companies and the private placement of securities of 16 companies over five years, including the fast-food chain Ranch*1.
Among those indicted were: 11 alleged members and associates of organized crime; 57 licensed and unlicensed stockbrokers; three recruiters of corrupt brokers; 12 stock promoters; 30 officers, directors or other "insiders" of the companies issuing the securities; two accountants; an attorney; an investment adviser and a hedge fund manager. Defendants could face jail terms ranging from five to 80 years.
Mary Jo White, U.S. attorney for the Southern District of New York, Barry Mawn, assistant director of the New York office of the FBI, and Richard Walker, director of enforcement for the U.S. Securities & Exchange Commission, announced the indictments at a press conference in lower Manhattan Wednesday.
"This is the largest securities fraud takedown in history," said White. [WAV 428KB] [AIF 428KB]
Charges included racketeering, securities fraud, pension fund fraud, bribery of brokers and union officials, extortion, money laundering, witness tampering and solicitation to commit murder in nationwide security schemes worth more than $50 million, White said.
If convicted, each of the defendants face anywhere from five to 80 years in jail, White said.
The methods used, she said, included "controlling crews of corrupt brokers, sometimes entire branches of brokerage firms, bribing other brokers to sell and fraudulently inflate the price of stocks, running high-pressure boiler rooms, bribing union officials and fiduciaries to breach their duty to their members, and using violence and threats of violence to enforce and tighten the enterprise's criminal grip."
The enterprise was "enhanced by the use and abuse of the Internet," White said, alleging that e-mail blitzes were sent to prospects -- often senior citizens -- "to fraudulently hype stocks."
Early Wednesday morning, 600 FBI agents and police officers arrested 98 of the 120 defendants in New York, New Jersey, Connecticut, Pennsylvania, Maryland, Virginia, Georgia, Florida, Alabama, Texas, Illinois, Utah and California.
This was the largest number of people ever arrested at one time on securities-fraud-related charges, and one of the largest number ever arrested in a criminal case of any kind. White said more arrests were expected. The defendants were all being arraigned in Federal court in Manhattan Wednesday.
'Fraud central'
The charges involve schemes in which members of a central brokerage center called DMN Capital Investments Inc. -- operated by men with links to the Bonanno and Colombo crime families, namely Salvatore Piazza, 48, of Howard Beach, N.Y., and James S. Labate, 45, of Staten Island - allegedly infiltrated licensed broker/dealers, bribing them to sell penny stocks, some of which were for dummy companies, to unsuspecting investors, many of whom were senior citizens.
DMN Capital was "fraud central," White said. "It was truly an investment bank to the crooked and the corrupt."
Since last December, the FBI has secretly bugged the company's offices, she said, recording more than 1,000 hours of conversation that led officials to conclude, "The degree and reach of this racketeering enterprise knew no bounds."
One of the companies in which investors were allegedly duped into investing was called Wamex Holdings Inc., which had a market capitalization of $184 million and was supposedly set to initiate a new alternative stock-trading system on July 4, SEC officials said. The company -- of which little financial information is available -- went so far as to put a banner advertisement on the Yahoo! Web portal this morning and had planned to initiate a television-ad campaign, officials said.
"The company never engaged in any illegal activity and it has no relationship with the mob," said Sascha Mundstein, who identified himself as Wamex's chief operating officer.
The defendants were also indicted for allegedly making illegal private placements of shares of the Ranch*1 fast-food chain and companies called Manhattan Soup Man and Jackpot Entertainment.
Two officers of the Ranch*1 chain, Sebastian Rametta and James F. Chickara, are among those charged with racketeering and are alleged associates of the Colombo crime family.
One of the defendants, Allen Wolfson, a Salt Lake City, Utah securities dealer, allegedly bribed brokers to promote the shares of such small cap companies as Beautymerchant.com, Learner's World Inc., Rollerball International Inc., Healthwatch Inc. and HYTK Industries Inc. Wolfson and his associates received at least $7 million in profits from that scheme.
According to the SEC, DMN Capital, the New York-based brokerage house, also acquired majority shares of four companies -- Spaceplex Amusement Centers, Reclaim Inc., Beachport Entertainment Group Inc. and International Nursing Services Inc. -- and then bribed securities brokers to illegally push shares of those companies to consumers. The brokers got about $3 million in bribes for their participation in the scheme, according to the agency. The principals of DMN, Salvatore Piazza and James Labate, allegedly netted $5 million in profit from the scheme.
Another fraudulent company in which investors were duped into investing was a software company called E-Pawn, with a market capitalization of $198 million. That company had an interest in a smaller Brooklyn company called Learner's World Inc., an alleged Brooklyn day-care center, which had planned to go public in 1999. Authorities say that organized crime netted $3.5 million from the initial 2000 shares in Learner's World that were to be issued.
Officials suspended trading in Wamex and E-Pawn Wednesday morning "based on inaccurate or incomplete information about those companies presently in the marketplace," said Richard Walker of the Securities and Exchange Commission.
Crime families' muscle a factor
Several of the defendants were also charged with threats of physical violence and murder against licensed stockbrokers to force their participation in the schemes. Some stockbrokers were allegedly beaten up for not cooperating.
Another part of the indictment included Stephen E. Gardell, a retired New York City police detective, who, as treasurer of the New York City Detectives' Endowment Association, allegedly took kickbacks from Piazza and Labate to make illegal investments on behalf of the detective's pension fund. Money from this scheme was funneled into offshore accounts and eventually made its way back to the Bonanno crime family, officials said.
In that scheme, corrupt securities industry professionals were allegedly put in charge of managing the detective unions' pension funds, who in turn structured the investments to divert a portion of the funds to the defendants, authorities said.
Frank A. "Frankie" Persico, the alleged Colombo crime family associate, was treasurer of Production Workers Local 400, another union targeted by the racketeering scheme, officials said.
Gardell, the retired detective, also allegedly leaked confidential law enforcement information about organized crime, helped obtain gun permits for organized crime figures, and influenced the outcome of a New York Police Department investigation into the activities of one of the defendants.
Gardell also allegedly secured parking permits for organized crime members, the complaint said.
Other prominent figures indicted in these schemes include Colombo crime family associates Frank A. Persico and Anthony Stropoli, and Bonanno crime family associate Robert Lino.
Some of the 21 broker dealers and financial firms allegedly infiltrated include Monitor Investment Group Inc., Meyers Pollock and Robbins, First Liberty Investment Group Inc., William Scott & Co., Atlantic General Financial Group, First Fidelity Co., and Bryn Mawr Investment Co.
Officials said plans are in the works to repay some of the investors who were bilked out of their money and that the integrity of the New York City detective's pension fund was not affected.
Though the alleged use of the Internet is a recent development among criminals, Assistant FBI Director Barry Mawn said, many of the practices were familiar: "No matter what market the mob tries to infiltrate, from the fish market to the stock market, their methods are always the same: violence and the threat of violence."
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