Largest Equity Fraud Bust in US history -ubelievable story : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Hmm...might the coming market crash be the "mafia's" fault? This is unbelievable...whole departments of "unsuspecting" Wall Street trading firms held hostage to the fraud...on penalty of death.

From the UK Electronic Telegraph

US police bust largest stock market fraud

By David Usborne in New York

15 June 2000

Prosecutors in New York revealed last night that they had cracked the biggest securities fraud in United States history, ending a massive stock market scam controlled by the Mafia.

No fewer than 120 defendants are cited in the case, most of whom had been rounded up and arrested by last night.

The defendants are accused of using a variety of means tomanipulate stock prices for enormous financial gain. Their tactics includedtraditional "boiler-room" techniques, in which stocks are punted at excessive values by telephone and financial websites.

The US attorney Mary Jo White told a crammed press conference in lower Manhattan: "We are announcing today the largest securities fraud take-down in history." The charges range from racketeering to using bribery, extortion and even solicitation to murder.

Never before in the United States has such a large number of individuals been taken into custody in a day for a financial crime  and rarely for any crime. While some are well-known Mafia associates, others had been seen as upstanding members of the community.

Those dragged from their homes and offices included members of the five New York crime "families", some 57 licensed and unlicensed stockbrokers and advisers, union officials, a hedge fund manager, a former New York detective and 30 officers of publicly traded companies whose shares were linked to the scams.

The investigation, according to the FBI assistant director Barry Mawn, had "uncovered once again La Cosa Nostra's efforts to infiltrate the securities markets".

The court documents accuse leading members of the Colombo and Bonanno crime families of recruiting help from the three remaining Mafia clans in New York, to run the stock schemes. They exerted control over scores of brokers in the financial district, forcing them to manipulate stock prices either by offering financial incentives or threatening them with violence or death. In some cases, the prosecutors said, the main players in the operation had control over entire departments in unsuspecting Wall Street firms.

Mr Mawn said: "No matter what market the mob tries to infiltrate, from the fish market to the stock market, the methods it uses are always the same; violence and the threat of violence." The prosecutors offer proof that as traditional areas of profit have been closed to it by tougher law enforcement, the Mafia has turned to Wall Street in search of new opportunities. The court papers said one of the scam's tactics was to lie to investors that certain stocks were in new firms when they were not. Mafia infiltration of the stock world has already caught the imagination of directors in the film Boiler Room and the television series The Sopranos.

The Mafia clans ran an outwardly respectable bank in lower Manhattan called the DMN Capital Investment Bank. Ms White said the activities of those accused had cost the scheme's victims around $50m.

Rudolph Giuliani, New York's mayor, promised yesterday to investigate claims that police officers stood by as several women were attacked in broad daylight in Central Park on Sunday evening, by assailants who ripped their clothes from them. Public shock over the attacks continued to grow yesterday. By last night, 24 women had filed complaints of assault.

-- meg davis (, June 14, 2000


A lot of stories on this subject in the news today. Here is another one.

Top World News Thu, 15 Jun 2000, 12:02am EDT Mob, Brokers in `Largest Securities Fraud,' U.S. Says (Update5) By David Glovin and Neil Roland

New York, June 14 (Bloomberg) -- Mobsters with ties to New York's five organized crime families set up a corrupt brokerage in Manhattan, secretly controlled other securities firms, and used threats, intimidation and beatings in a broad stock swindle by more than 100 people that cheated investors out of $50 million, federal prosecutors alleged.

In what prosecutors called ``the largest securities fraud takedown in history,'' 120 defendants were charged with manipulating penny stocks, bribing brokers, running securities scams over the Internet, and trying to raid pension funds, including one serving New York City police detectives.

The defendants were charged in 16 indictments and seven criminal complaints unsealed today in U.S. District Court in Manhattan. Prosecutors said the cases involved fraud in connection with 19 public companies and the private placement of securities in 16 others, including Ranch*1 Inc., which operates fast-food chicken outlets around New York.

Among those charged with defrauding pension funds were senior executives with two investment-adviser firms, Husic Capital Management of San Francisco, and Basic Capital Management of Dallas, both of which manage more than $1 billion in assets.

Meanwhile, the Securities and Exchange Commission filed civil- fraud suits against 63 of these people and organizations. Among them are William Stephens, chief investment strategist of Husic Capital Management, which manages $4.5 billion in assets, and Allen Z. Wolfson, a former Tampa, Florida real-estate developer who has served several prison terms for financial fraud convictions.

``Their tentacles of fraud reached into every corner of the public and private securities markets, and they preyed on their victims using both traditional boiler-room tactics and contemporary Internet- based manipulations,'' U.S. Attorney Mary Jo White said.

Mob Infiltration

White said the cases represented the largest number of defendants ever arrested at one time on securities fraud charges. In addition to 10 alleged mobsters, prosecutors charged stock promoters, brokers, accountants, officers of several companies, and a retired New York City police detective.

Prosecutors said, though, that the reach of organized crime was limited to a small corner of the market for small, thinly traded ``micro-cap'' stocks.

