Re: 6/14/00 - FBI: Five Organized Crime Families of La Cosa Nostra in the New York City area, have been charged with securities fraud and related crimes.
(Part 2 of 2)
Indictments and Complaints
Charging Internet-Related Fraud
The Indictments and Complaints unsealed today allege various frauds involving the use of Internet-related companies to commit fraud, or the use of the Internet to promote the securities of other companies whose stock was being manipulated. All of these cases arise out of the undercover investigation because the perpetrators sought to use DMN Capital in their illegal schemes.
1. WAMEX Holdings, Inc.: WAMEX Holdings Inc. is a Brooklyn-based corporation purportedly in the business of developing an alternative trading system ("ATS") for securities, and whose common stock trades on the OTC Bulletin Board. In United States v. Cushing, et al., 00 Mag. 1118, the three defendants charged are MITCHELL CUSHING, WAMEX's Chief Executive Officer; RUSSELL CHIMENTI, WAMEX's Chief Administrative Officer; and ROGER DETRANO, a New York-based stock promoter, were charged with conspiracy to commit securities fraud from December 1999 to June 2000. According to the Complaint, the scheme involved the issuance of false press releases stating that ATS would be available by July 4, 2000, misrepresentations in SEC filings regarding the source and nature of funding that WAMEX had obtained, and the payment of secret exorbitant commissions to brokers who sold WAMEX stock to public customers.
The price of WAMEX stock increased from approximately $1.12 per share on December 9, 1999, to approximately $19.50 per share on February 28, 2000. As of June 12, 2000, WAMEX had a market capitalization of over $184 million. In connection with today's actions, the SEC imposed a trading halt on WAMEX stock.
2. E-Pawn.com: E-Pawn.com is a Florida-based company that describes itself as "a multifaceted Internet portal, website designer and e-commerce software developer," and whose stock trades on the OTC Bulletin Board. In United States v. Greyling, et al., 00 Cr. 631, three defendants were charged with securities fraud in connection with an alleged scheme, from January 2000 to June 2000, to pay 1.0 million shares of E-Pawn to be used to bribe brokers to create retail demand for E-Pawn stock, and to use Internet sites and bulk E-Mail to tout E-Pawn to the public. Charged in this scheme are LESLIE GREYLING, an alleged undisclosed principal of E-Pawn; ELI LIEBOWITZ, the President, Chief Financial Officer and a Director of E-Pawn; and TINA ALEXANDER, a Texas stock promoter. As of June 12, 2000, E-Pawn had a market capitalization of approximately $198 million. In connection with today's actions, the SEC imposed a trading halt on E-Pawn stock.
3. FinancialWeb.com: FinancialWeb.com ("FWEB") is a Florida-based company purportedly in the business of creating and operating investment-related Internet services, whose stock trades on the OTC Bulletin Board. In United States v. Laken, et al., 00 Cr. 651, it is alleged that, from February 2000 to June 2000, GLENN B. LAKEN, a hedge fund manager and commodities trader on the Chicago Mercantile Exchange, held a large position in FWEB stock, and enlisted others to fraudulently inflate the price of FWEB stock, and to conceal his identity as the seller. To effect this scheme, LAKEN employed the services of DAVID W. BRUNO and ADAM KRIFTCHER, who allegedly controlled a number of Internet websites, including stockregister.com; bullstrategies.com; wallstreetmarquee.com; atthebell.com; and stockplayground.com, which they allegedly used to conduct coordinated Internet promotions of the stock of publicly-traded companies. Also allegedly involved was MICHAEL PORRICELLI, President of Core Financial, LLC, who controlled a number of Internet websites that he allegedly used to conduct coordinated promotions of the stock of publicly-traded companies. These websites included otcbbstockwatch.com; redalert.com; subway.com; americananalyst.com; powerstocks.com and fortuneinvestments.com. LAKEN also allegedly agreed to use the services of LIONEL REIFLER, President of Fortune Investments, Inc., who allegedly offered a fraudulent newsletter program used to generate high trading volume in OTC securities at inflated prices. According to the Indictment, it was agreed that BRUNO, KRIFTCHER and PORRICELLI would feature FWEB on websites that they controlled, would promote FWEB by sending bulk E-mails to their website subscribers, and that BRUNO and KRIFTCHER would prepare and post on their websites promotional materials describing FWEB's business and its common stock. LAKEN allegedly agreed to pay BRUNO, KRIFTCHER, REIFLER, and PORRICELLI for their promotional efforts with FWEB stock, and to conceal that fact, as well as LAKEN's involvement in those efforts. Also named in the Indictment is PETER J. WORRELL, a stock broker at and principal of Royal Hutton Securities Corp., who is charged with bribing brokers at Royal Hutton to create retail demand for FWEB stock.
