July 24, 2000|
Fall Out in New York as Mob Steals Millions
By John William Tuohy
The fall out from the New York mob's failed attempt to manipulate the New York Stock Exchange promises to go far and wide. Prosecutors charge that DMN Capital Investments had mob ties and stole from thousands of investors across the country. The latest figure on the amount stolen is thought to be at least $50 million, possibly more.
Prosecutors have daubed DMN Capital Investments, a financial services company, as "a real fraud magnet."
The federal indictment filed June 14 charged 21 people with stock manipulation and fraud, bolstered by violence and threats. The charges involve 120 defendants, including eleven alleged Mafia capos and soldiers, 57 stockbrokers, a hedge fund manager, two top executives of the Ranch 1 grilled chicken fast-food chain and a former treasurer of the New York City detectives union.
Prosecutors have also linked the case to the five Mafia families operating in New York. More than 600 FBI agents carried out the arrests from New York to California. More are expected.
Criminal charges were also filed against William Stephens, a member of the board of NHancement Technologies. Stephens, a chief investment strategist of Husic Capital Management, a San Francisco-based investment adviser, was appointed to the NHancemenet board on March 1, 2000. He allegedly agreed to manage up to $300 million in union pension funds knowing that a portion would be invested in corrupt deals aimed at funding kickbacks to certain defendants and corrupt union officials.
Also caught up in the mass arrest was a retired New York Police Department detective once hailed as a hero. Former Detective Stephen Gardell once helped to arrest a mentally unstable man who mailed a deadly booby-trapped book to his own mother.
Now Gardell is accused of being a Mob lackey who leaked information to the hoods and arranged for them to get permits to carry pistols and provided them with Police Department parking permits.
According to the indictment, Gardell "corruptly leaked confidential information, concerning federal investigations of the mob to two accused mob associates, James Labate of the Gambino crime family and Salvatore Piazza of the Bonanno crime family, from early 1997 through April."
Gardell also allegedly used his position to persuade authorities to drop state assault charges against Michael Grecco, a reputed Colombo associate and obtained pistol-carry permits and NYPD parking permits for Labate and Piazza. In exchange for his help, the hoods allegedly built an $8,000 swimming pool at Gardell's Long Island home, comped him at casinos and gave his wife a fur coat.
But what brought Gardell to the attention of federal investigators was that he allegedly used his position as treasurer of the Detectives Endowment Association to invest the union's pension fund in mob stock schemes.
Other alleged Capos caught up in the scam include Bonanno crime family capo Robert "Little Bobby" Lino, alleged Genovese associate Bobby Gallo, reputed Colombo associate Michael Grecco, alleged Luchese associate John Black, Jr. and reputed Colombo crime family soldier Anthony Stropoli. Two of those arrested, purported Colombo associates Frankie Persico and Vincent Langella, were also registered stockbrokers.
Prosecutors said two other alleged Colombo associates were caught up in the raid, Ranch 1 CEO Sebastian Rametta and Vice Chairman James Chickara. Both were arrested for their roles in the scam and are accused of secretly kicking back profits to the mob.
In 1999, Ranch 1, which specializes in grilled chicken sandwiches, was dubbed "Best Fast Food in New York" by New York magazine. The chain has 46 restaurants in 11 states.
Ranch 1's original investors included Brand Equities Investors, a prestigious venture fund, along with John Sculley, a former Apple Computers CEO, and David Sculley, former president of Heinz USA.
"The greed and reach of this racketeering enterprise knew no bounds," said Manhattan US Attorney Mary Jo White.
Barry Mawn, head of the New York FBI office, said the mobsters involved in the scheme used the same violence that once helped the mob control the construction industry in New York. "It shows us again that organized crime has sought to regroup and tried to infiltrate the markets," he said. "When the mob enters the new world of white-collar crime, it brings along its traditional tools of the trade."
Tens of thousands of potential investors are apparently guided by the same impulse as the mob brokers trying to fleece them . . . an easy money, no-risk deal. What amazes investigators is that these otherwise intelligent and well informed investors are willing to write checks for thousands of dollars to a complete stranger they've met over the telephone.
