June 17, 1999
Eighty-Five Brokers Are Charged
With Allegedly Bilking Investors
By MICHAEL SCHROEDER
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- Eighty-five stockbrokers were indicted Wednesday on
stock-manipulation charges, in one of the biggest criminal stock-fraud
busts ever.
In the largest of three separate cases, prosecutors in New York's Eastern
District in Brooklyn charged brokers from nine firms with bilking thousands
of investors out of more than $100 million. Another case involved brokers
with alleged ties to organized crime who infiltrated legitimate brokerage
firms to perpetuate stock fraud.
The schemes in each of the three cases are similar: A group of brokers
and
others would gain control of the stock in a small company for next to
nothing. They would then pay hefty kickbacks to other brokers to get
outside investors to buy shares at inflated prices. The share price would
crater when the brokers sold their shares and moved on to another stock.
The indictments cap a three-year investigation by a team of investigators
from the FBI, Postal Inspectors, Internal Revenue Service, U.S. Securities
and Exchange Commission and National Association of Securities Dealers.
The authorities coordinated early morning arrests of more than 60
defendants Wednesday in New York, New Jersey and Florida, rousting
them out of bed. By 8 a.m., federal agents were leading dozens of
handcuffed stockbrokers, many wearing T-shirts, blue jeans and sneakers,
to the second floor of the century-old courthouse in Brooklyn. The
brokers were booked at rented tables along the courthouse atrium, before
being taken in vans a block away to a magistrate's lockup to post bail.
Racketeering Statute
The defendants were indicted variously for stock fraud, money laundering,
mail fraud and racketeering. The cases mark one of the first times brokers
have been charged under the racketeering statute, which is often used to
combat organized crime and carries a possible jail term of as long as 20
years.
Prosecutors noted that many of the defendants have been charged with
stock-fraud conspiracies in the past. In the largest case, the 55 indicted
brokers worked for four small broker-dealers that were offshoots of
Hanover Sterling & Co., and some of those indicted face similar charges
related to their activities at that penny-stock firm, which went belly
up in
1995.
The second-largest case, involving 23 defendants, alleges that there was
a
significant involvement by organized crime in firms pushing small-company
stocks that trade thinly over-the-counter. The scheme, which prosecutors
allege was directed by associates of the Colombo organized-crime family
and Russian organized crime, is the latest of at least a half dozen
stock-fraud prosecutions of mob associates in Manhattan and Brooklyn in
the past few years.
Major New York organized-crime groups for decades controlled the city's
trash-hauling, concrete and construction industries. But as a result of
prosecutions in the 1980s and early 1990s, the mob's influence has waned,
prompting the mob to move criminal activities into the securities business,
prosecutors say.
Organized-Crime Groups
"The bull market is attracting more than just the honest investor," said
Lewis Schiliro, assistant director of the Federal Bureau of Investigation
in
New York. "We have detected increased attempts by organized-crime
groups to become involved in the manipulation of stocks and securities."
Prosecutors charged that alleged Colombo associates Dominick Dionisio
and Enrico Locascio, and Yakov Slavin, identified as a member of the Bor
organized-crime group, placed registered and unregistered brokers in firms
to push small-company stocks under their control. The three men, all of
whom were indicted, couldn't be reached for comment.
The indictment alleges that the mob-related defendants reaped $10 million
from investors by manipulating several stocks, including Legend Sports
Inc. and City Services Inc.
The brokers worked in branch offices of Global Strategies Group Inc.;
Amerivet Dynmally Securities; J.S. Securities, which later became First
National Equity Corp.; and Three Arrows Capital Corp. Prosecutors say
organized-crime associates would gain control of a branch at legitimate
firms and operate outside the control of the firms' management.
Amerivet and Three Arrows are the only firms still in business, but branch
offices through which defendants operated have been closed. None of the
firms has been charged with wrongdoing. Global Strategies and J.S.
Securities, which also weren't charged, are defunct.
Stunned by Wrongdoing
Ron Peterson, Three Arrows' president, said the Bethesda, Md., firm was
a victim of the brokers. He said he was stunned by the wrongdoing when
he learned of it and promptly reported it to authorities.
Elton Johnson, Amerivet's president, said no broker or principal at
Amerivet was involved in any stock manipulation involving the companies
listed in the indictment.
The Ingleside, Calif., firm had temporarily ceased doing business at the
time of the alleged wrongdoing because its clearing firm had collapsed.
When it reopened, the New York brokers were terminated.
In the case related to the four broker-dealer offshoots of Hanover Sterling,
the indictment alleges massive manipulation of at least 17 stocks. Even
before Hanover's collapse in 1995, its principals, Roy Ageloff and Robert
Catoggio, had devised a scheme to secretly continue stock manipulations
through several small firms under their control, according to the indictment.
Both men were indicted Wednesday.
Mr. Catoggio is serving an 18-month prison sentence in an unrelated
stock-fraud conviction. His lawyer, Gus Newman, didn't return a phone
call. Mr. Ageloff's attorney, Benjamin Brafman, said his client has pleaded
not guilty and that he will vigorously defend himself.
Hanover brokers allegedly moved en masse to the offices of related firms,
including Norfolk Securities Corp. in New York; Capital Planning
Associates Inc. in New Jersey; and PCM Securities Ltd., which later
became Royal Palm Investments Ltd. in Florida. The firms, which
employed the brokers arrested Wednesday, all closed their doors during
the past few years soon after federal agents conducted searches of the
premises.
In the third alleged scheme, 11 defendants are charged with manipulation
for selling about $8 million of worthless stock in a New Jersey company
whose main product was a new car-engine additive.