FBI: Mob played the stock market

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

Federal prosecutors in Manhattan charged a record 120 people yesterday 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.

U.S. Attorney Mary Jo White called the arrests the "largest securities-fraud takedown in history . . . and the biggest dent we've ever made in the mob's influence on Wall Street."

Those accused in the 16 federal indictments include accountants, brokers, officers of publicly traded companies and 10 alleged members of New York's main five families of organized crime.

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

The charges ranged from racketeering and securities fraud to solicitation of murder, money laundering and extortion.

The cases shed new light on the mob's involvement on Wall Street. In the past, organized crime has been involved on the margins of some stock frauds, but in this case, entire branches of brokerage firms allegedly were recruited. The combination of organized crime, a market where more than half of American families own some form of stock and the use of the Internet to exploit investor confusion, authorities said, is a toxic mix.

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 percent returns.

But the Mafia involvement gave the alleged swindles an aura 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 in 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 mainly were 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," White said.

In the case disclosed yesterday, 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 them obtain pistol "carry" permits and police parking permits for their cars.

In return, he got "comped" rooms and meals at Las Vegas and Atlantic City, N.J., 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 being 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 suspects hyping stocks with phony press releases and other false claims.

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

The schemes described in the indictments played out against a backdrop of a booming bull market where even the boldest stock promoter might hesitate to make claims as wild as the actual gains being racked up by some technology stocks earlier this year.

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.

In companion enforcement actions, the Securities and Exchange Commission yesterday 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 yesterday's indictments.

None of the defendants, or their lawyers, could be reached for comment yesterday.

Stocks involved

Federal prosecutors allege fraud in the sale of the following publicly traded stocks and private placements. The list identifies the business and whether it is traded over the counter (OTC), on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the Nasdaq market (NASDAQ) or privately.

Accessible Software Inc. (OTC)

Alliance Technology (Private placement)

American Realty Trust (NYSE)

Amerivest Online Inc. (Private placement)

ATR Industries Inc. (OTC)

Beachport Entertainment Corp. (OTC)

Bookdigital.com (Private placement)

CyberSentry Inc. (OTC/ AMEX)

Diagnostic Professional Imaging Services (Private placement)

E-Pawn.com Inc., (OTC)

Exchange Online Inc. (Private placement)

FinancialWeb.com Inc. (OTC)

First Commerce Corp. (Private placement)

First Fidelity Co. (Private placement)

First Fidelity Equities (Private placement)

Franklin Services Corp. (Private placement)

Future Fitness Ltd. (Private placement)

Globus International Resources Corp. (OTC)

GTrade Network Inc. (OTC)

Harbour Intermodal Ltd. (OTC)

Healthwatch Inc. (NASDAQ)

Hytk Industries Inc. (OTC)

Innovative Medical Services (NASDAQ)

International Nursing Services (NASDAQ)

Ivy Entertainment.com (Private placement)

Jackpot Entertainment Magazine (Private placement)

Learner's World Inc. (OTC)

Leasing Edge Corp. (NASDAQ)

Nationwide (Private placement)

Premier Classic Art Inc. (OTC)

Ranch 1 (Private placement)

Reclaim Inc. (NASDAQ)

Rollerball International Inc. (NASDAQ)

SearchHispanic.com (Not publicly traded)

Spaceplex Amusement Centers Intl Ltd. (OTC)

Travelers Infocenter (Private placement)

Wamex Holdings Inc. (OTC)

World Gourmet Soups Inc. (Private placement)