Six 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 Commercial Bribery Conspiracy
Three indictments were unsealed this morning in federal court in Brooklyn alleging securities fraud conspiracy and related charges against six defendants, including former stock-loan supervisors at Morgan Stanley and Co., Inc. ("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 Roanne L. Mann 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 indictments were announced by Benton J. Campbell, 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 Division.
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. Securities firms often borrow and loan securities among themselves for a number of reasons, most commonly to cover short sales of stocks. Stock-loan finders assist these firms by locating stock to be used in covering short sales. 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. To date, eighteen defendants have 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.; Kellner Dileo & Company, Inc.; Oppenheimer & Co., Inc.; Morgan Stanley; National Investors Services, also known as TD Waterhouse; Nomura Securities International, Inc.; PFPC Trust Company; Schonfeld Securities, LLC; and Van der Moolen Specialists USA, LLC.
The first indictment announced today charges two defendants, DARIN DEMIZIO, a former supervisor at Morgan Stanley, and ROBERT JOHNSON, a purported stock-loan finder at a company named Tyde, Inc., for their participation in two schemes:
The Morgan Stanley Scheme. The defendants are charged with conspiracy to commit securities and wire fraud. As alleged in the indictment, DEMIZIO routinely directed Morgan Stanley stock-loan business to two finders, including JOHNSON, in exchange for kickbacks and bribes paid to two of DEMIZIO's family members.
The JPMorgan Chase Scheme. JOHNSON is charged with conspiracy to commit securities and wire fraud, and money laundering conspiracy. As alleged in the indictment, JOHNSON paid kickbacks to a corrupt trader at JPMorgan Chase on stock- loan trades. The kickbacks were paid through offshore accounts in the Netherlands Antilles.
The second indictment announced today charges JOSEPH LANDO, a former manager of the stock-loan desk at Janney, for his participation in two schemes:
The Cash Kickback and Bribery Scheme. LANDO is charged with conspiracy to commit securities and wire fraud and with conspiracy to commit commercial bribery in violation of the Travel Act. As alleged in the indictment, LANDO received cash kickbacks in exchange for giving away favorable Janney business to Van der Moolen.
The A.G. Edwards and Nomura Schemes. LANDO is also alleged to have paid kickbacks, in the form of phony finder fees, to the relatives of traders at A.G. Edwards and Nomura in exchange for business from those firms.
The third indictment charges that ANDREW CACCIOPPOLI, another former manager of the stock-loan desk at Janney, stole approximately $350,000 by causing Janney to pay phony finder fees to his sister, DONNA MACLI, and her husband, THOMAS MACLI, who performed no legitimate securities-related services and were employed full-time as a secretary and a letter carrier, respectively, during the period of the conspiracy. The defendants are charged with conspiracy to commit securities fraud and with mail fraud. CACCIOPPOLI was first indicted in September 2007. The superseding indictment adds the charges against the MACLIs.
The U.S. Securities and Exchange Commission previously filed civil charges against Darin DeMizio, Joseph Lando, Thomas Macli, Donna Macli, and Robert Johnson in federal court in the Eastern District of New York.
“The defendants entered into sham trades to enrich themselves and paid kickbacks and bribes either to buy their co-conspirator's business or to steal money for themselves and their family members," stated United States Attorney Campbell. "Such conduct undermines the public's confidence in the nation's securities markets and will be vigorously investigated and prosecuted.” Mr. Campbell thanked the Securities and Exchange Commission for its assistance.
FBI Assistant Director Mershon stated, "Our ongoing efforts to police the securities industry include targeting not just conduct that directly affects share price for the investing public. We also continue to zero in on schemes that siphon off millions in bogus fees from brokerage firms. The schemes are illegal, the gains ill-gotten, and the losses a threat to market stability and investor confidence."
If convicted on the conspiracy to commit securities fraud counts, each defendant faces a maximum term of imprisonment of 25 years. The money-laundering charges carry maximum terms of imprisonment of 20 years, and the conspiracy to violate the Travel Act counts carry maximum terms of imprisonment of five years each.
The government's case is being prosecuted by Assistant United States Attorneys Sean Haran, Daniel Wenner, and Laura Mantell.
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