Brokers Charged With Bilking Investors

Law enforcement authorities and securities regulators arrested 20 stock brokers and brokerage firm executives Thursday and charged them with bilking investors out of $50 million over four years through scams that were a convergence of television's The Sopranos and the Hollywood movie Boiler Room.

Two of the men charged with manipulating stocks, officials said, were associates of the Gambino organized crime family

In an early morning sweep, 150 FBI agents rounded up the accused brokers in four states: New York, New Jersey, California and Florida. Federal and state prosecutors involved in the investigation said the arrests should place a damper on inroads organized crime has made into Wall Street. But they also acknowledged there's little chance of recovering most of the money the brokers made by convincing unsuspecting clients to invest in worthless stocks with the promise of huge gains that never materialized during the stock boom of the mid-1990s.

"As soon as profits are realized they are often dissipated" to overseas accounts that are difficult or impossible to track, said Loretta Lynch, U.S. Attorney for the Eastern District of New York in Brooklyn, where the indictments were announced Thursday.

The defendants were scheduled to be arraigned Thursday afternoon.

"This is a horror show. And that is why we as prosecutors feel so determined to root out the merger of organized crime and Wall Street," said New York Attorney General Elliot Spitzer, whose office participated in the investigation. "We will win."

Many of the defendants charged Thursday had allegedly lured thousands of investors into parting with their money through a classic "pump-and-dump" technique that involved brokers calling the investors cold, convincing them to buy a company's shares to inflate their price and then the brokers selling shares in the same company before the investors had a chance to get out.

Two individual investors who prosecutors described as sophisticated, each lost $1.2 million to the defendants charged Thursday, Lynch said.

Some of those charged had worked at other brokerages that were closed for securities fraud, such as the notorious New York brokerage A.R. Baron, which collapsed in 1996 and caused more than $75 million in losses for its investors.

Federal prosecutors charged one of the defendants with transferring clients from Baron to the now-defunct Garden City, N.J., brokerage First United Equities, where brokers allegedly carried out fraudulent stock deals.

Several brokers and former principals of First United Equities were indicted Thursday.

"The defendants here come from a Who's Who of renegade brokerage houses," Spitzer said.

Thursday's arrests follow a huge investigation into organized crime and Wall Street that produced 100 arrests in Manhattan last year.

Along with the criminal charges, the Securities and Exchange Commission on Thursday charged 18 of the brokers with violating securities laws and said it will attempt to ban them from the securities industry.

As other authorities made comparisons between television and movie portrayals of bad guys and the operation run by the defendants charged Thursday, SEC Enforcement Director Richard Walker said: "The SEC, not surprisingly, finds little entertainment value in the subject."