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United States Attorney Southern District of New ForkPRESS RELEASE Indictments and Complaints Charging Internet-Related Fraud 7-9. Exchange Online, Inc., Amerivest .Online Inc., and Fraud and Manipulation Of Publicly Traded Securities Fraud In The Sale Of Privately Placed Securities Additional-Information
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United States Attorney |
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FOR IMMEDIATE RELEASE |
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CONTACT: |
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FEDERAL BUREAU OF
INVESTIGATION |
DAVID C. ESSEKS |
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U.S. SECURITIES & EXCHANGE
COMMISSION |
MYLAN L. DENERSTEIN |
MARY JO WHITE, the United states Attorney for the Southern District of New York and BARRY W. MAWN, the Assistant Director in Charge of the New York office of the Federal Bureau Of Investigation ("FBI"), joined by RICHARD WALKER, Director of Enforcement of the United States Securities and Exchange Commission ("SEC"), and MARY L. SHAPIRO, President of NASD Regulation, announced today that 120 defendants, including members and associates of the five Organized Crime Families of La Cosa Nostra
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in the New York City area, have been charged with securities fraud
and related crimes. Sixteen Indictments and seven criminal
Complaints unsealed today in Manhattan federal court allege fraud
in connection with the publicly traded securities of 19 companies
and the private placement of securities of 16 other companies.
Included among the defendants are 10 alleged members and associates of organized crime; a former New York Police Department detective; 57 licensed and unlicensed stock brokers; three recruiters of corrupt brokers; 12 stock promoters; 30 officers, directors or other "insiders" of the companies issuing the securities involved in the frauds; two accountants; an attorney; an investment adviser; and a hedge fund manager. According to the charges, 21 broker-dealers or other financial adviser firms were either involved in the frauds, or employed stock brokers or other persons who were involved in the fraud. The various schemes resulted in total losses of more than approximately $50 million, and many tens of millions more would have resulted had the schemes been completed.
According to Ms. WHITE and Mr. MAWN, this is the largest number of defendants ever arrested at one time on securities fraudrelated charges, and one of the largest number ever arrested in a criminal case of any kind. In coordination with today's arrests, search warrants were executed at four locations in New York, one in Dallas, Texas, and one in Salt Lake City, Utah.
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Twenty-one defendants are charged with participating in a RICO
Enterprise consisting of members and associates of the Bonanno and
Colombo Organized Crime Families of La Cosa Nostra in the New York
City area, that allegedly perpetrated massive securities fraud over
a five- period by forging corrupt alliances with members and
associates of the remaining three New York City Organized Crime
Families; controlling and infiltrating broker-dealers; conspiring
with issuers of securities and individual stock brokers; scheming
to defraud union pension plans; and employing tactics of violence,
including threats, extortion, physical intimidation, and the
solicitation of murder to further the illegal goals of the RICO.
Enterprise. The schemers used traditional boiler-room operations
and current Internet techniques to carry out their alleged crimes.
The racketeering defendants include, among others: ROBERT A.
LINO, a/k/a "Little Robert," an alleged capo in the Bonanno Crime
Family; FRANK A. PERSICO, an alleged associate of the Colombo Crime
Family, and a registered stock broker who controlled crews of
brokers at various brokerage firms, including First Liberty
Investment Group, Inc., William Scott & Company, Inc., and Bryn
Mawr Investment Group; ANTHONY P. STROPOLI, an alleged soldier in
the Colombo Crime Family who controlled crews of stock brokers;
STEPHEN E. GARDELL, who is alleged to have corruptly exploited his
positions as a New York City Police Department Detective and
Treasurer of the Detectives' Endowment Association ("DEA"); GENE
PHILLIPS, who controlled Basic Capital Management, the investment
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adviser to American Realty Trust, a New York Stock Exchange-listed
real estate investment trust, or REIT; and WILLIAM P. STEPHENS, the
Chief Investment Strategist of Husic Capital Management, a San
Francisco- investment adviser, who agreed to manage up to $300
million in union pension funds knowing that a portion would be
invested in corrupt deals for the purpose of funding kickbacks to
members of the RICO Enterprise and corrupt union officials.
The RICO Enterprise is alleged to have engineered manipulation schemes in eight publicly traded securities and to have defrauded investors in connection with three private placements of securities, including one by Ranch*1 Inc., a company that operates fast food restaurants in the New York City area and elsewhere. Two officers of Ranch*1, SEBASTIAN RAMETTA and JAMES F. CHICKARA, have been named as defendants in the RICO charges and are alleged to be associates of the Colombo Crime Family.
