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120 CHARGED IN MOB FRAUD CRACKDOWN

E-Commerce "Wonders" Part of Investigation

Source: Excite News

Posted on June 14, 2000

      More than 100 reputed mobsters, stock promoters and executives of Internet start-ups were accused Wednesday of strong-arming brokers and manipulating penny stocks in the country's largest crackdown yet on securities fraud.

      Sixteen indictments and seven criminal complaints unsealed in federal court show just how deep organized crime has dug its nails into the stock market of the Internet era, said Richard Walker, director of enforcement of the Securities and Exchange Commission.

      Among the 120 people named are members of all five New York crime families, he said.

      By Wednesday, 98 suspects had been arrested in 13 states, and more arrests were expected, FBI officials said.

      The indictments accuse the suspects of engaging in racketeering, conspiring to use bribery, extortion and even soliciting murder to further frauds reaping more than $50 million in illegal profits. The charges carry between five and 80 years in prison.

      In some cases, brokers were bribed to push worthless stocks, often through cold calling, in an effort to raise the shares' prices, Walker said. He said the 120 suspects "otherwise lied, cheated or stole from innocent investors."

      Anyone who reneged on a deal was subjected to beatings, intimidation and threats, authorities said. According to the indictments, no one was killed.

      Barry W. Mawn, FBI assistant director in charge of the New York office, said the mob's tactics were nothing new.

      "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," he said. "The public should be assured that the FBI has and will remain vigilant against the mob's use of our financial markets as their playground."

      As part of the scheme, the Internet was sometimes used to promote stocks, and companies were falsely touted as dot.com companies to induce investors to capitalize on the Internet boom, prosecutors said.

      Trading in two companies Walker described as "the latest e-commerce wonders" was suspended Wednesday by the SEC as part of the investigation.

      Wamex Holdings Inc., valued at $184 million, claimed it was about to begin operating an alternative trading system so customers could trade directly with one another.

      But the indictment said Wamex "has never obtained, much less even filed, for an application for required regulatory approval." Company executives allegedly issued phony news releases that drove the stock's value from about $1 in December to nearly $20 by February.

      E-Pawn.com, which describes itself as a Web site designer and e-commerce software developer valued at $198 million, is controlled by a convicted felon, Walker said. An E-Pawn.com principal and the company's president were charged with using 1 million shares of the company to bribe brokers and drive up the price.

      In court papers, prosecutors said the FBI learned about the illegal schemes by secretly recordings about 1,000 hours of conversations at a DMN Capital Investments Inc., a company U.S. Attorney Mary Jo White described as an "investment banker to the crooked and the corrupt."

      She said that mobsters used the company to launch schemes to secretly control or infiltrate various New York City brokerage firms, and that it offered "its services to anyone and any deal as long as it was illicit."

      A telephone call to DMN seeking comment Wednesday was not answered.

      In the past year, the racketeering machine allegedly tried to defraud union pension funds by employing corrupt securities industry professionals to manage union pension funds and taking kickbacks.

      The scheme recruited an allegedly corrupt money manager, William P. Stephens, the chief investment officer of Husic Capital Management, a San Francisco investment adviser, who allegedly agreed to manage up to $300 million in union pension funds so that some could be kicked back illegally, prosecutors alleged.

      It also recruited a former New York City detective, Stephen E. Gardell, so it could gain illegal kickbacks from the Detectives' Endowment Association, which serves New York City detectives, prosecutors alleged.

      Prosecutors said Gardell leaked confidential law enforcement information concerning organized crime investigations to members and associates of organized crime and provided New York City law enforcement parking permits to alleged mobsters.

      In return, prosecutors said, Gardell received cash and property, including $8,000 to build at swimming pool at his home, trips to Las Vegas and Atlantic City and a fur coat.

      Arrests were made Wednesday in New Jersey, New York, Connecticut, Pennsylvania, Maryland, Virginia, Georgia, Florida, Alabama, Texas, Illinois, Utah and California.




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