In what is being labeled as the largest securities fraud crackdown ever undertaken, U.S. federal authorities have charged members of organized crime families and others in a wide-ranging scheme that included fraudulently promoting stocks on Web sites and falsely touting companies as “dot-coms.”
Federal indictments were handed down in New York City against 120 people, and the Securities and Exchange Commission (SEC) says it is taking action against 63 people and companies.
Total losses for the securities fraud are estimated at over $50 million (US$).
Authorities say that organized crime members were drawn to Wall Street because the Internet economy seemed to be a wellspring of easy money and because they have been forced out of more traditional rackets.
To infiltrate the Street, the crooks apparently used a combination of high-tech and low-tech methods. In addition to false representations that companies were “dot-coms” and misleading statements on the Internet, unregistered salespeople were allegedly cold-calling investors from “boiler rooms” and misrepresenting their offerings using high-pressure sales techniques.
When these techniques failed, the defendants purportedly resorted to extortion, witness tampering, and murder solicitation.
According to Barry W. Mawn, FBI assistant director in charge of the New York office, “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.”
Authorities said the scheme resulted in the largest number of people ever arrested at one time on securities-related charges. Search warrants were executed by the Federal Bureau of Investigation (FBI) in Dallas, Texas and Salt Lake City, Utah.
Among those arrested were members of five organized crime families, a former New York Police Department detective, licensed and unlicensed stock brokers, and a host of officers or other “insiders” at companies issuing securities involved in the fraud.
SEC Director of Enforcement Richard H. Walker said, “The securities fraud involved in today’s actions is among the most egregious witnessed in recent years. These manipulations of numerous 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.”
The indictments and charges state that the defendants tried to manipulate the publicly traded stock of 19 companies. The defendants also allegedly tried to defraud investors with the private placement of securities of 16 other companies.
Twenty-one of the defendants stand accused of racketeering. The alleged racketeers, believed to be members of the Bonanno and Columbo organized crime families, are accused of forging alliances with members of three other New York-based organized crime families to infiltrate and control broker-dealers, and conspiring with securities issuers and individual stock brokers to manipulate low-priced securities.