In addition to the racketeering charges, the other Indictments and Complaints unsealed today charge a wide array of stock market schemes designed to fleece the investing public. Sales oil stock in private placements are alleged to have been fraudulently rigged for the benefit of insiders and corrupt brokers. The Internet was allegedly used to further the schemes through the fraudulent promotion of stocks on Internet websites, or the use of companies that were touted as Internet or "dot-com" companies in order to induce investors to capitalize on the Internet boom.
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Today's charges are the result of a highly successful, one year
undercover operation conducted by the FBI's New York Office,
in coordination with the SEC and with assistance provided by NASD
Regulation, Inc. The undercover investigation involved, among
other things, surveillance, the use of undercover purchases of
securities, the use of a series of cooperating witnesses who posed
as willing participants in ongoing criminal schemes, and the
installation of court- eavesdropping devices in the
office of DMN Capital Investments, Inc. ("DMN Capital"), a
financial adviser firm that held itself out as providing investment
banking and stock promotion services. Pursuant to court order, the
FBI recorded approximately 1000 hours of conversations occurring in
DMN Capital's office between December 1, 1999 and May 4, 2000.
Ms. WHITE stated:
Today's charges result primarily from the FBI's successful infiltration of a company that served as investment banker to the crooked and the corrupt. By offering its services to anyone and any deal, as long as it was illicit, the company attracted allegedly mobbed-up broker-dealers, top-shelf investment advisers, unscrupulous issuers, unethical lawyers and accountants, and microcap manipulators - a virtual Who's Who of securities violators. 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. As today's charges show, fraud in the markets will not be tolerated, no matter how big, how organized, or how creative.
Mr. MAWN stated:
The FBI investigation code named "Uptick" has uncovered a laundry list of stock manipulation schemes by which the defendant brokers took their victims to the cleaners. Thisinvestigation uncovered once again La Cosa Nostra's efforts to
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infiltrate the securities markets. 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. We will continue to investigate securities fraud schemes whether they be the work of typical white collar criminals or of organized crime.Mr. WALKER stated:
The securities fraud involved in today's actions is among the most egregious witnessed in recent years. These manipulations of numerous microcap stocks were designed for the sole purpose of stealing investors' hard-earned dollars. The prosecutions announced today rid the vital market for low-priced securities of unscrupulous operators and reaffirm regulators' commitment to keeping this market safe and fair.
Ms. SHAPIRO stated:
Today's actions by United States Attorney Mary Jo White
again demonstrate her commitment to help rid securities
markets of manipulative and fraudulent schemes. NASD
Regulation previously brought actions against a number of
firms and individuals named in the Indictments unsealed
today and will continue to work closely with the United
States Attorney's Office and other law enforcement and
regulatory agencies to insure investor confidence and the
integrity of our markets.
Certain of the charges are outlined below.
Racketeering
In United States v. Lino, et al., 00
Cr. 632, 21 defendants
are charged with being members and associates of a RICO Enterprise
consisting of DMN Capital and a "joint venture" among members and
associates of the Bonanno and Colombo Crime Families, with the
assistance of associates of the other three New York City crime
families, as well as others. In addition to LINO, PERSICO,
STROPOLI, GARDELL, RAMETTA, CHICKARA, STEPHENS, and PHILLIPS, the
other alleged members of the RICO enterprise include: JAMES S.
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LABATE, a/k/a "Jimmy"; SALVATORE R. PIAZZA, a/k/a "Sal"; CARY F.
