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DISTRICT ATTORNEY - NEW YORK COUNTY |
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NEWS RELEASE |
Contact:
Alicia Maxey Greene |
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Manhattan District Attorney Robert M. Morgenthau announced today the indictment of eleven stockbrokers, three traders and two principal owners of Joseph Stevens & Company, Inc., a defunct securities firm based in Manhattan, for operating a racketeering scheme that netted $6.2 million in unlawful commissions. The defendants, including the firm itself, were indicted on charges of enterprise corruption, grand larceny, criminal possession of stolen property, securities fraud and falsifying business records. The investigation leading to today’s indictment revealed that the defendants ran Joseph Stevens & Company as a criminal enterprise from January 2001 through December 2005. During that period, the defendants defrauded 800 victims in more than 5,000 trades valued at $151,286,804.44. By manipulating the market value of carefully selected stocks, the defendants generated more than $6.2 million in unlawful, undisclosed commissions, in violation of New York law and the trust of their customers. The investigation further revealed that thedefendants repeatedly worked to capture undisclosed compensation while trading stocks, often by manipulating the stock price higher after having pre-arranged orders from their customers. In some cases, the stocks the customers purchased on defendants’ recommendations lost significant value in the days and months following the transactions. Particularly, to increase the amount of undisclosed compensation, a defendant trader would inform brokers that the trader was going to obtain a block of stock, and the trader would ask the brokers to commit to selling their customers a certain number of shares. Once the trader collected commitments from all the brokers, he would acquire the total amount of stock, either as a block that was sometimes obtained at a discount, or by buying a significant number of shares on the open market. The brokers would subsequently convince their customers to buy the stock but would hold the customer orders until the price of the stock had increased, often because of the trader’s manipulation of the stock. The trader would then execute customer orders at inflated prices. The extra profit generated as a result of that manipulation would be shared between the trader, the broker, and the firm. The brokers never revealed to their customers that the firm had obtained the stock at a lower price, that it would delay execution of their purchase orders, or that it would be manipulating the price of the stock to the disadvantage of the customer. The brokers never told their customers that their primary reason for recommending the stock was to earn additional undisclosed compensation, rather than because of the quality of the investment. To convince their customers to engage in these transactions, the brokers would often make misleading statements about the true value of the stock, including overly optimistic predictions as to future performance, and they would engage in aggressive sales tactics to convince their customers to purchase the stock. In order to conceal the undisclosed compensation from regulators, including examiners from the United States Securities and Exchange Commission and the Financial Industry Regulatory Authority, the defendants colluded to spread their excessive commissions over various trades, many of which were not part of the manipulations. By making it appear they were keeping commissions under a certain percentage of the entire trade, the defendants escaped the scrutiny of industry regulators which their practices would otherwise have incurred. Although the full extent of the harm the defendants caused to Joseph Stevens’ customers has yet to be determined, a few examples are instructive. A 70-year-old physician from Michigan, who was forced out of retirement as a result of the reverses in his investments, lost $900,000 in one day on one of the stocks his broker promoted heavily. On the advice of one of the defendants, who was also a patient, a dentist invested his children’s college savings and his employees’ pensions with Joseph Stevens & Company. The dentist subsequently lost approximately one-third of his $300,000 personal investment. His employees’ pension fund, originally valued at $1.3M, lost $850,000. Many of the customers affected by