120 charged in mob crackdown

Thursday, June 15th 2000, 12:00 am
By: News On 6

NEW YORK (AP) — The charges include racketeering, extortion and solicitation of murder — not too surprising for an indictment against reputed mobsters. But this case centers on Wall Street and is being called the largest crackdown on securities fraud in U.S. history.

Besides organized crime, the indictments released Wednesday accuse stock promoters, a retired policeman and executives of Internet start-ups of strong-arming brokers and manipulating penny stocks to gain more than $50 million in illegal profits.

``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,'' said Barry Mawn, FBI assistant director in charge of the New York office.

Guilty verdicts in the 16 indictments and seven criminal complaints unsealed in U.S. District Court could mean prison terms of between five and 80 years for defendants, U.S. Attorney Mary Jo White said.

Among the 120 people named in the indictments are members of all five New York crime families, showing just how deep organized crime has dug into the stock market of the Internet era, said Richard Walker, director of enforcement for the U.S. Securities and Exchange Commission.

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 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.

Mawn said the mob's tactics were not 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.

By late Wednesday, 98 suspects had been arrested in New Jersey, New York, Connecticut, Pennsylvania, Maryland, Virginia, Georgia, Florida, Alabama, Texas, Illinois, Utah and California. More arrests were expected, the FBI said.

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 — described by Walker 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 recording about 1,000 hours of conversations at DMN Capital Investments Inc., which authorities described as an ``investment banker to the crooked and the corrupt.''

White said mobsters used the company to launch schemes to secretly control or infiltrate various New York 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 allegedly involved money manager, William P. Stephens, the chief investment officer of Husic Capital Management of San Francisco. He allegedly agreed to manage up to $300 million in union pension funds so that some could be kicked back illegally.

A Husic spokeswoman told The New York Times that Stephens has been suspended.

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

Gardell leaked confidential law enforcement information concerning organized crime investigations to members and associates of organized crime, prosecutors said, 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.

There have been recent allegations of mob influence on Wall Street.

A year ago, federal prosecutors announced indictments against 85 people — some with alleged mob connections — in a scheme to sell worthless stock to thousands of investors, costing people $100 million.

And last July, a reputed associate of New York's Bonanno crime family who used mob clout to force Wall Street brokers to promote the stock of an Arizona company was sentenced to eight years in prison.