CIMINO; RALPH DEMATTEO, a/k/a "Ralphie"; ROBERT P. GALLO, a/k/a
"Bobby"; MICHAEL GRECO; JOHN M. BLACK, Jr.; ANGELO CALVELLO, a/k/a
"Tony"; JOSEPH A. MANN, a/k/a "Andy"; GLENN B. LAKEN; A. CAL ROSSI;
VINCENT G. LANGELLA, a/k/a "Vinny"; WILLIAM F. PALLA; and TODD
NEJAIME.. The Lino Indictment charges the defendants with various
crimes, including those described below:
1. Manipulation of Publicly-Traded Securities: Between 1995 and 1999, members of the RICO Enterprise fraudulently obtained and controlled large blocks of free or substantially-discounted, publicly- securities in violation of various SEC rules and regulations. These securities included those issued by: (1) Spaceplex Amusement Centers International Ltd., which operated amusement parks and was located in Great Neck, New York; (2) Reclaim; Inc., which was in the business of recycling roofing shingles and was located in Tampa, Florida; (3) Beachport Entertainment Corp., 'Which was in the business of producing ice skating entertainment and was located in Los Angeles, California; (4) International Nursing Services, Inc., which was in the business of in-home nursing care and was located in Denver, Colorado; (5) Leasing Edge Corporation, which was in the computer leasing business; (6) Globus Int'l Resources Corp., an import-export company; (7) Innovative Medical Services, a manufacturer of waste purification systems; and (8) Accessible Software, Inc., a software developer.
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The RICO Enterprise is alleged to have secretly controlled or
infiltrated various New York City-area brokerage firms, including
Monitor Investment Group, Inc., Meyers Pollock and Robbins, First
Liberty Investment Group, Inc.,. William Scott & Company, and
Atlantic General Financial Group. The RICO Enterprise then
fraudulently engaged in prearranged trades, paid secret bribes to
corrupt stock brokers, and used "no net sale" and other "boiler
room" tactics, among other devices, to create artificial retail
demand for these securities, and then sold their holdings into that
inflated demand at considerable profit. Members of the RICO
Enterprise, in order to enforce discipline among the brokers
al allegedly involved in these schemes, and to punish those who
reneged on their agreements to sell stock in return for bribes,
subjected brokers to beatings, intimidation, and threats. To aid
in the fraudulent schemes, CARY F. CIMINO, a New York-based stock
promoter, arranged for secret bribes to be paid to corrupt brokers
and, in 1999, CIMINO is alleged to have solicited the murder of a
person he believed to be a cooperating witness.
2. Union Pension Funds Fraud and Kickback Schemes: From late 1999 to the present, the RICO Enterprise allegedly sought to defraud union pension funds by employing corrupt securities industry professionals to manage union pension funds, and then, with the knowledge and consent of those professionals, structuring investments for those funds in a manner that allowed for a secret diversion of a portion of the funds to members of the RICO
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Enterprise and to corrupt union officials. One such alleged
fraudulent investment was a preferred stock offering of American
Realty Trust, a NYSE-listed REIT that trades under the ticker
symbol "ARB." The RICO Enterprise allegedly arranged this corrupt
deal through GENE PHILLIPS, who controlled Basic Capital
Management, Inc., a Dallas, Texas-based financial adviser firm that
served as adviser to American Realty Trust, and A. CAL ROSSI, the
Managing Director of Capital Markets for Basic Capital. According
to the charges, union pension fund assets would be invested in the
offering, and $2.0 million of every $10 million invested would be
"kicked back" to the RICO Enterprise and corrupt union officials.
In order to give an investment in ARB Series J preferred stock an
air of legitimacy, and to convince honest union officials to permit
such an investment, the Enterprise recruited an allegedly corrupt
money manager, WILLIAM P., STEPHENS, the Chief Investment Officer of
Husic Capital Management, a San Francis co-based investment adviser,
who allegedly agreed to manage up to $300 million in union pension
funds knowing that a portion would be invested in this corrupt deal
for the purpose of funding kickbacks to members of the RICO
Enterprise and corrupt union officials.
A second allegedly fraudulent investment deal designed to defraud union pension funds involved TradeVentureFund, a hedge fund that claimed to have a successful proprietary trading strategy, and whose principal manager was GLENN B. LAKEN. Here, kickbacks to the RICO Enterprise and corrupt union officials would allegedly be
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funded through the payment of excessive trading commissions and
LAKEN's plan to invest the union pension funds in high-risk
investments.
