This is more REAL fraud!
Twenty-one brokers indicted in IPO scheme
NEW YORK, Feb 9 (Reuters) - Twenty-one brokers have been indicted
in the government's expanding case against defunct brokerage Sterling
Foster and its use of deceptive sales tactics to lure investors into
buying shares of little known companies sold in public offerings.
The six count securities fraud indictment, which was unsealed on
Wednesday in Manhattan federal court, alleges that the former Sterling
Foster brokers were involved in illegal stock sales as part of six
public offerings between June 1994 and June 1997.
Sterling Foster was the lead underwriter for five of the offerings.
The Securities and Exchange Commission also filed a related civil
suit on Wednesday in Manhattan federal court against 18 of the brokers.
Sterling Foster, which was based in Melville, N.Y., closed in 1997
after the FBI raided its officers in search of evidence about the
alleged fraudulent sales practices.
The brokers named in the unsealed indictment held managerial or supervisory
positions that included vice president, branch manager and account
executive. They allegedly used fraudulent and deceptive practices
to sell shares, known as ''house stocks,'' in the public offerings.
The alleged activity included ''bait and switch'' tactics in which
the brokers opened customer accounts with ''blue-chip'' or better
known stocks and then switched the customer's investment into house
stocks.
They also allegedly used high-pressure or ''boiler-room'' scripted
sales techniques, made unauthorized purchases in customers' accounts
and failed to take and execute customers' orders to sell house stocks.
The indictment alleges that the purpose of the scheme was to artificially
inflate and maintain the prices of house stocks. In this way the stock
was protected from a lack of market demand, which would have cause
the price to collapse.
The defendants allegedly received excessive compensation to push
the stocks. The payments, which were as high as 15 percent of the
price of the stock, were not revealed to investors.
In 1997 the SEC sued Sterling Foster and four individuals including
its president Adam Lieberman for allegedly obtaining $75 million from
investors using high-pressure sales practices and other unlawful conduct.
Authorities said that the firm was secretly controlled by Randolph
Pace, a former owner of the defunct brokerage Rooney Pace and by lawyer
Alan Novich. The two men were indicted in 1998 for their alleged role
in the public offering stock fraud scheme.
Criminal charges against Pace and Novich were expanded in September
1999 to add new allegations including that the defendants earned illegal
profits of more than $200 million from the scheme.
Their trial is scheduled to begin in September. To date, six defendants
have pleaded guilty in criminal charges stemming from the scheme and
they have repaid or agreed to repay about $32 million in illegal profits.
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