Brooklyn prosecutors today charged 85 defendants -- including a dozen with ties to Russian and Italian crime groups -- with participating in stock frauds that cost thousands of investors more than $100 million.
In various plots, brokers would gain control of one of 20 cheap, thinly traded stocks, prosecutors said. Registered brokers were bribed to push the stock. Fake brokers assumed the names of registered brokers to work the phones pumping up the price. Members of the Colombo organized crime family and the Bor Russian mob group brought in teams of cold callers to boiler rooms to share the work.
"This is the largest takedown involving organized crime and stock fraud that we're aware of," said Andrew Weissmann, an assistant U.S. attorney in the eastern district of New York. "This is it."
In the last two years, New York prosecutors have brought several stock fraud cases involving defendants connected to the five crime families known as La Cosa Nostra. The Russian crime group, Bor, has more recently come into the picture. While some published accounts have credited the mob with making billions of dollars on Wall Street, prosecutors and securities regulators said it is virtually impossible to estimate the price of their crimes in the markets.
"The mob never saw a market it didn't want to control," said Lewis D. Schiliro, head of the FBI's New York office. "The bull market is obviously attracting more than just the honest investor."
Some of the nine brokerage firms named were corrupt from top to bottom, according to prosecutors. In others, branch offices were corrupted by rogue brokers.
At the Brooklyn courthouse, where more than 60 defendants were arraigned, the chaotic scene was described by one observer as "a bunch of young guys in muscle suits with very well put-together girlfriends." More than a third of the defendants were in their early twenties when the schemes started eight years ago. Defendants with aliases such as "Scooter" and "Frankie the Fish" were among those charged in three separate indictments.
In one incident in the three-year investigation, an undercover FBI agent posed as the manager of a money market firm and arranged to purchase $2.5 million worth of First Colonial Ventures stock at a price that would later be inflated.
Robert Catoggio, one of the defendants who pleaded guilty to an earlier stock fraud scheme and is now in jail, told the undercover agent: "I never read one of the prospectuses. . . . I mean, the reality of it is . . . you're doing this to make money. You're not doing this because it's gonna be the next IBM. . . . You make your money and you move on to the next one."
Catoggio, who had been barred from participating in the securities business in 1995, and Roy Ageloff allegedly controlled four brokerage firms that carried out their various schemes, according to one indictment. Sometimes they would acquire large blocks of securities of small and start-up companies, or companies that did no business at all. Sometimes they paid kickbacks to issuers to get the stocks dirt cheap. Sometimes they simply stole the stock, according to the charges. All told, investors lost more than $80 million from the dealings.
This type of operation works best with so-called micro-cap stocks, where it is relatively easy to gain control of a relatively cheap, thinly traded stock on the Over the Counter market's bulletin board or on the Nasdaq small-cap stock market. Many of the stocks cost less than a dollar.
Catoggio and Ageloff made tens of millions of dollars through their scheme and often laundered the money through gambling casinos in Nevada, where the money was later withdrawn as cash, the charges said.
Gustave Newman, an attorney for Catoggio, said he hadn't seen the indictment and declined to comment. Benjamin Brafman, an attorney for Ageloff, said his client had entered a plea of not guilty and would vigorously defend the charges. Many of the defendants and their attorneys were in court today and could not be reached for comment.
While much of the attention of regulators and prosecutors recently has been on Internet stock frauds as the number of Internet trades increases, these charges, if true, show that there still are those willing to use less sophisticated methods as long as the money keeps flowing.
The case involving alleged Russian and Italian mob figures generated more than $10 million by using high-pressure tactics to sell worthless stock, the indictment said. In a classic boiler-room scheme, associates of the Colombo family and the Bor crime group supervised crews of registered and unregistered brokers and unlicensed cold callers in branch offices of brokerage firms to lie about the value of the stock they were selling and the commissions they were making, according to the indictment.
Dominick Dionisio and Enrico Locasio of the Colombo family and Yakov Slavin of the Bor group were not arraigned today and could not be reached for comment.
"It's not a sophisticated scheme," said Eric Corngold, chief of the business securities fraud section of the U.S. attorney's office in Brooklyn. "But the boiler-room scheme was what they were trained in."
In the past, according to the FBI, the nascent Russian mob in the United States has tended to stick to the same types of crime the Italian mob used in its early days -- loan sharking, extortion and gambling. But more recently, it is moving aggressively into new money areas.
The third indictment says Christopher Wolf and others gained control of large blocks of Auxer Industries Inc., which claimed to be developing a new additive to motor oil that improved engine operation. They secretly paid brokers to tout the stock, inflating its price. Then, they put their profits into offshore shell companies and numerous bank accounts. Investors lost more than $8 million.
Gerald Shargel, an attorney for Wolf, did not return calls requesting comment.
Staff researcher Richard Drezen contributed to this report.