defendants’ wrongdoing were elderly and were retired or on the verge of retirement. The defendants’ actions sometimes forced these victims back into the workforce to survive. The customers lost their investments at the same time values in the stock market as a whole were rising. The indictment charges that the defendants fraudulently manipulated the shares or warrants of Antigenics, Inc., Cypress Biosciences, Inc., Discovery Laboratories, Inc., Focus Enhancements, Inc., Tapestry Pharmaceuticals, Inc., Arpeggio Acquisition Corp., CEA Acquisition Corp., Forbes Medi-Tech, Inc., Manhattan Pharmaceuticals, Inc., Ardent Acquisition Corp., BioDelivery Sciences International, Inc., CytRx Corp., Datatec Systems, Inc., Sonic Foundry, Inc., Progen Pharmaceuticals, Ltd., Repligen Corp., and Star Scientific, Inc. The Grand Jury indicted 17 defendants. Among them are JOSEPH STEVENS & COMPANY, INC., and its owners, JOSEPH SORBARA and STEVEN MARKOWITZ; traders CRAIG SHAPIRO, JOHN MORAITIS, and MASSIMO MARTINUCCI; and brokers PETER ORTHOS, ALAN FERRARO, CHARLES RASPA, SCOTT TIERNEY, JOHN MICCIOLA, STEVEN SCARCELLA, MICHAEL TRIPODI, DOUGLAS COSTABILE, JAMES RATHGEBER, MATTHEW MENIES, and HAJRADIN MUCOVIC. All are charged with Enterprise Corruption, and various defendants are charged with Grand Larceny in the Second and Third Degrees, Criminal Possession of Stolen Property in the Second and Third Degrees, securities fraud in violation of New York General Business Law Section 352-c (the Martin Act), and Falsifying Business Records in the First Degree. Enterprise Corruption is a class B felony punishable by up to 25 years in prison; Grand Larceny in the Second Degree is a class C felony punishable by up to 15 years in prison; Grand Larceny in the Third Degree is a class D felony punishable by up to 7 years in prison; Criminal Possession of Stolen Property in the Second Degree is a class C felony punishable by up to 15 years in prison; Criminal Possession of Stolen Property in the Third Degree is a class D felony punishable by up to 7 years in prison; Criminal Possession of Stolen Property in the Fourth Degree is a class E felony punishable by up to 4 years in prison; Securities Fraud under the New York General Business Law, Section 352-c (the Martin Act) is a class E felony punishable by up to 4 years in prison; and Falsifying Business Records in the First Degree is a class E felony punishable by up to 4 years in prison. All of the defendants are being sued in a parallel civil asset forfeiture action for $151,286,804.44. Assistant District Attorney Madeleine Guilmain, of the Asset Forfeiture Unit, is in charge of the Asset Forfeiture case, under the supervision of Assistant District Attorney Tara Miner, Chief of the Asset Forfeiture Unit. Mr. Morgenthau thanked the Broker-Dealer Inspection Program of the New York Regional Office of the United States Securities and Exchange Commission and the Criminal Prosecution Assistance Group of the Financial Industry Regulatory Authority, both of which provided assistance throughout the course of the investigation. The case was presented to the Grand Jury by Assistant District Attorney Jeannette Molina, Deputy Chief of the Frauds Bureau, and Assistant District Attorneys Charles Linehan, Elson Ho, Frank Mazzarelli and James Cesarano under the supervision of Assistant District Attorney Michael Kitsis, Chief of the District Attorney's Frauds Bureau, and Michele Shulman, Deputy Chief of the Frauds Bureau. Trial Preparation Assistants Christopher Miller, Claire Botnick and Skyler Cho assisted. The investigation was conducted by members of the District Attorney's Investigation Bureau, including Investigator Jonathan Savel and Supervising Investigator Jose Flores, under the supervision of Assistant Chief Terence Mulderrig and Chief Joseph Pennisi. Financial Investigators Nicholas Cangro and Chun Ho of the DA's Financial Crimes Bureau were also involved in the investigation, under the supervision of Chief Frank Puma. Defendant Information: JOSEPH STEVENS & COMPANY, INC. JOSEPH SORBARA, 6/25/1960 CRAIG SHAPIRO, 1/31/1976 JOHN MORAITIS, 10/25/1972 MASSIMO MARTINUCCI, 4/21/1969 PETER ORTHOS, 8/28/1967 ALAN FERRARO, 7/6/1970 CHARLES RASPA, 8/10/1964 SCOTT TIERNEY, 2/28/1968 JOHN MICCIOLA, 10/7/1966 STEVEN SCARCELLA, 10/8/1966 MICHAEL TRIPODI, 3/19/1969 DOUGLAS COSTABILE, 2/5/1969 JAMES RATHGEBER, 11/1/1963 MATTHEW MENIES, 1/18/1975 HAJRADIN MUCOVIC, a/k/a HARRY MUCOVIC, 1/5/1974 ###
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