U.S. Indicts Shearson Firm in Money-Laundering Case
Shearson Lehman Bros., the prominent Wall Street brokerage house owned by American Express, was indicted Thursday in Philadelphia along with a former Shearson employee and six other people on charges that they were involved in a gambling and money-laundering scheme that yielded profits of more than $2 million over about three years.
U.S. Atty. Edward Dennis called the case--the latest in a line of startling accusations that have embarrassed Wall Street in recent months--the “core of a wide-ranging investigation” into brokerage firms that violate the federal Bank Secrecy Act.
Such violations, federal law enforcement officials say, often are tip-offs that someone is laundering profits from some illegal activity.
The case is one of the largest such investigations since the landmark Operation Greenback money-laundering case ended in Florida two years ago. There, more than $94 million in drug money was said to have been laundered through the Great American Bank of Dade County, Fla. All defendants in the case have either pleaded guilty to a variety of charges or are fugitives.
Thursday’s 63-count federal grand jury indictment accuses Shearson and its former Philadelphia sales manager, Herbert L. (Larry) Cantley, of conspiracy and of laundering about $2 million in gambling money for alleged bookmaker Joseph Mastronardo and his two sons, Joseph Jr. and John. Joseph Mastronardo Jr. is the son-in-law of former Philadelphia Mayor Frank L. Rizzo.
According to the indictment, the scheme worked like this: Cash from the alleged gambling operations was used to buy money orders and cashier’s checks, each for an amount less than $10,000 and each made payable to Shearson. The money orders and checks then allegedly were deposited into Shearson accounts and, in turn, converted into such securities as unregistered--and, therefore, untraceable--municipal bonds.
The less-than-$10,000 maximum per check was important because of the Bank Secrecy Act, which requires banks and other financial institutions to report to the Internal Revenue Service all currency transactions of more than $10,000. Multiple transactions by any individual totaling more than $10,000 in a single day also are supposed to be reported as a single transaction.
The indictment accuses Shearson of violating that law and of conspiring with Cantley and the other defendants in the alleged scheme. It is the same law that the Bank of Boston Corp., parent firm of the First National Bank of Boston, pleaded guilty to violating last year.
Since then, many banks have paid large civil penalties for violating the act.
Shearson strenuously denied the accusations Thursday and countered with some charges of its own.
The U.S. attorney’s office in Philadelphia, Shearson said, is trying “to hold the company liable for the alleged unauthorized criminal actions of a single former employee.” The charges, it said, are “legally unjustified” and “an unfortunate abuse of prosecutorial discretion.”
“Normally, institutions are only indicted along with the individual when they stand to gain in some way,” Shearson spokeswoman Laurie Heffner said. “So, this is unprecedented because we did not stand to benefit.”
Glenn Bronson, an assistant U.S. attorney in the Philadelphia office, said that, although Shearson was charged mainly because Cantley was an employee and allegedly used his position in the firm to launder the money, “the charge against Shearson is not based on the conduct of Cantley alone.” Bronson asserted that the evidence will show that “others at Shearson had knowledge” of the alleged scheme.
“That’s a mystery to us,” said Heffner. “We haven’t been privy to that information.”
None of the individual defendants could be reached for comment. Shearson said Cantley had been dismissed from the firm more than a year ago but would not say why. However, the brokerage firm acknowledged that it did know about the U.S. attorney’s investigation at the time of Cantley’s dismissal.
If convicted, Shearson could be fined $16.6 million, an amount that one analyst equated to “a mere penny for you or me.” Cantley could be sentenced to up to 198 years in prison, if convicted, and fined more than $16 million, or both.
The other defendants--John Hector, Mario Scinicariello and Sheldon Shore, in addition to the Mastronardos--each could face fines ranging from $1 million to $11.7 million and prison terms of 20 years to 210 years.
The indictment follows by more than 14 months a raid on Shearson’s Philadelphia office by U.S. attorney’s investigators. Shearson, calling the raid “unnecessary and preposterous,” said Thursday that it has been told it and the indictments were precipitated by “accusations supplied by an informant whose identity has never been revealed.”
Bronson of the U.S. attorney’s office would not disclose the source of the information.