The answer, of course, is greed and gullibility. "These are people," one federal law enforcement agent told AMERICAN MAFIA.COM, "who hear what they want to hear and see what they want to see. Greed has clouded their senses. They think everybody but them is making a killing on the market and they want in on it, so they write checks. I understand the motive to make money, sure, but, really, it's simple, if you get a phone call from a broker you don't know, from a company you never heard of, and he's touting a stock that no one knows . . . hang up, and quickly,"
For mob historians, the recent happening in New York is an old story, played out hundreds of times in the past since the early 1920s. As an example in 1923, New York's leading narcotics dealer, Arnold Rothstein joined with Chicago's Al Capone to finance a massive stock fraud in London, England. The mastermind was John Factor, AKA "Jake the Barber" and half brother to Hollywood's leading make-up expert, Max Factor.
Working under various names, in 1923 and again in 1926, Factor had organized small but lucrative stock scams in England. In 1927, he approached Rothstein and Capone for funding for a third and even larger swindles.
Working with the mob's capital, Factor touted several stocks belonging to fictional African mining corporations. An expert salesman, Factor's scam took in tens of thousands of investors, including the head of Scotland Yard and several members of the royal family. When he pulled the plug on the operation, Factor's gross profit was $8 million pounds, or just under $100 million dollars by today's standards. Fifty-million more than the scam in New York.
The plan is essentially the same today as it was eighty years ago. What makes the scam so much easier today are the remarkable overnight rise of once obscure Internet companies which has left millions of investors with little experience to come believe that companies with no previous record can make a fortune overnight. Skilled salesmen call between 500 to 800 potential investors a day, which produces perhaps 50 leads which might develop into as many as 5 sales.
In the New York case, prosecutors charged that the hoods recruited stockbrokers to inflate the value of companies in which they had secret ownership interest. The brokers hired promoters who hyped the so-called micro-caps on Internet stock trading sites. The mob members or their associates then collected kickbacks from the brokers over dinner at Joseph's Ristorante near Wall St. or over breakfast at the upscale St. Regis hotel in midtown.
Brokers who didn't kick back enough money to their mob overseers were beaten bloody, and in one case, a gangster allegedly conspired to kill a suspected informer.
The broker will rope in those five prospects, bit by bit, by selling a stock that the mob-owned firm completely controls. A stock that is guaranteed to earn the buyer a small, but steady profit.
After several weeks or even several months, depending upon the complexity of the scam, the broker calls back with another tip on a hot stock, which, unknown to the buyer, is also controlled by the mob's front company. This stock also earns the buyer a healthy profit.
If the buyer becomes suspicious, the broker explains that his client base is working with the individual investor, that client loyalty and smaller profits over a series of decades is the bedrock of their firm's credo.
The final step is to sell the buyer a worthless stock whose value has been inflated over several months by the broker and the mob. In the New York case, the brokers allegedly sold stock in shell companies that claimed to do everything from produce software to operate amusement parks to recycle shingles. One firm claimed to run day-care centers from an office on Avenue U in Brooklyn. That firm had $2,000 in its bank accounts but was able to sell enough stock to claim assets of $90 million before collapsing.
The buyer purchases tens of thousands of dollars worth of the useless stock. When the bottom falls out, the broker usually disappears, but not always since "Boiler room cases" tend to be hard to prosecute as it's often virtually impossible to prove fraud and because the true value of a stock, any stock, is arbitrary, at best.
Most of these cases can only be brought to court when prosecutors can prove fraud, when they have evidence that the selling broker knew what he was selling was worthless, something that's almost impossible to prove.
Prosecutors may have caught a break in the New York case since, over the past year, undercover FBI agents made stock buys and secretly gained an inside informant, a Bonnano associate. The agency also bugged the Hanover Square office of DMN for months.
Mr. Tuohy can be reached at MobStudy@aol.com
Copyright © 2000 PLR International