4. SearchHispanic.com and GTrade Network, Inc: SearchHispanic.com is a Plainview, New York-based company engaged in creating and maintaining an Internet website of interest to persons of Hispanic descent. GTrade Network, Inc. ("GTrade") is a Great River, New York-based company that held itself out as an incubator of Internet-related and e-commerce businesses. GTrade common stock trades on the OTC Bulletin Board, and SearchHispanic.com has common stock that is issued, but has not publicly traded. In United States v. Downing, et al., 00 Cr. 555, three persons were charged with a fraudulent scheme, from March 2000 to June 2000, in which SearchHispanic.com would go public by "reverse merging" into GTrade, a publicly-traded company, and then the defendants allegedly would artificially inflate the price of the common stock of the merged entity. According to the Indictment, JAMES DOWNING, the Chief Executive Officer and controlling shareholder of SearchHispanic.com, met with alleged members and associates of organized crime, including SALVATORE R. PIAZZA, a/k/a "Sal," and agreed that to effect the scheme, approximately 45 percent of the stock in the post-merger entity would be deposited into secret offshore nominee accounts that DOWNING would maintain an interest in, and that he would use to fund the payment of secret bribes to brokers who would generate trading volume in SearchHispanic.com stock. DOWNING would also allegedly sell his personal holdings of the stock to enrich himself and others. As part of the scheme, SAMUEL WARD and DANIEL DRUCKER, both certified public accountants, allegedly agreed to falsify the financial statements of SearchHispanic.com and GTrade, and to issue unqualified audit opinions certifying that the financial statements of the companies were accurate.
5. Cybersentry, Inc.: Cybersentry, Inc. was a Florida-based communications software company that specialized in facilitating secure communications on the Internet. Cybersentry common stock previously traded on the OTC Bulletin Board, and in May 2000 commenced trading on the American Stock Exchange. Two Indictments charging fraud in connection with Cybersentry were unsealed today -- United States v. Wager, et al., 00 Cr. 629, and United States v. Brigandi, et al., 00 Cr. 630. According to the Indictments, NEIL WAGER, an individual residing in Boca Raton, Florida, and BRUCE BRIGANDI, an individual residing in Roslyn Heights, New York, each allegedly acquired a large block of Cybersentry common stock. According to the Wager Indictment, shortly after acquiring the shares, WAGER agreed to pay undisclosed bribes to KARL FREDERICK GRAFF, a stock broker employed by Equitrade Securities Corp., in exchange for efforts by GRAFF to sell WAGER's stock to GRAFF's retail clients. According to the Brigandi Indictment, shortly after acquiring his shares, BRIGANDI participated in an illegal scheme in which he agreed to pay bribes to brokers in exchange for their efforts in generating retail demand for Cybersentry common stock. It is alleged that these frauds occurred from March 2000 to June 2000.
6. Bookdigital.com: Bookdigital.com was a New York-based corporation that held itself out as a development-stage company in the business of creating and operating reference sites on the Internet. In a Complaint captioned United States v. Vahab, 00 Mag. 1120, RAY VAHAB, the Chairman of the Board and Chief Executive Officer of Bookdigital.com, allegedly controlled a vast majority of Bookdigital.com stock, and was also the owner of First Madison Securities, a New York-based broker-dealer. The Complaint alleges that from April 2000 to June 2000, VAHAB embarked on a scheme in which he would first raise capital by paying bribes to brokers to sell Bookdigital.com private placement stock, and then manipulate the publicly-available stock by "reverse mergering" Bookdigital.com into a publicly-traded shell corporation.
7-9. Exchange Online, Inc., Amerivest.Online Inc., and Franklin Services Corp.: Each of these three companies purported to be involved in Internet-related businesses, and were allegedly the subject of sham private placement offerings as set forth below in United States v. Tavolacci, et al., 00 Cr. 554.
Fraud and Manipulation
Of Publicly Traded Securities
Certain of the Indictments and Complaints unsealed today charge fraud in connection with the markets for publicly-traded securities.
