News and Press Releases

Former Morgan Stanley and Bank of America Stock-loan Trader Pleads Guilty to Receiving Cash Kickbacks in Connection with Stock-loan Transactions

FOR IMMEDIATE RELEASE
April 15, 2010

Earlier today, at the federal courthouse in Brooklyn, Salvatore Zangari, a former stock-loan trader at Morgan Stanley & Co, Inc. and Bank of America Securities, LLC, pleaded guilty before United States District Judge John Gleeson, to a conspiracy charge arising out of a cash kickback and bribery scheme.

The guilty plea was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York.

As part of his guilty plea allocution, Zangari admitted receiving cash kickbacks while employed as a stock-loan trader at Morgan Stanley and Bank of America. In exchange for these kickbacks, Zangari directed Morgan Stanley’s and Bank of America’s stock-loan business to Paloma Securities, LLC, and Swiss American Securities, Inc. This fraudulent agreement resulted in the payment of sham finder’s fees to Anthony Lupo, a purported stock-loan finder doing business as Clinton Management, Ltd., who in turn agreed to pay kickbacks to Zangari and others. Lupo previously pleaded guilty and was sentenced to 26 months’ imprisonment by Judge Gleeson.

The Zangari conviction marks the 32nd conviction in this district resulting from the 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, 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 brokerage firms funneled millions of dollars in fraudulent finder’s fees to their co-conspirators, often where no finder’s services had been rendered, in exchange for cash bribes and, in some instances, payments to the traders’ relatives. The 32 individuals who have been convicted in this district of federal kickback and bribery schemes in the stock-loan industry include former securities-lending traders at A.G. Edwards and Sons, Inc.; Bank of America Securities, LLC; Janney Montgomery Scott LLC; JP Morgan Chase; Kellner Dileo & Company, Inc.; Oppenheimer & Co., Inc.; Morgan Stanley & Co., Inc.; National Investors Services, also known as TD Waterhouse; Nomura Securities International, Inc.; Pax Clearing Corporation; PFPC Worldwide Inc.; Schonfeld Securities, LLC; and Van der Moolen Specialists USA, LLC.

The U.S. Securities and Exchange Commission previously filed a related civil suit against Zangari in federal court in the Eastern District of New York.

“The defendant’s fraudulent arrangement to direct his employers’ stock-loan business to certain brokerage and finder firms in exchange for cash kickbacks placed his own interest ahead of his investors’ and undermined the investing public’s confidence in the operation of our financial markets,” stated United States Attorney Campbell. “This conviction sends a clear message that such conduct will not be tolerated.” 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.

When sentenced, Zangari faces a maximum sentence of five years’ imprisonment.

The government’s case is being prosecuted by Assistant United States Attorneys Winston M. Paes, Winston Y. Chan, and Laura D. Mantell.

The Defendant:

SALVATORE ZANGARI
Age: 33



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