Scores Arrested, Including Alleged Mobsters, in Securities Fraud

Updated from 12:14 p.m. EDT

More than 100 people, including alleged members of all five of New York's organized crime families, were charged in U.S. District Court in Manhattan on Wednesday with what prosecutors called "the largest securities fraud action in history."

The charges against 120 people resulted from a joint investigation by the Federal Bureau of Investigation and the U.S. attorney for the Southern District of New York. Law enforcement officials said the cases stemmed from a nationwide phony-stock scheme that bilked investors out of more than $50 million. The cases include 19 public companies and the private placement of securities for 16 others, including the Ranch*1 company, which operates a chain of fast-food outlets.

Simultaneously, the SEC announced a related action against 63 defendants -- in five separate cases -- for fraud in the microcap, or low-priced securities, market. The actions allege an array of conduct, including private-placement fraud and investment-adviser pay-to-play violations. In connection with the cases, the SEC halted trading in the stocks of Wamex Holdings and E-Pawn on the OTC Bulletin Board.

"The securities fraud involved in today's actions is among the most egregious witnessed in recent years," Richard Walker, the SEC's director of enforcement, said in a statement. "These manipulations of numerous stocks were designed for the sole purpose of stealing investors' hard-earned dollars. The prosecutions announced today rid the vital market for low-priced securities of unscrupulous operators and reaffirm regulators' commitment to keeping this market safe and fair."

Also charged by the U.S. attorney's office were stock promoters, brokers, officers of several companies, a New York City police detective with control over a police officer's pension fund, and a leading West Coast investment adviser, according to a statement released by Mary Jo White, the U.S. attorney for the Southern District of New York.

"The greed and reach of this racketeering enterprise knew no bounds," White said at a news conference. "The price of quick and criminally earned profits in the stock markets will be arrest, prosecution and jail," White said.

The victims included investors in publicly traded companies, private placements and pension funds. White estimated that the defendants face sentences ranging from five to 80 years in jail.

A yearlong investigation code-named Uptick culminated in a coordinated series of arrests -- expected to eventually total 120 -- beginning at 6 a.m. EDT Wednesday by 600 FBI agents, joined by New York police, according to Barry W. Mawn, assistant director in charge of the New York office of the FBI.

Law enforcement officials said that was the largest number of defendants ever arrested at one time on securities fraud-related charges. Mawn said law enforcement agencies sought to bring an "impact case," meaning one that would draw attention and deter would-be criminals.

"The defendants in this investigation are as diverse as the crimes with which they are being charged," Mawn said. "It is clear that organized crime has sought to regroup and infiltrate new sectors of the economy."

He said the investigation uncovered telemarketing fraud, in which brokers made cold calls to elderly people, some of whom were promised a 100% return on their investments.

The securities fraud turned violent when the accused did not get their way, Mawr said. For example, he said, brokers were beaten for selling to the markets shares of stock they had previously agreed to withhold.

"When the mob enters the world of white-collar crime, it brings along the traditional tools of its trade," he said, referring to violence and intimidation.

The charges say the defendants controlled several New York City-area brokerages, including Monitor Investment Group, First Liberty Investment Group, William Scott & Co. and the Atlantic General Financial Group.

The indictments detail an alleged racketeering scheme described as a joint venture between the Colombo and Bonnano crime families. White named DNM Capital Investment Services, at 1 Hanover Square, as "fraud central" for the racketeering scheme.

The SEC alleges that William Stephens, the chief investment strategist for Husic Capital Management in San Francisco, rigged pension fund investments and then skimmed profits off the top to pay as kickbacks to the trustees of the fund. In addition, the SEC filed civil cases charging 14 individuals and nine companies with fraudulent private placement offerings that netted about $3.5 million from investors.

According to the indictments, the publicly traded companies whose stock was manipulated included Beachport Entertainment, Reclaim Inc., Accessible Software and International Nursing Services.

Another indictment charges six defendants with manipulating stocks on the OTC Bulletin Board by using Web sites that provided bogus investment services. The sites controlled by various defendants included stockregister.com, bullstrategies.com, wallstreetmarquee.com, atthebell.com, stockplayground.com, otcbbstockwatch.com, redalert.com, subway.com, americananalyst.com, powerstocks.com and fortuneinvestments.com.

The investigation will continue, and White said more people are likely to be charged.

"Today's actions are not an indication that the tentacles of organized crime have infiltrated anywhere beyond the seamy underbelly of the microcap market," Walker of the SEC said.