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. Last Updated: 07/27/2016

U.S. Feds Arrest 120 In Mafia Brokerage




NEW YORK -- Federal officials charged 120 people with securities fraud on a grand scale, ending a scheme that the New York mob used to cream off as much as $50 million from America's booming stock markets.


Those arrested in the case are accused of engaging in a broad conspiracy run by at least 10 members of organized crime families that combined old-style mob violence, bribery and intimidation with up-to-date Internet investment strategies, authorities said.


More than 600 FBI agents began making arrests Wednesday morning in 16 loosely related cases that U.S. Attorney Mary Jo White called the "largest securities fraud takedown in history ? and the biggest dent we've ever made in the mob's influence on Wall Street."


Each of the five New York crime families f known as La Cosa Nostra, Sicilian for Our Thing f were represented in the arrests, most prominently the Bonanno and Colombo crime families, whose members allegedly set up an investment banking firm, DMN Capital Investments Inc., which provided services to small, developing companies. DMN had no legitimate business purpose, but functioned only "for mobbed-up schemes," said Patrick Smith, an assistant U.S. attorney in charge of the case.


"It was an investment bank to the crooked and corrupt," White said, "DMN was fraud central."


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 were allegedly recruited by the mob.


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 was a toxic mix, authorities said.


The charges ranged from racketeering and securities fraud to solicitation of murder, money laundering and extortion. The alleged crimes involved securities professionals at every level f money managers, brokers, lawyers, pension fund officials and even a New York city police department detective who was also treasurer of the Detectives' Endowment Association.


Average investors, many of them elderly, were promised returns of as much as 100 percent on stocks that were mostly thinly traded, inexpensive stocks sometimes referred to as penny stocks. They were defrauded of at least $50 million in schemes involving stock manipulation and using the Internet to fraudulently hype stocks, said Richard Walker, director of enforcement for the Securities and Exchange Commission.


The SEC worked with the U.S. Attorney's Office in investigating the case.


Some companies were touted as great dot-com investments that would allow investors to capitalize on the Internet boom.


Trading in the stock of E-Pawn.com Inc., a Coral Springs, Florida-based online auction company that describes itself as an Internet portal and e-commerce software developer, also was suspended by the SEC. E-Pawn officials are alleged to have paid 1 million shares of its stock to bribe brokers to create retail demand for the stock.


Eli Leibowitz resigned Wednesday as president, chief financial officer and director of E-Pawn.com, as did Clinton Greyling, another company director. The company declined to comment on the case.


Dubbed "Operation Uptick," the case began a year ago and involved confidential informants and a court-ordered bug in the Hanover Square office of DMN, where the FBI taped more than 1,000 hours of conversations. There was no answer at that office Wednesday.


Authorities said DMN was run by Robert Lino, also known as "Little Robert," an alleged capo in the Bonanno crime family, and Frank Persico, an alleged associate of the Colombo family and a registered stock broker. The other three New York organized crime families f the Gambinos, Lucheses and Genoveses f also were part of the organization, constituting the first time that all five families are alleged to have joined together in a joint venture of securities fraud, authorities said.


"The members and associates of the enterprise charged in this indictment were united by their common criminal interests," said the indictment, "regardless of the particular LCN [La Cosa Nostra] family, if any, with which a particular individual was associated."


Persico and the other defendants were arrested Wednesday and were in court to be arraigned and could not be reached for comment. Many of the defendants have not yet retained lawyers.


Persico was alleged to be the director of brokers who were bribed to "put away" stocks f get their clients to buy and hold the stock instead of selling it f to control the price. Entire crews or branches of registered broker-dealer firms were part of the scheme, according to the indictment.


Brokers who reneged on agreements or who refused to promote specific stocks at Persico's instructions were threatened, and some suffered violence at the hands of associates of the enterprise, the indictment said. One of the defendants is alleged to have solicited the murder of a person he believed was acting as a cooperating witness in the investigation.


DMN associates also would allegedly pay brokers secret exorbitant sales commissions of up to 50 percent of the proceeds obtained from investors for private placements. Among the companies that had private placements through DMN were Ranch1 Inc., a fast-food restaurant with branches throughout the country. Two officers of Ranch1 are alleged to be associates of the Colombo family.


Pension fund fraud also was on the menu at DMN, although federal authorities said no pension fund lost money in the schemes.