By:Jeff Lipton
Authorities rounded up 20 defendants, including two from the Five Towns and one from Merrick, in a Wall Street scheme they say swindled thousands of investors out of $50 million, leading investigators to call the mob-influenced operation a combination of "The Sopranos" and "Boiler Room."
Hunter Adams, 33, of Bay Boulevard, Atlantic Beach; Chris Russo, 34, of Ibsen Street, Woodmere,and Michael Reiter, 31, of Halyard Drive, Merrick, were among those indicted for the massive stock-fraud scheme on March 8 in federal court in Brooklyn. Adams and Reiter are reputed associates of the Gambino organized crime family, according to the 47-page indictment.
The scheme covered a four-year period, from February 1994 through March 1998, involved three brokerages and resulted in the manipulation of the securities of at least five companies in a classic "pump-and-dump" operation. That is when corrupt brokers gain control of worthless stocks, illegally inflate their value and then sell their share at enormous profits, leaving their victims to take the fall, authorities said.
According to the indictment, Adams, Reiter and four others gained secret control over large blocks of stock and allegedly artificially and illegally inflated the stocks' prices. The defendants then made false statements to retail customers, used high-pressure and deceptive sales tactics, accepted excessive and undisclosed commissions and sales credits, made unauthorized trades in customer accounts and authorized unregistered brokers and cold-callers routinely to misrepresent to customers that they were registered brokers.
"This is really a case of life imitating art. It's a combination of 'The Sopranos' and 'Boiler Room,'" said state Attorney General Eliot Spitzer. "Unfortunately, this isn't the movies or TV, it's real life and we have real victims - thousands of them, who combined have lost $50 million.
"Those behind this scam berated and threatened victims, made unauthorized trades, failed to execute sell orders and took their clients for all they were worth."
The defendants controlled the now-defunct brokerage firms of First United Equities Corp., with offices in Garden City, Manhattan and Woodbridge, N.J; Lexington Capital, with offices in Hauppauge, and AGS Financial Group, with offices in Manhattan and Chicago. They are accused of manipulating the market price of the securities of companies that traded on the NASDAQ National Market System, the NASDAQ small cap stock market, the Over-the-Counter Bulletin Board market and the Philadelphia Stock Exchange. The companies whose securities were manipulated included: Ashton Technology Group, Inc.; EquiMed, Inc.; IRT Industries; Mama Tish's Italian Specialties and National Medical Financial Corp., officials said.
Adams was identified in the indictment as an undisclosed principal of First United, Lexington Capital and AGS, as well as a representative of First United from June 1995 through December 1996. Reiter was a promoter of several stocks of which First United was a market maker. Russo was a registered rep of First United from September 1995 to April 1997 and of Lexington from April 1997 to August 1998.
As the price of the stocks rose, the defendants sold their shares, from accounts they secretly controlled, to First United's and Lexington Capital's customers, which helped the defendants reap huge profits, officials said.
After they sold their shares at artificially inflated prices, the defendants withdrew their support of the price, permitting it to collapse and inflicting heavy losses on their customers, the indictment said. For example, between May 1996 and November 1997, they drove the price of Ashton stock up to $15.25 per share before allowing it to dive to less than $1 per share. EquiMed traded from a high of $16.50 to a low of $1.75, IRT from $7.25 to 25 cents and National Medical from $13.50 to 6 cents.
Adams and Reiter are accused of laundering millions of dollars of securities proceeds and wiring them to domestic and foreign bank accounts.
"This prosecution should send the strong and clear message that unlawful high pressure and deceptive sales practices, including threats of bodily injury and market manipulation, will not be tolerated," said United States Attorney Loretta Lynch.
Barry W. Mawn, FBI assistant director, said law enforcement authorities are determined to make sure that financial markets do not become a "cash cow" for the mob.
Richard H. Walker, director of enforcement for the Securities and Exchange Commission, said that the boiler room operation was "carried out by individuals who were willing to tell any lie - no matter how brazen - in order to get their hands on the public's hard-earned money. These cases demonstrate our continuing commitment to rooting out fraud in the microcap market."
The defendants were arrested March 8 and arraigned by U.S. Magistrate Judge Viktor V. Pohorelsky. They are charged with securities, mail and wire fraud and money laundering, as well as conspiracies to commit the crimes. Money laundering carries a maximum penalty of 20 years in prison; securities fraud, 10 years, and mail and wire fraud, five years each.