``This isn't mainstream Wall Street,'' SEC enforcement director Richard H. Walker said. ``It's a higher-risk area, where corrupt individuals can acquire pools of a small company's stock and manipulate them.''

Investors, many of them elderly, lost $50 million, authorities said. Some had been promised returns of 100 percent on their investments, authorities said. Others were victims of so-called ``pump-and-dump'' schemes, in which insiders falsely promoted a company's stock, drove up its price, then sold their own shares, and left investors with losses.

`Fraud Central'

The indictments claim that mobsters from the Bonanno and Colombo crime families ``perpetrated massive securities fraud'' from 1995 to 1999 by setting up a corrupt lower Manhattan brokerage, DMN Capital Investments Inc., and forging alliances with New York's three other crime families.

DMN was ``fraud central to the racketeering enterprise,'' White said. ``DMN was a real fraud magnet to the corrupt and crooked parts of the market.''

The mobsters are alleged to have infiltrated broker-dealers, conspired with stockbrokers, and schemed to defraud union pension plans. Prosecutors say the mobsters secretly controlled various New York City-area brokerages, including Monitor Investment Group Inc., William Scott & Co., and Meyers Pollock and Robbins, all defunct. Other brokerages, including Bell Investment Group, are still operating, prosecutors said.

Number of Schemes

DMN and the brokerages it controlled used any number of schemes to make money, prosecutors said. In violation of SEC rules, for instance, they secretly obtained large blocks of securities in various stocks, including Beachport Entertainment Corp., Reclaim Inc., Accessible Software Inc., and International Nursing Services Inc., prosecutors said.

Through brokerages that the mobsters secretly controlled, they paid bribes to corrupt brokers, engaged in rigged stock trades, and used ``other boiler room tactics'' to drive up share prices, prosecutors said.

``In order to enforce discipline among the brokers allegedly involved in these schemes, and to punish those who reneged on their agreements to sell stock in return for bribes, (the mobsters) subjected brokers to beatings, intimidation and threats,'' prosecutors said.

One stock promoter, Cary Cimino, is alleged to have solicited the murder of a person he believed to be cooperating with prosecutors.

Pension Funds

From October 1999 through June, the defendants sought to defraud private placement investors by arranging to pay secret -- and often exorbitant -- commissions to brokers, prosecutors said. Among these private placements were Ranch*1 and World Gourmet Soups Inc., prosecutors said.

Ranch*1 announced plans last year to go public but withdrew its application for a stock offering on March 23.

The SEC alleged that Stephens of Husic Capital Management joined in a kickback-and-bribery scheme involving the investment assets of some union pension funds. To land the funds as clients, Stephens agreed to channel some of the funds' assets into rigged investment vehicles, the suit alleged.

Stephens also knew that fund assets would be siphoned out of the rigged investments to be paid as bribes and kickbacks to fund trustees, the SEC contended.

A Husic spokeswoman said Stephens, 48, who managed 10 employees handling statistical stock analysis, has been suspended. ``This came as a complete shock to everyone in the firm,'' said Husic spokeswoman Abigail Baker. Stephens couldn't be reached.

Also charged with criminal fraud were two executives of Basic Capital Management, which manages more than $1.7 billion in assets. They are Gene Phillips, 62, who allegedly controlled the firm, and A. Cal Rossi, 63, the firm's managing director of capital markets. They couldn't be reached for comment.

Internet Fraud

Prosecutors allege that Wolfson fraudulently inflated stocks of, Learner's World Inc., Rollerball International Inc., Healthwatch Inc. and HYTK Industries Inc. to reap $7 million in illegal profit. Wolfson bribed six brokers, who also were charged, to create demand for stock that he owned, the suit contended. The companies were not charged.

Prosecutors also charged several people with using the Internet to manipulate stocks.

Two top executives with New York-based WAMEX Holdings Inc., an Internet stock market creator, were charged with issuing bogus press releases claiming that its ``alternative trading system'' would be online by July. Shares in the company rose from $1.12 in December to $19.50 in February. The SEC suspended trading in the stock today.

The SEC also suspended trading in Inc., a Web site creator. Two executives are alleged to have bribed brokers to create a market for the stock. In its suit, the SEC contended that ``inaccurate information existed'' as to the identity of the people who control, based in Englewood, New Jersey. E- Pawn officials declined comment.

Prosecutors did not explain how these Internet schemes related to DMN, although they did note that several cases grew out of their investigation of the firm.

By midday, 600 agents of the Federal Bureau of Investigation had made 98 arrests, mostly of New Yorkers and New Jerseyans, and were looking for suspects in Georgia, Texas, Florida, and California.

Those charged in what authorities call ``Operation Uptick'' face up to 80 years in prison on charges of conspiracy, illegal kickbacks, money laundering, and securities fraud. 20News&s1=blk&tp=ad_topright_topworld& =blk&bt=blk&s=AOUf9EBUdTW9iLCBC

-- Martin Thompson (, June 15, 2000.

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