1. In United States v. Dacunto, et al., 00 Cr. 620, 26 defendants were charged with manipulation of four of the publicly-traded securities identified in the Lino Indictment as being the subject of manipulation by the RICO Enterprise B- Spaceplex, Reclaim, Beachport, and International Nursing. The defendants named in the Dacunto Indictment, which covers the period from December 1994 to late 1996, include persons who served as brokers at Monitor Investment Group, the broker-dealer controlled by the RICO Enterprise that was used to manipulate the markets in the above-mentioned publicly-traded securities. The defendants named in the Dacunto Indictment include the following persons, who were either promoters, managers, or licensed or unlicensed brokers: ROBERT J. DACUNTO; MICHAEL P. DACUNTO; JOSEPH P. MEDURI; VINCENT A. PADULO; JR.; VITO G. PADULO; JOHN BRUZZESE; SALVATORE F. RUGGIERO; PATRICK GIGLIO, a/k/a "Patty"; CHESTER L. CHICOSKY; LAWRENCE M. CHOINIERE; WILLIAM P. BURKE; KEVIN RADIGAN; GEORGE P. BISNOFF; DAMIEN R. DOUGLAS; CRAIG P. MCGUINN, II; MARC L. WEISSMAN; MARK M. DANIELI; IRVING STITSKY; PAUL L. BURTON; KENNETH J. FUINA; MARC I. BURTON; EMMANUEL G. GENNUSO; and FACUNDO PONCE, a/k/a "Frank"
2. United States v. Wolfson, et al., 00 Cr. 628, charges seven persons in a scheme, occurring from 1988 to May 2000, to manipulate the stock of five companies whose securities traded on the OTC Bulletin Board or the NASDAQ Small-Cap Market. They include: (a) ATR Industries, Inc., a Ft. Lauderdale company in the business of operating home cleaning services; (b) Rollerball International, Inc., a Delaware corporation that manufactured inline roller skates; (c) Learners World, Inc., a New York corporation that operated learning and day care centers for children; (d) Healthwatch, Inc., a Minnesota corporation that manufactured medical products; and (e) Hytk Industries, Inc., a Nevada corporation that produced and transported natural gas.
The defendants charged in this case are: ALLEN WOLFSON, a Salt Lake City-based stock promoter who was a consultant to Cyberamerica Corp., a company that purported to be in the business of providing financial consulting services to distressed public companies; MICHAEL GRECCO, a New York-based stock promoter; JOHN MICHAEL BLACK, a stock broker and principal of Grady and Hatch and Co., a Manhattan broker-dealer; SPIRO LAZARETOS, a broker who worked at Caribbean Securities, a New York broker-dealer, and at Grady and Hatch; ROBERT BALSAMO, a stock promoter who worked at Wolff Investment Group and Delta Asset Management, both New York broker-dealers; VLADIMIR CARVALLO, a stock broker affiliated with Morgan Grant Capital Corp., a New York broker-dealer, and with Delta Asset Management; and KONSTANTINOS DINO SONITIS, a stockbroker at Bell Investment Group, a New York-based broker-dealer.
According to the Indictment, WOLFSON allegedly received large amounts of stock in the companies, either free-of-charge or at substantial discounts, and then allegedly agreed to pay GRECCO a bribe equal to between 40 and 70 percent of the value of retail sales of WOLFSON's stock as generated by stock brokers under GRECCO's control. To effect the scheme, GRECCO allegedly recruited the other defendants to sell WOLFSON's stock in exchange for bribes. WOLFSON also allegedly instructed his coconspirators that his stock be "crossed with," or purchased by, the retail customers, which he accomplished by directing the brokers to direct their trades to certain market makers that were in league with WOLFSON.
3. United States v. Gasparik, et al., 00 Cr. 650, charges fraud, from April 2000 to June 2000, in connection with the stock of Harbour Intermodal Ltd., a development-stage company that planned to provide local freight shipping among rail, truck and water transportation companies in the New York harbor area, and that traded on the OTC Bulletin Board. The Indictment charges that, as of April 2000, MICHAEL GASPARIK, Harbour Intermodal's Chief Executive and Chairman of the Board, owned 87 percent of Harbour's common stock. GASPARIK allegedly sought the assistance of Michael Grecco, a stock promoter, and agreed to give Grecco large amounts of Harbour stock as substantial discounts, if Grecco and others would inflate the share price of Harbour stock through fraudulent Internet promotions and by paying bribes to brokers in return for selling Harbour stock to their clients. In order to facilitate the scheme, David W. Bruno and Adam Kriftcher allegedly agreed to feature Harbour on Internet websites under their common control in exchange for payments of Harbour stock. In addition, GASPARIK allegedly recruited ROGER FIDLER, an attorney, to prepare SEC filings that were false because, among other things, they allegedly concealed the agreement to pay bribes to brokers in return for purchases by their customers of Harbour stock, and allegedly concealed GASPARIK's control of a trust used to conceal the payment to Greco of large amounts of Harbour stock.
