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Move over Bernie, company's coming. Federal prosecutors charged six officials at Manhattan-based brokerage firm Sky Capital LLC Wednesday with running a $140 million fraud and manipulation scheme over the last eight years.
The charges were in an indictment unsealed in federal court in Manhattan (see below). According to the indictment, from 1998 through 2006, the defendants participated in a boiler room scheme to defraud investors via two successive securities broker-dealers: the Thornwater Co. LP (Thornwater) and Sky Capital LLC. The complaint alleges that the firm's founder and CEO Ross Mandell of Boca Raton, Fla., directed Sky Capital brokers to make material misrepresentations and omissions and use high-pressure sales tactics to push stock in two related companies -- Sky Capital Holdings Ltd. and Sky Capital Enterprises, which traded on the Alternative Investment Market of the London Stock Exchange. Also charged are COO Stephen Shea of Brooklyn and four former registered representatives: Robert Grabowski of Staten Island, Adam Harrington Ruckdeschel of New York City, Michael Passaro of Boca Raton and Arn Wilson of Dix Hills, N.Y. The federal authorities say these defendants lied to customers about how their money was invested and used funds raised from investors to maintain a lavish lifestyle, pay excessive broker commissions and in some cases to pay off victims who had lost money in some of the firm's other investments. The stock manipulation was allegedly designed to make it appear there was demand for the shares investors bought, when in fact there was not, to control the market in the stock and to maintain and increase the share price, according to the criminal indictment. In a separate civil complaint filed by the Securities and Exchange Commission, Sky Capital is alleged to have raised more than $61 million from investors between September 2002 and November 2006. The complaint asks that they be permanently enjoined from future violations, ordering them to pay back the money plus prejudgment interest, along with financial penalties. The complaint also seeks to permanently prohibit Mandell from acting as an officer or director of any registered public company. James Clarkson, acting director of the SEC's regional office in New York, said: "Boiler-room tactics like those used by Sky Capital and its brokers undercut the level of honesty and fair play we seek to maintain in the securities markets. This firm and these brokers went to great lengths to repeatedly lie to investors, pressuring them into buying stock without telling them it would be nearly impossible to sell those shares." Sky Capital enforced a "no net sales" policy that in essence prevented investors from selling their stocks, the SEC complaint alleged. When trading in those stocks was suspended by the LSE in 2006, the investments were rendered worthless. The six men surrendered to enforcement officials Wednesday. Meanwhile, according to Crain's New York Business, this is not the first time Mandell has gotten into trouble. According to records on the Financial Industry Regulatory Authority's Web site, during Mandell' s 26-year Wall Street career, he has had five "regulatory events" filed against him by the New York Stock Exchange and securities authorities in Ohio, Michigan and Illinois. He's also had seven customer disputes. Those matters were settled by arbitrators. - Donna Block 0914326090706000000000023
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Very interesting data here. Thanks for taking the time to put this together!
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September 8, 2009 8:57 AM
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That people still fall for these same tactics after so many years is amazing.