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$50M 'pump-and-dump' scam nets 20 arrests
By Greg Farrell, USA TODAY
NEW YORK — Mob influence on Wall Street might be waning.
The FBI arrested 20 men Thursday morning on charges of
running a massive pump-and-dump scheme that defrauded thousands of investors
out of more than $50 million. Two alleged ringleaders — Hunter Adams and
Michael Reiter — are said to be associates of the Gambino organized crime
family.
The arrests and charges comprise the third major bust of
an alleged Mob-infested boiler room operation in the past 9 months.
According to an indictment handed up in Brooklyn, the group
ran three brokerage firms from 1994 to 1998 and used them for "pump-and-dump"
scams.
Tennis star Steffi Graf and NFL player Bryan Cox were duped
in the scheme, a source close to the investigation told The Associated Press.
Graf, identified in court Thursday only as a professional
tennis player, was scammed of more than $600,000 in a three-month period, said
the source, who spoke on condition of anonymity. Cox, a former New York Jets
linebacker, was identified in court only as an NFL player. The amount of money
he lost was not disclosed.
The indictment says that the group's three brokerages —
First United Equities, Lexington Capital and AGS Financial Group — employed
a posse of cold-calling telemarketers who hyped the stocks of four companies:
Ashton Technology Group, EquiMed, IRT Industries and National Medical Financial.
The brokerages amassed blocks of stock in each company
before the marketing team sold it to unsuspecting victims, promising fantastic
returns. When the stocks rose on the sales, Adams and Reiter dumped the brokerages'
holdings, reaping a $50 million windfall. The indictment also alleges that the
group laundered its profits in overseas bank accounts and paid a cut to the
Gambino family.
"Here we see organized crime not just as muscle or enforcement
but involved in the day-to-day management of a brokerage firm," says Loretta
Lynch, U.S. Attorney for the Eastern District of New York.
"This is real life imitating art — it's a combination
of The Sopranos and Boiler Room," adds Eliot Spitzer, attorney
general of New York, whose office helped develop the case. "Except this involved
real people, real victims."
According to the indictment, the brokerages refused to
execute sell orders from clients who tried to cash out at a profit. In at least
one instance, a broker who tried to honor a client's sell order was threatened
at knife point.
"They engaged in that type of activity," says Robert Cordier,
special agent in charge of the FBI's criminal division in New York. "They can
almost perfect these things into an art form, because they bring the elements
of fear and violence in."
Other recent actions against alleged Mob-run brokerages:
• The FBI arrested 120 people, including 11 associates
of crime families, in Operation Uptick last June. The Mob associates were said
to be in charge of DMN Capital Investments. Two defendants, Frank Persico and
Robert Gallo, pleaded guilty last month to racketeering.
• The alleged mastermind of the Mob's migration into
Wall Street, Philip Abramo, was charged with securities fraud in 1999 and pleaded
guilty last year.
• Twelve members of New Jersey's DeCavalcante crime
family, including Abramo, were charged with racketeering, conspiracy to commit
murder, securities fraud and other crimes last October.
Despite comparisons to The Sopranos, SEC enforcement
director Richard Walker didn't crack a smile at Thursday's press conference.
"The SEC finds little entertainment value in this subject," he said.
Contributing: The Associated Press
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