A frequent accuser faces a fraud charge
By L. Stuart Ditzen
Inquirer Staff Writer
Posted on Mon, May. 05, 2003
Steven A. Schwartz is not a lawyer, but he sometimes is amazingly skillful at litigating his own legal battles.
He is not a licensed securities trader either, but he plays the risky options and commodities markets with the agility of a seasoned professional.
Many who know him say Schwartz, 46, of Plymouth Meeting, could be an immensely successful man - if it weren't for his conspiracy notions and the manner in which he handles other people's money.
As it is, Schwartz is under federal indictment, accused of defrauding investors of $700,000 in a scam he allegedly ran from his home between 1997 and last year with the active assistance of his 70-year-old mother, Ilene Schwartz, a hospital technician who also is charged.
The indictment, issued in January, describes Schwartz as promising huge profits to investors while touting himself as "the trader Wall Street fears the most."
He and his mother used investors' money, the indictment says, to gamble in Las Vegas and to pay personal expenses.
Schwartz, whose indelibly aggressive litigating style has become well-known in courtrooms in Philadelphia and Montgomery County over the last 15 years, responds to the federal charges with these words:
"I have an indictment before me that is just full of slanderous defamatory lies. They decided to indict me on lies and fabrications... . This is a very, very bad U.S. Attorney's Office that has a very, very bad vendetta against me."
He declined to be specific about items he says are false in the 22-page indictment.
Assistant U.S. Attorney Wendy A. Kelly, the prosecutor, rejected the vendetta charge as "completely false." She said "a tremendous amount of testimony and... documentary evidence" backs up the charges.
The case is the latest in a long and somewhat astonishing history of criminal prosecutions and civil court battles Schwartz has been involved in since the 1980s.
His record includes a federal conviction in 1989 for kiting $94,000 in checks from the former Philadelphia National Bank. Schwartz was sentenced to 18 months in prison.
In January 2000, Schwartz was convicted of harassing Montgomery County Judge William J. Furber Jr. The judge testified that Schwartz repeatedly telephoned him at his office and home, "yelling like a madman" and calling him a "fixer" in connection with Schwartz's demand that he make a ruling in a civil case.
After the trial, Schwartz, who had represented himself, hired a lawyer to argue in an appeal that he had not been properly advised of his right to a lawyer. He won. A retrial on harassment charges tentatively is scheduled next month.
This time, Schwartz has asked for a court-appointed lawyer.
While he has hired and fired lawyers in the past, Schwartz mostly has acted as his own counsel while waging drawn-out legal battles against brokerage houses and other institutions.
In a few instances, he single-handedly has won impressive legal victories, including arbitration awards of $99,000 and $529,000 against brokerages he accused of mishandling his investment orders.
An oft-repeated theme in his legal pleadings is that he has been "robbed" or interfered with in some way that has cost him millions of dollars in losses.
In one tangled dispute, Schwartz was accused in a civil lawsuit in Philadelphia Common Pleas Court of embezzling $1 million from two Pennsauken businessmen, George Handel and his late brother Samuel, while trading Internet stocks out of the Handels' brokerage accounts at Legg Mason Wood Walker in 1999.
In June 1999, a month before he died of cancer, Samuel Handel, who had given Schwartz authority to trade in his account, wrote to him and begged for return of his money so he could pay his taxes.
"All I have gotten from you is broken promises," Handel wrote. "When I actually was able to speak with you on the phone... I was the recipient of your yelling [and] ranting."
Schwartz blamed Legg Mason. He claimed the brokerage cut off his trading orders just as he was about to score a $20 million bonanza on Yahoo stock. The brokerage replied that Schwartz's trading orders were halted because he conducted himself in "an irrationally abusive and belligerent" manner.
All the claims and cross-claims in the dispute eventually were dismissed.
As a self-styled litigator, Schwartz has earned wide notoriety for contentiousness.
"Mr. Schwartz has disparaged opposing counsel, opposing witnesses, his own former counsel and the trial judge," wrote U.S. District Judge James McGirr Kelly in 1992 as he disqualified himself from a Schwartz case.
Schwartz had filed a suit accusing 32 area hospitals of conspiring to ruin a medical auditing business he operated in the 1980s. He contended he had lost $10 million. Kelly had dismissed claims against some hospitals. Others were settled for small sums.
Kelly wrote that he had gone out of his way to be fair, but Schwartz insisted at every unfavorable ruling that he was biased.
Schwartz, the judge observed, seemed to believe "that there is a giant conspiracy against him... . Everyone who does not support him is part of that conspiracy."
At the moment, it is Schwartz who is accused of conspiracy - plotting with his mother to commit fraud and identify theft on investors.
According to the federal indictment, Ilene Schwartz worked with her son in opening and closing brokerage and bank accounts and carrying out transactions by which investor funds were diverted.
In one instance, the Schwartzes are accused of diverting $500,000 of a Charleroi, Pa., man to an entity they controlled called Bamm Inc. and then wiring $100,000 of that to Barbary Coast Casino in Las Vegas for gambling.
In another instance, Steven Schwartz is charged with forgery in arranging a $96,000 wire transfer from a client's brokerage account to an account he controlled at National Penn Bank. The indictment says Schwartz moved that money through several other accounts and eventually used it to pay personal expenses.
Schwartz and his mother assured investors, according to the indictment, that their funds were earning profits, but when asked for an accounting or money back, they "would engage in verbal and written intimidation... incessantly telephoning the victims, their family members and employers, sending faxes and letters to the victims threatening legal action."
One of the witnesses in the federal case is Peggy Sue Dorsey, of Bedford, Texas, who was engaged to Steven Schwartz in the 1990s.
When Schwartz learned Dorsey was cooperating with federal authorities, he went after her - with a lawsuit. He accused her of embezzling funds from her own brokerage account.
According to an FBI affidavit on file at federal court, Schwartz filed suit against Dorsey in Tarrant County, Texas, on the day she returned home in August 2002 after testifying before the grand jury in Philadelphia.
The U.S. Attorney's Office is seeking a protective order forbidding Schwartz from using the lawsuit to harass Dorsey or to pry out information about her testimony to the grand jury.
Schwartz contends that he was engaged in options trading using Dorsey's account in 1999 when, without his permission, she made "secret unauthorized withdrawals." Had it not been for her "fraud and embezzlement," his complaint says, he could have ridden the investments to more than $4 million.
Dorsey's version, contained in the FBI affidavit, is that she allowed Schwartz to use her investment account, but became worried about the potential tax liability on the profits. She feared Schwartz would pull money out of the account and leave her with a huge tax bill.
So she withdrew the funds, a total of $278,000, and paid the taxes and returned all but $20,000 to Schwartz as reimbursement for prior losses.
Dorsey is expected to be one of the witnesses against Steven and Ilene Schwartz at trial.
The mother and son are charged with forging Dorsey's signature in an attempt to open two brokerage accounts in her name in 1999 without her knowledge.
Steven and Ilene Schwartz are free on their own recognizance until the trial, which is tentatively scheduled for October.
And they'll have lawyers representing them.
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Contact staff writer L. Stuart Ditzen at 215-854-2431 or sditzen@phillynews.com. |