4. United States v. Lugo, 00 Mag. 1119, is a Complaint charging fraud, from May 1999 to June 1999, in connection with the securities issued by Premier Classic Art, Inc. ("PART"), and which traded on the OTC Bulletin Board. JOSEPH LUGO, the defendant, was in control of PART's management, and controlled a large block of its stock. According to the Complaint, LUGO allegedly met with members and associates of organized crime, including Robert Lino, a/k/a "Little Robert," and devised a scheme in which he would obtain a falsely inflated, $10 million appraisal for certain assets, i.e., original animation drawings, and then "reverse merge" a company holding those assets into PART, a large amount of the stock of which was controlled by LUGO. In fact, LUGO allegedly did conduct a "reverse merger," and obtained the false appraisal which valued the assets at $12 million to $20 million.
Fraud In The Sale Of Privately Placed Securities
Other of the Indictments and Complaints unsealed today charge fraud in connection with the private placement of securities. Many of these schemes involve "boiler room" sales tactics, and the payment of secret extraordinary commissions to brokers in exchange for their efforts in selling the stock, which commissions are concealed from the investors.
1. United States v. Tavolacci, et al., 00 Cr. 554, charges 18 defendants in connection with five fraudulent private placement stock offerings that extended from April 1997 to May 1999. According to the Indictment, groups of non-registered stock brokers, or "cold callers," using scripts replete with false and fraudulent information, made unsolicited "cold" calls to potential investors to induce them to invest in the sham private placements. In selling the stock, the cold callers allegedly: (a) concealed the fact that they were receiving extraordinary compensation equal to approximately thirty percent of the value of the funds they raised from investors; (b) used false names when speaking to investors; (c) misrepresented that investor funds would be used by the issuer for business purposes, when in fact more than 50 percent of the money raised in each private placement was used to pay brokers and unlawfully enrich the principals of the issuer; (d) misrepresented that each issuer would conduct an initial public offering ("IPO") of its common stock shortly after the investors' purchase of common stock in the private placement; and (e) misrepresented that the issuers were successful businesses.
The issuers involved in this alleged scheme were the following: (a) First Fidelity Financial Co., purportedly an investment banking firm in Manhattan; (b) Exchange.Online, purportedly an online financial and business "cybermall" located in Delaware; (c) First Fidelity Equities, purportedly a Manhattan brokerage firm; (d) Amerivest.Online, purportedly a Manhattan business that designed customer web sites; and (e) First Commerce Corp., purportedly a Manhattan investment adviser firm. Among the defendants indicted were: SALVATORE TAVOLACCI, executive vice-president of First Fidelity Financial Corp. and First Fidelity Investment Management ("FFIM"); KARL DONOVAN, Vice President of Exchange Online; FREDERICK WALL, President, Treasurer and Secretary of First Fidelity Equities; DEREK SHAPIRO, a/k/a "David Shapiro," an officer of First Fidelity Equities; AARON SANDSTROM, Vice-President of Amerivest; and DONALD BROOKS, president and secretary of First Commerce. Also indicted were 12 persons who worked as cold-callers.
2. United States v. Torregrossa, et al., 00 Cr. 648, charges two defendants in connection with a fraudulent private placement stock offering by Franklin Services Corp. which held itself out as an investment banking, real estate, and media firm that intended to service clients via the World Wide Web. According to the Indictment, between February 1999 through June 2000, MARK TORREGROSSA, President and Chief Executive Officer of Franklin Services, and JAMES MONTES, an unlicensed broker, fraudulently sold Franklin Services stock by fraudulent means, including: (a) paying secret extraordinary compensation to brokers to sell the stock, while telling investors that their funds would be used for business purposes; (b) representing that a Franklin Services IPO would occur shortly after the investors purchased private placement stock; and (c) representing that Franklin Services would soon be acquired by Amazon.com, and was planning to acquire Circuit City and Toys R Us.
3. United States v. Zayats, et al., 00 Cr. 247, charges eight defendants in connection with an alleged fraudulent private placement stock offerings that extended over a two-year period from 1996 to 1998 and involved three companies: (i) Traveler's Infocenter, which represented itself to be a New York, development- stage company involved in providing travel-related information; (ii) Diagnostic Professional Imaging Services, which represented itself to be a Brooklyn-based, development-stage company that planned to provide MRI services; and (iii) Nationwide, which represented itself to be a Brooklyn-based, development stage medical supply company. The scheme to defraud in connection with all three private placements involved false representations to investors that the companies had promising business prospects, that all investor funds would be used for business purposes, and the use of phony names by brokers selling the private placement stock.
