Five Defendants Indicted for Kickbacks and Fraud at the "Stock-loan" Desks of Wall Street Brokerage Firms
Charges Include Conspiracy to Commit Securities and Wire Fraud, Money Laundering Conspiracy, and False Statements
Roslynn R. Mauskopf, United States Attorney for the Eastern District of New York, and Mark J. Mershon, Assistant Director-in-Charge of the Federal Bureau of Investigation, New York Field Office, today announced the filing of two indictments alleging securities fraud conspiracy and related charges against five individuals, including former stock-loan traders at Morgan Stanley and Janney Montgomery Scott LLC (“Janney”). 1
The defendants’ initial appearances and arraignments are scheduled for this afternoon before United States Magistrate Judge Joan M. Azrack at the U. S. Courthouse, 225 Cadman Plaza East, Brooklyn, New York. The cases have been assigned to United States District Judge John Gleeson.
The charges arise out of an ongoing industry-wide investigation into allegations of bribery and kickbacks in the securities lending industry, also called the “stock-loan” industry.2
Securities firms often borrow and loan securities among themselves for a number of reasons, including facilitating short-sale transactions. Stock-loan “finders” can assist these firms by locating inventories of a given security and matching borrowers and lenders in stock-loan transactions. The investigation disclosed that stock-loan traders at several large brokerage firms funneled millions of dollars in fraudulent “finder fees” to their co-conspirators, often where no finders’ services had been rendered, in exchange for cash bribes and, in some instances, payments to the traders’ relatives. At times, the “finder fees” were paid by intermediary firms because the defendants’ brokerage firms did not, as a matter of practice, pay finder fees in connection with stock-loan transactions.
In one of the schemes charged today, a trader at Morgan Stanley directed business to a stock-loan finder in exchange for cash kickbacks and payments to a family member. In the other scheme, a trader at Janney directed bogus finder fees to family members where they had done nothing to earn those payments.
The Clinton Management Scheme
PETER SHERLOCK, ANTHONY LUPO, CRAIG DEMIZIO, and DONATO TRAMONTOZZI are charged with conspiracy to commit securities fraud and wire fraud, and money laundering conspiracy. SHERLOCK, LUPO, and DEMIZIO are also charged with making false statements to federal agents. As alleged in the indictment, SHERLOCK, a trader at Morgan Stanley, routinely directed Morgan Stanley stock-loan business to the finder LUPO in exchange for cash kickbacks and for hundreds of thousands of dollars paid to SHERLOCK’s brother-in-law, TRAMONTOZZI. LUPO, through his company Clinton Management, paid more than $500,000 in kickbacks between 2001 and 2005. DEMIZIO, a purported finder, received more than $350,000 in kickbacks from LUPO in connection with stock-loan transactions. TRAMONTOZZI, who was working full time as a pharmacist during the period of the conspiracy and performed no legitimate securities-related services, received approximately $200,000 from LUPO in connection with business LUPO obtained from SHERLOCK. TRAMONTOZZI is also charged with structuring cash transaction by withdrawing a significant amount of that money in small amounts in order to avoid filing the required federal currency transaction reports.
The Lumac Scheme
ANDRERW CACCIOPPOLI, a former manager of the stock-loan desk at Janney, stole approximately $350,000 by causing Janney to pay phony finder fees to CACCIOPOLI’s sister and her husband, who were employed full-time as a secretary and a letter carrier, respectively, during the period of the conspiracy and performed no legitimate securities-related services. CACCIOPPOLI is charged with conspiracy to commit securities fraud and with mail fraud.
“Wall Street professionals who line their own pockets by fraud breach the fundamental duties owed to their employers and the investing public,” stated United States Attorney Mauskopf. “Such conduct undermines the public’s confidence in the nation’s securities markets and will be vigorously investigated and prosecuted.” Ms. Mauskopf thanked the Securities and Exchange Commission for its assistance.
FBI Assistant Director-in-Charge Mershon stated, “In its essence, the fraud perpetrated by these defendants was like other forms of procurement fraud. Brokerages were victimized by unscrupulous employees who funneled unwarranted fees to ‘finders’ who paid them illegal kickbacks. The FBI continues to maintain a watchful eye on any and all forms of fraud and theft in the securities industry.”
If convicted on the conspiracy to commit securities fraud counts, SHERLOCK, LUPO, DEMIZIO, TRAMONTOZZI, and CACCIOPOLLI each face a maximum term of imprisonment of 25 years. The money-laundering charges carry maximum terms of imprisonment of 20 years, and the structuring and false statements counts carry maximum terms of five years each.
The government’s case is being prosecuted by Assistant United States Attorneys Sean Haran, Daniel Wenner, and Laura Mantell.
2 Previously, ten defendants pleaded guilty in this district to federal kickback and bribery schemes in the stock-loan industry, including former securities lending traders at A.G. Edwards and Sons, Inc.; Oppenheimer & Co., Inc.; National Investors Services, also known as TD Waterhouse; Nomura Securities International Inc.; Van der Moolen Specialists; and Kellner Dileo & Company, Inc.
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