120 Charged in FBI Probe of Mafia Securities Scams

NEW YORK — Reputed Mafia members used threats, extortion and beatings of stock brokers to enforce cooperation in a five-year series of swindles that netted more than $50 million from investors nationwide, authorities said Wednesday.

Federal prosecutors in Manhattan charged a record 120 people Wednesday with securities fraud and related felonies in a crackdown that was the fruit of a yearlong FBI probe--code named “Uptick”--that used wiretaps and undercover witnesses to infiltrate the alleged scams.

Those accused in the 16 federal indictments range from accountants to brokers to officers of publicly traded companies to 10 alleged members of New York’s main five families of organized crime.

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

The purported schemes centered on classic boiler-room scams in which corrupt brokers made high-pressure “cold calls” to predominantly elderly investors, pushing stock “opportunities” with supposedly guaranteed 100% returns.

But the Mafia involvement gave the alleged swindles an element of violence that white-collar crime typically lacks. Some brokers recruited to participate in the scams were beaten when they tried to back out, authorities said.

In addition to the alleged beatings and extortion, one defendant, stock promoter Cary F. Cimino, is charged with soliciting the murder of a suspected FBI informant last August. The purported murder plot was not carried out.

Despite the scope of the case, prosecutors said it doesn’t imply that the mob is making major inroads on Wall Street. The amount of money involved was small relative to the market overall, and the activities were mainly confined to the backwaters of the securities industry.

Still, mobsters “go wherever the money is, and obviously the stock market is one of those places,” said Mary Jo White, U.S. attorney for the Southern District of New York, which includes Manhattan.

Fans of the HBO hit TV series “The Sopranos,” about the professional and personal travails of fictional New Jersey mob boss Tony Soprano, may find Wednesday’s indictments particularly poignant: Several episodes in the most recent season had Tony’s nephew, Christopher, running a boiler room whose brokers were terrorized into complicity by threats and beatings.

In the case announced Wednesday, one defendant, a retired New York Police detective and treasurer of the detectives pension fund, is charged with plotting to divert his fellow officers’ retirement money into Mafia coffers.

The ex-detective, Stephen E. Gardell, also allegedly leaked information about organized-crime investigations to mobsters and helped Mafiosi obtain pistol “carry” permits and police parking permits.

In return, he got “comped” rooms and meals at Las Vegas and Atlantic City casinos, plus $8,000 toward a backyard swimming pool for his Staten Island home, authorities said.

Another defendant, William M. Stephens of Mill Valley, Calif., is chief investment strategist of San Francisco-based Husic Capital Management, an advisory firm that managed $170 million in Orange County Employees’ Retirement System funds until it was fired in 1998. The firm apparently continues to manage money for a number of other pension funds.

Most of the securities being pushed were tiny stocks traded on the over-the-counter electronic “bulletin board” or in the so-called pink sheet market. In both markets, trading volume is usually light, and reliable financial reports on companies are hard to obtain--making share prices easier to manipulate.

Authorities said some of the manipulation was done via the Internet, with the alleged scamsters hyping stocks with phony news releases and other false claims.

The idea in such “pump and dump” swindles is to boost the price of a stock that the scamsters own. By encouraging others to buy the shares, the scamsters hope to drive the price up so they can sell out--leaving their victims holding often worthless shares once the inevitable collapse comes.

At the center of the biggest alleged scam was Manhattan-based DMN Capital Investments, which authorities said “held itself out as a financial advisory firm that could assist development-stage and micro-cap companies in raising money.”

In fact, according to the indictments, DMN is controlled by Salvatore R. Piazza and James S. Labate, associates of the Bonanno and Gambino crime families, respectively.

Investigators obtained much of the information that led to the indictments through more than 1,000 hours of secretly recorded conversations at DMN’s lower Manhattan offices.

DMN served as “investment banker to the crooked and corrupt,” attracting “allegedly mobbed-up broker-dealers, top-shelf investment advisors, unscrupulous issuers, unethical lawyers and accountants and micro-cap manipulators--a virtual Who’s Who of securities violators,” White said in a news conference Wednesday.

DMN allegedly doled out $5 million in bribes to brokers from a number of small New York-area securities firms to induce them to “put away” stock by pressuring clients not to sell their shares for a certain period. That way, manipulators could keep upward pressure on the price as they unloaded their own stock on unsuspecting new investors, investigators said.

“Brokers who reneged on these agreements were subject to beatings and threats of beatings,” according to the indictment describing the case.

Authorities said the firm also was the fulcrum of a scheme to defraud several union pension plans, including the police detectives fund, by getting corrupt securities professionals--including Stephens--to put pension money they managed into stock offerings controlled by the conspirators.

The plan, which was aborted by investigators, was to kick back 20% of the stock-offering proceeds to the Mafia backers and corrupt union officials, prosectors said.

In companion enforcement actions, the Securities and Exchange Commission on Wednesday suspended trading in the shares of two companies that SEC enforcement chief Richard Walker ironically dubbed “two of the latest e-commerce wonders”: Wamex Holdings of Brooklyn and E-Pawn.com of Englewood, N.J.

Promoters and officials of the two firms also were named in Wednesday’s indictments.