Executive Director of Morgan Stanley’s Domestic Stock Lending Desk Sentenced to 38 Months for Conspiracy to Commit Securities Fraud and Wire Fraud, and Making a False Statement to the FBI
The Defendant’s Conviction Is The 29th In The Office’s Ongoing Industry-Wide Investigation
Darin Demizio, a former Executive Director at Morgan Stanley and the head of its domestic securities lending desk, was sentenced today to 38 months’ imprisonment, and three years of supervised release for conspiring to commit securities fraud and wire fraud, and making a false statement to agents of the Federal Bureau of Investigation. On March 20, 2009, following a two-week trial, a federal jury in Brooklyn convicted DeMizio on all counts in the indictment. The trial and sentencing proceeding were held before United States District Judge John Gleeson.
The sentence was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York.
As established at trial, throughout the 1990s and until 2003, Demizio, a former Executive Director at Morgan Stanley and the head of its domestic securities lending desk, routinely directed Morgan Stanley securities lending business to smaller brokerage firms and finder firms in exchange for kickbacks paid to Demizio’s father and brother, Craig Demizio. Between January 2000 and January 2004 alone, the kickbacks totaled over $1.6 million. The payments were disguised to appear as finder fees when, in reality, Demizio’s father and brother had done little if any work as finders in connection with the securities lending transactions for which they were paid. Demizio’s brother, Craig Demizio, previously pleaded guilty to conspiracy to commit securities fraud and wire fraud, and on July 25, 2008, was sentenced to 21 months’ imprisonment.
Demizio’s conviction marks the 29th conviction stemming from the Office’s ongoing industry-wide investigation into allegations of bribery and kickbacks in the securities lending business, also called the “stock-loan” industry. 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 continuing 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, or the traders’ relatives. The defendants who previously pleaded guilty in this district to federal kickback and bribery schemes include former securities lending traders at A.G. Edwards and Sons, Inc.; Janney Montgomery Scott LLC; JP Morgan Chase; Kellner Dileo & Company, Inc.; Oppenheimer & Co., Inc.; Morgan Stanley; National Investors Services, also known as TD Waterhouse; Nomura Securities International Inc.; Pax Clearing Corporation; PFPC Worldwide; Schonfeld Securities; and Van der Moolen Specialists.
Mr. Campbell expressed his appreciation to the Federal Bureau of Investigation, the agency responsible for leading the government’s investigation, and thanked the Securities and Exchange Commission for its assistance.
The government’s case was prosecuted by Assistant United States Attorneys Kelly T. Currie, Winston Y. Chan, and Winston M. Paes.
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