NEW YORK (CNNfn) - A federal grand jury in Brooklyn indicted 19 individuals, including six with suspected ties to organized crime, on charges of stock fraud and money laundering.|
Two now-defunct brokerage firms, White Rock Partners and State Street Capital Markets Corp., allegedly participated in a scheme between 1993 and 1996. Both brokerage firms, which went out of business in 1996, were at least partly controlled by some of the defendants.
Authorities on Thursday said some of the defendants artificially inflated the value of stocks in four companies by making misleading statements about the companies to potential investors and then refusing to execute sell orders. Once the stock was sufficiently inflated, the authorities claim, the defendants then sold their own holdings in the stock at a substantial profit, which was then allegedly laundered through offshore bank accounts.
Officials say the problem is widespread
"The breadth of the charges reflects the serious and widespread nature of the problem," said Loretta Lynch, the U.S. attorney for the Eastern District of New York, who announced the indictment. "The indictment not only targets the brokers who exploit the investing public but also the dishonest company insiders who secretly profit from the illegal schemes, the money launderers who conceal the illicit gains and the organized crime members and associates who protect and promote the illegal enterprise."
The defendants include the alleged "captain" of the Bonanno crime family, an alleged "soldier" of the Genovese crime family and two others alleged to be associates of the Bonanno and Colombo crime families. Those defendants used extortion and threats of extortion in furthering the stock scheme, according to the federal authorities.
Racketeering charges were added against 17 of the 19 defendants.
The defendants face up to 20 years in prison on the racketeering charges, up to 10 years in prison for the stock fraud charges and up to 3 years on extortion charges. They also face forfeiture of about $40 million in real and personal property.
"Members of organized crime were not the first to seek easy money by artificially inflating the demand and price for stocks," said Lewis Schiliro, assistant director in charge of the New York office of the Federal Bureau of Investigation, who joined Lynch and New York Police Commissioner Howard Safir in announcing the indictments. "They saw an opportunity and seized it. A recurrent theme in our investigations is that organized crime goes where the money is. We intend to be there when they get there."
The investigation was dubbed Operation Street Cleaner because of its focus on Wall Street fraud.
"Goodfellas meet the Boiler Room"?
If true, the scheme and indictments appear to be a case of life following art. There have been several television shows with plots about mobsters getting involved in stock fraud, including Wednesday's episode of the NBC program "Law and Order," and several of this season's episodes of "The Soprano's," the popular organized crime show on Home Box Office.
Safir acknowledged the similarities of the facts in the case to popular movies, saying the investigation could have been called "Goodfellas Meet the Boiler Room," referring to two movies; the former about mobsters in New York, the latter about stock fraud.
"For those that seek to use these "pump and dump" schemes to prey on unsuspecting investors, today's indictment should be a stark reminder that stock fraud is a serious crime," said Safir.