FBI Stock Sting
PART 2 OF 3
US SECURITIES AND EXCHANGE COMMISSION
Securities Act of 1933 Release No. 7357 / October 1996
Securities Exchange Act of 1934 Release No. 37807 / October 1996
Administrative Proceeding File Numbers 3-9141 - 3-9162
CRIMINAL AND PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS ANNOUNCED AGAINST 45 IN CONNECTION WITH KICKBACK SCHEMES
Mary Jo White, the US Attorney for the Southern District of New York, and James K. Kallstrom, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), announced that forty-five defendants were charged variously with conspiracy, securities fraud, and criminal contempt following extensive investigations into illegal payments made to securities brokers in connection with sales of over-the-counter (OTC) and NASDAQ stocks to customers. The arrests announced today are the result of a series of investigations, including an extensive undercover investigation conducted by the FBI, working in cooperation with the United States Securities and Exchange Commission (SEC), NASD Regulation Inc, and the US Attorneys Office for the Southern District of New York.
Carmen J. Lawrence, Regional Director of the Northeast Regional Office of the SEC, announced that as a result of these investigations, the SEC instituted 22 administrative proceedings against twenty-nine of the individuals charged today. The SEC's actions charge these individuals with securities fraud based on the same conduct underlying the criminal complaints, and seek, among other things, cease-and-desist orders, bars on promoting penny stocks, and disgorgement. The SEC's investigation is continuing.
NASD Regulation President Mary L. Schapiro announced that three complaints were filed today charging ten registered representatives with fraud in connection with this investigation.
According to James K. Kallstrom, "Investors generally recognize that there are inherent risks in the securities markets. Today's arrests are a warning to market manipulators who create additional, unfair risks. They themselves face the considerable risk of arrest and criminal prosecution. This case illustrates the seriousness with which the FBI views this illegal conduct and the lengths to which we will go to combat it."
Mary Jo White stated that, "Today's arrests should send a clear and unambiguous message to unscrupulous stock promoters, stock brokers, an officers of publicly traded companies. The "gloves are off" in the fight to protect this nation's financial markets. Criminal and regulatory authorities can -- and will -- work in close coordination to investigate and prosecute securities law violations to the full extent of the law, and we will be successful."
With respect to the criminal contempt charges filed today, Ms. White added, "This office will not tolerate those who flout federal court injunctions imposed following successful enforcement actions by the SEC."
William McLucas, the SEC's Director of Enforcement stated, "Today's arrest of forty-five stock promoters, brokers, and others is the culmination of a concerted effort by the US Attorney's Office, the FBI, NASD Regulation, and the SEC to deal with the criminals who have gravitated to our capital markets. Billions of dollars change hands in our markets every day. They change hands on the honour of a broker's word and the trust that is placed not only in the broker, but also in the integrity of our market systems. The people who were arrested today have abused that trust. The consequences for abusing that trust must be severe."
Mary L. Schapiro said that, "This is an important case, not only for its magnitude and depth, but because it demonstrates the effectiveness of complete cooperation between federal agencies and market regulators working together to help safeguard investor interests. NASD Regulation plans to work in cooperation with the FBI, the SEC, and the Department of Justice to ensure that investigations emanating from the evidence obtained today are vigourously pursued."
According to the nineteen separate criminal complaints unsealed today, undercover Special Agents of the FBI, operating a small brokerage firm in Manhattan, NY, posed as unscrupulous brokers who managed millions of dollars on behalf of supposed "high net worth individuals," and were willing to accept payoffs to sell OTC bulletin board and NASDAQ stocks to their customers. The payments were generally made by and through stock promoters who, working often with officers of the companies whose stocks were being touted, paid the brokers as much as forty percent of the value of the stock being sold to the brokers' customers. Included amongst those charged today were stock promoters, company officials, and current or former stock brokers.
The arrests today followed an extensive investigation that was the product of close coordination between the FBI, the Commission, NASD Regulation, and the US Attorney's Office for the Southern District of New York. NASD Regulation offices in both New York and Washington, DC, were actively involved on a daily basis in helping in the undercover operation. Both the SEC and the NASD were consulted throughout the investigation and asked to provide industry expertise, and to minimize the effect of the undercover investigation on the operation of the securities markets. No public customers were involved in the transactions effected by the undercover investigation, and all stock purchased during the course of the investigation is being held as evidence.
The charges in a criminal complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
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