The pension funds targeted in these allegedly corrupt schemes include: the Production Workers Local 400, which is alleged to be influenced by the Colombo Crime Family; the International Union of Operating Engineers Local 137; and the Detectives' Endowment Association ("DEA"), which serves NYPD detectives. Integral to the success of the alleged schemes involving DEA and Local 400 were STEPHEN E. GARDELL and FRANK A. PERSICO, a/k/a "Frankie," the latter of whom was an alleged associate of the Columbo Crime Family who served as the Treasurer of Production Workers Local 400, each of whom is alleged to have agreed to accept illegal kickbacks to corruptly influence decisions at their respective unions. GARDELL is also 'alleged to have: (a) leaked confidential law enforcement information concerning organized crime investigations to members and associates of organized crime; (b) assisted in securing firearm "carry'' permits for members of organized crime; (c) influenced the outcome of an NYPD investigation into the activities of a member of the RICO Enterprise; and (d) provided New York City law enforcement parking permits to members of organized crime. In return, GARDELL is alleged to have received, among other things, cash and property from organized crime figures, including $8,000 toward the building of a swimming pool at his residence, free and substantially discounted rooms and meals at casinos in Las Vegas and Atlantic
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City, and a fur coat.
3.
Private Placement Fraud: From approximately October 1999
to
the June 2000, the RICO Enterprise allegedly sought to defraud
investors in the private placement of securities by arranging for
the payment of secret exorbitant sales commissions to brokers of up
to 50 percent of the proceeds obtained from investors. These
fraudulent private placements allegedly included stock of: (a)
Ranch*1 a grilled chicken sandwich fast-food chain of restaurants
operating throughout the New York City area and elsewhere; (b)
World Gourmet Soups, Inc, d/b/a "The Manhattan Soup Man," a
company
that operates and franchises fast food restaurants and kiosks and
sells prepared soups to the restaurant industry;1 and
(c) Jackpot
Entertainment Magazine, Inc., a Brooklyn-based company in the
business of publishing a magazine about the casino industry. The
defendants charged in this scheme include SEBASTIAN RAMETTA, a/k/a
"Sebbie," the President and Chief Executive Officer of Ranch*1
and
JAMES F. CHICKARA, the Vice-Chairman of Ranch*1 both of whom
allegedly are associates of the Colombo Crime Family.2
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1 In a Complaint unsealed today, United States V. LaBarbara, 00 Mag. 1121, Stephen LaBarbera, a stock broker at The Agean Group, a New Jersey broker-dealer, is alleged to have received, from November 1999 to January 2000, secret undisclosed commissions in connection with his sales of stock in the private placement of World Gourmet Soups, Inc.
2 In another Indictment unsealed today, United States v. Trippe, et al., 00 Cr. 585, six other defendants were charged with securities fraud in connection with two private placement offerings by Jackpot Entertainment. Those six defendants are: EDWARD TRIPPE, Jackpot's Chief Financial officer and Secretary;
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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 he scheme involved the issuance of false press
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BRUCE BECKER, Jackpot's President and Publisher; ANDREW ADAMS,
Jackpot's Vice President and Chief Executive Officer; SAMUEL
WARD, a public accountant; BRYAN MCGUIRE, a registered
representative; and PATRICIA OPPITO, a registered representative
employed by Wolff Investment Group, Inc. The Indictment alleges
that the defendants paid secret undisclosed compensation equal to
50 percent of the funds raised to brokers who sold Jackpot
private placement stock to public investors. The Indictment
further alleges that WARD falsified Jackpot's financial
statements by concealing the secret commissions, and by issuing
unqualified audit opinions that falsely certified that he had
examined Jackpot's financial statements in accordance with
generally accepted auditing standards.
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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 inconnection with an alleged scheme, from January 2000 to June 2000,to to pay 1.0 million shares of E-Pawn to be used to bribe brokers create retail demand for E-Pawn stock, and to use Internet sites and bulk E- to tout E-Pawn to the public. Charged in this scheme are LESLIE GREYLING, an alleged undisclosed principal of EPawn; 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.
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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 071
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
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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
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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, each5.
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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.
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7-9. Exchange Online, Inc., Amerivest .Online Inc., andFranklin 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. Tavola ci, et al., 00 Cr. 554.
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 -- 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.
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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 CorD., 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- 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
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Investment Group and Delta Asset Management, both New York brokerdealers;
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
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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
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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.
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
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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 vicepresident 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, VicePresident 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
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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 1,998 and involved-three companies: (i) Traveler's Infocenter, which represented itself to be a New York, development-stage company involved in providing travel- 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- 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
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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 "'Harvey Cohen"; and JAMES GABERKORN and VADIM SHAPIRO, registered representatives who worked at Hornblower and Weeks, a brokerdealer, 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.
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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 pr . ivate 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.
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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.
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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.
The names, date of birth, area of residence, charges, and maximum' penalty per charge for each of the defendants is set forthon the attached chart. 0094 ###
