3/3/00

By Pete Bowles and Patricia Hurtado. Newsday STAFF WRITERS

Nineteen people-including six reputed mobsters-were arrested and charged yesterday in a massive "pump and dump" stock-fraud scheme that cost the public more than $60 million, law-enforcement officials announced.

Lewis Schiliro, head of the New York office of the FBI, said the 19 defendants, including brokers and company insiders, realized at least $40 million in profits from the operation.

"The brokers availed themselves of the muscle offered by La Cosa Nostra to enforce the illegal agreements essential to the pump and dump scheme," Schiliro said. He said Russian mobsters helped launder the profits.

Through the scheme, stocks were illegally manipulated to inflate their value then sold quickly at the higher price, officials said.

The scheme, carried out between 1993 and 1996, was "such a cash cow that La Cosa Nostra in one instance made $100,000 in profits in one day," he added.

U.S. Attorney Loretta Lynch of the Eastern District of New York said the 19 defendants, operating through two Manhattan brokerage firms, acquired secret control of large blocks of stock in small companies, then artifically inflated the prices of the securities.

"Once the stock price was driven up, in some instances to ranges of $6 to $7 a share, they would immediately sell that stock at a substantial profit," Lynch said. "That profit was laundered back to them from offshore accounts, primarily in the form of cash." Lynch said thousands of brokerage customers bought the tainted stock for amounts ranging from $2,000 to more than $10,000.

"Once the defendants dumped their shares, the stocks became worthless, [dropping] from a high of $6 to $7 per share to pennies," she said. "Through this scheme, organized crime sought to extend its reach to the lives of ordinary citizens, whose hard-earned dollars went into their pockets." The scheme operated out of two now-defunct brokerage firms-White Rock Partners & Co. and State Street Capital Markets Corp. The indictment said the firms operated as legitimate companies "although they were in fact operated for the primary purpose of earning money through fraud." Among those charged were Frank Coppa Sr., 58, of Manalapan, N.J., indentified as a captain in the Bonanno crime family; Ernest Montevecchi, 54, allegedly a soldier in the Genovese family; Daniel Persico, 37, of Brooklyn, a reputed associate of the Colombo crime family and nephew of its imprisoned boss, Carmine Persico; Eugene Lombardo, 47, a reputed associate of the Bonanno family; Joseph Polito, 65, of Boca Raton, Fla., an alleged associate of the Gambino family, and Edward Garafola, 61, of Staten Island, allegedly a soldier in the Gambino family and brother-in-law of mob turncoat Salvatore Gravano.

The defendants were charged with racketeering, money laundering, securities fraud, conspiracy and extortion and face up to 20 years' imprisonment if convicted. They were to be arraigned before Magistrate Joan Azrack in Brooklyn.

Several of the defendants had been arrested earlier in connection with a similar stock manipulation scheme run through small brokerage houses in Manhattan. One is Aleks Paul, 42, of Kings Point, the operator of a jewelry business in the Diamond District who is charged in the latest indictment with laundering profits from the scheme through off-shore bank accounts.

As part of the scheme, the two brokerage firms secretly acquired blocks of stock in four small companies, including U.S. Bridge of New York Inc., a Corona-based subcontractor on public infrastructure projects in the New York area, including the Cross Bronx Expressway and the New England Thruway. The company has since filed for bankruptcy protection.

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