A convicted stock swindler, wearing a hood to hide his features, urged Congress today to "do something now" to end what he called rampant fraud and organized crime control of the penny stock market, in which investors lose about $2 billion a year.
"The over-the-counter market is controlled by organized crime, the over-the-counter market is controlled by people like myself," Lorenzo Formato, the convicted stock manipulator, told a House Energy and Commerce subcommittee hearing on problems in the sale of cheaper penny stocks.
He admitted that during the years he promoted and sold penny stocks, "I was involved in organized crime." He said that organized crime gave him protection and that he helped crime figures launder their money.
"They needed me to be a money machine and that's just what I was--a money machine," said Formato, a former auto mechanic. He said he became a stockbroker in 1973 after passing a state test, the answers to which he obtained illegally and memorized beforehand even though "I didn't know what a stock was" at the time.
Investors lose $2 billion a year in penny stock swindles, two-thirds of all the money raised by venture capitalists in 1988, according to a report released by an organization of state securities regulators.
"This is one of the dirtiest businesses there is," Formato said. "Behind the suits and ties I know there are a lot of real nasty people."