Among the defendants indicted were the following: MARK HIMMELBERGER, Traveler's Infocenter's President and Treasurer, JUSTIN MARVUL, a/k/a "Eric Feldman," Traveler's Infocenter's Vice President and Secretary and the Treasurer of Diagnostic; MARAT ZAYATS; the Vice President and Secretary of Nationwide who sold Traveler's securities; GREGORY LEVIN, the President and Treasurer of Nationwide who sold Traveler's securities; MICHAEL DANILOVICH, Diagnostic's President and Secretary; HARVEY OSHER, a/k/a AHarvey Cohen@; and JAMES GABERKORN and VADIM SHAPIRO, registered representatives who worked at Hornblower and Weeks, a broker-dealer, and sold Diagnostic private placement stock.
4. United States v. Gladstone, et al., 00 Cr. 652, charges four defendants with fraud in connection with the private placement of stock issued by Ivy Entertainment.com, Inc., a marketing and distribution company specializing in the entertainment, hospitality, financial and technology businesses. The defendants include: RICHARD GLADSTONE, Ivy's President; HOWARD HELFANT, Ivy's Executive Vice President; GUS GELMAN, who recruited brokers to sell Ivy securities, and ROBERT WADE, who sold Ivy securities. According to the Indictment, from May 1999 to October 1999, the defendants, in order to sell Ivy securities, agreed to pay exorbitant sales commissions to brokers, and to conceal those payments from investors.
5. United States v. Amato, et al., 00 Mag 1109, charges three defendants with securities fraud, from 1998 to June 2000, in connection with the private placement of stock of Future Fitness, Ltd., a company that operated health clubs in the New York City area. The defendants include: RENE ARMANDO DEPERALTA, JOHN AMATO, a/k/a "Flames," the Chief Operating Officer of Future Fitness, and FRANK ROTELLA, the Chief Executive Officer of Future Fitness. The scheme allegedly involved the payment of secret bribes equal to approximately 40 percent of the value of Future Fitness common stock in return for brokers selling the stock to unsuspecting investors, and falsely telling investors that the proceeds of the private placement would be used in Future Fitness's business.
6. United States v. Yilmaz, et al., 00 Cr. 248, charges three defendants with securities fraud, from February 1998 to August 1998, in connection with a private placement of stock of Alliance Technology, an information technology services company located in Manhattan. The Complaint names as defendants HAYRI YILMAZ, Alliance's President and Chief Executive Officer, and KENNETH JEFFERSON and MERRICK C. SMITH, two persons hired by Alliance to recruit investors to purchase Alliance stock. The scheme allegedly involved falsely telling investors that an IPO for Alliance's stock was close at hand, paying secret bribes to brokers in return for their efforts in selling Alliance stock to unsuspecting investors, and telling investors that the proceeds of the private placement would be used in Alliance's business.
Additional Information
In connection with today's arrests, search warrants were executed at the following locations: (a) the offices of DMN Capital at 5 Hanover Square in Manhattan; (b) offices of the Detectives' Endowment Association; (c) the residence of STEPHEN GARDELL in Staten Island, New York; (d) residence of JAMES S. LABATE, a/k/a "Jimmy," in Staten Island, New York; (e) offices of ALLEN WOLFSON and Cyberamerica in Salt Lake City, Utah; and (f) offices of GENE PHILLIPS and A. CAL ROSSI at Basic Capital Management, in Dallas, Texas.
Simultaneously with today's announcement, the United States Securities and Commission announced the filing of three administrative proceedings alleging fraud-related charges against a total of 41 respondents. These include one administrative proceeding against 33 persons arising out of the private placement fraud at Monitor Investment Group; one against seven persons arising out of the conduct alleged in United States v. Wolfson, et al.; and one against WILLIAM STEPHENS. The SEC further announced that it had imposed halts in trading on the OTC Bulletin Board of securities issued by Wamex Holdings Inc., and E-Pawn, Inc.
Previously, NASD Regulation filed a complaint against 18 persons and Monitor Investment Group for fraud-related activities arising out of Monitor's activities with respect to Accessible Software, Inc. All defendants were fined and suspended and/or barred from associating with an NASD member.
Ms. WHITE praised the efforts of all of the law enforcement agencies involved, and particularly commended the outstanding investigative efforts of the FBI. Ms. WHITE also thanked the United States Securities and Exchange Commission for its assistance, and the Criminal Prosecution Assistance Group of NASD Regulation, Inc. for its help.
Assistant United States Attorneys PATRICK J. SMITH, DAVID C. ESSEKS, CHRISTOPHER J. CLARK, STEFANIE B. ISSER, MYLAN L. DENERSTEIN, and Special Assistant United States Attorney JASON SABOT are in charge of the prosecutions.
The charges contained in the Indictments and Complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
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