From today's SEC Digest:
SEC, U.S. ATTORNEY, FBI, NY ATTORNEY GENERAL ANNOUNCE CHARGES IN BOILER-ROOM CASE WHICH INCLUDES ALLEGED ASSOCIATES OF ORGANIZED CRIME
The Commission today charged 18 individuals in an enforcement action as part of its continuing battle against boiler-room fraud in the market for microcap securities. The Commission's administrative order instituting proceedings (Order) alleges that the respondents conducted a fraudulent scheme while associated with a Long Island broker-dealer, First United Equities Corporation, that is now defunct. The Order alleges that the respondents reaped millions of dollars in illicit profits from the scheme.
In a related criminal prosecution, the U.S. Attorney for the Eastern District of New York, the Federal Bureau of Investigation and the New York State Attorney General simultaneously announced the indictment of 20 defendants. The criminal indictments allege that two of the persons charged are associates of the Gambino organized crime family.
SEC Director of Enforcement Richard H. Walker said, "Today's charges involve a classic boiler-room operation, carried out by individuals who were willing to tell any lie - no matter how brazen - in order to get their hands on the public's hard-earned money. These cases demonstrate our continuing commitment to rooting out fraud in the microcap market. Finally, for those who would contemplate engaging in this kind of activity, including members of organized crime, the most daunting news about today's action is that it is the result of outstanding coordination among the SEC, the U.S. Attorney for the Eastern District of New York, the FBI and the New York State Attorney General."
The Commission's Order alleges as follows:
From August 1995 through at least October 1997, operating through First United, the respondents fraudulently marketed the stock of National Medical Financial Services, Inc. (NMFS) and Ashton Technology Group, Inc. (Ashton) to unsuspecting investors. After underwriting initial public offerings for both of these companies, First United and its principals maintained control over large blocks of the stock. Thereafter, registered representatives employed by First United used high-pressure sales tactics and a variety of misrepresentations to induce investors to purchase this stock. In addition to misrepresenting the prospects for NMFS and Ashton stock, certain of the respondents falsely told investors that no customer of First United had ever lost money and that the firm would reimburse customers for any losses on NMFS or Ashton.
First United filled customers' buy orders with NMFS and Ashton stock that either was held in First United proprietary accounts, or that came from nominee accounts secretly controlled by the principals of First United. The respondents amassed unlawful profits totaling millions of dollars from this activity.
Once a customer purchased NMFS or Ashton stock through First United, the respondents employed various illicit methods to prevent that investor from selling the stock. Respondents either bullied investors into abandoning their attempts to sell the stock, or simply failed to execute sell orders. Respondents also effected unauthorized purchases of NMFS and Ashton stock in the accounts of certain First United customers, including on at least one occasion a purchase in the account of a customer who was deceased.
The respondents named in the Commission's Order are as follows:
Principals at First United
Hunter Adams, age 33, of Atlantic Beach, New York, a former de facto control person of First United;
Jason A. Cohen, age 48, of Albertson, New York, formerly Chairman of First United;
Steven M. Cohen, age 43, of Port Washington, New York, formerly a registered principal of First United;
David Hirsch, age 38, of Jericho, New York, a former de facto control person of First United;
Jonathan D. Winston, age 35, of Locust Valley, New York, formerly Vice Chairman of First United;
First United Trader
John J. Gremmo, III, age 44, of West Gilgo Beach, Babylon, New York;
First United Registered Representatives
James L. Bila, age 30, of Holbrook, New York;
Christian W. Blake, age 30, of Brooklyn, New York;
Louis R. Facchini, Jr., age 34, of Parkland, Florida;
Roberto A. Mangiarano, age 27, of La Jolla, California;
Joseph P. Mannino, age 27, of Lindenhurst, New York;
David M. Margules, age 44, of Hackensack, New Jersey;
James J. Pellizzi, age 33, of Melville, New York;
David M. Pesso, age 32, of Bell Harbor, New York;
Michael Pugliese, age 30, of New York, New York;
Christopher J. Russo, age 34, of Woodmere, New York;
Howard I. Weinstein, age 51, Port Washington, New York; and
Robert J. Winston, age 33, of New York, New York.
The respondents are all charged with violating or causing others to violate Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.
The Commission acknowledges the assistance of the U.S. Attorney for the Eastern District of New York, the FBI and the New York State Attorney General in this matter. (Rels. 33-7963; 34-44051; File No. 3-10437; Press Rel. 2001-25)
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