One of four defendants accused of stock fraud in a criminal indictment involving Magna Technologies, a defunct Thousand Oaks company, pleaded guilty in federal court in Los Angeles on Monday.
Herbert Stone, a former securities broker who made a market in Magna's stock, pleaded guilty to one count of conspiracy, seven counts of securities fraud and four counts of wire fraud. Each of the 12 counts carries a maximum penalty of five years in prison. Sentencing is scheduled for Oct. 1.
Stone is currently serving a two-year sentence in federal prison for stock manipulation unrelated to Magna.
Two of Stone's co-defendants, Robert Victor, a former Magna shareholder, and Robert Gutstein, an Agoura Hills plastic surgeon and Magna's former chairman, have pleaded not guilty to the charges and are scheduled to go to trial Nov. 27. Assistant U.S. Atty. John Walsh said Stone "has agreed with the government to cooperate," but it hasn't yet been determined whether he'll testify against Victor and Gutstein.
A fourth defendant, Jacob Rubenstein, a shareholder and principal promoter of Magna, remains at large.
Victor is a convicted felon formerly known as Robert Viggiano. He was referred to in police reports from the investigation of ZZZZ Best, the defunct Reseda carpet cleaning company, as "a reputed member of the Colombo organized crime family." During the securities fraud trial of ZZZZ Best founder Barry Minkow, defense attorneys said Victor, a ZZZZ Best shareholder, used threats and violence to force Minkow into the fraud.
Victor was never charged with a crime relating to ZZZZ Best. Minkow was convicted in 1988 of 57 counts of fraud.
The Magna indictment charged the co-defendants with 42 counts of conspiracy, and securities, wire, bank and tax fraud. Rubenstein, Gutstein, Stone and four others were also accused of manipulating Magna stock in a related civil suit filed by the Securities and Exchange Commission in 1987.
The defendants entered summary judgments in the civil suit, agreeing to stop the activities cited in the suit without admitting or denying guilt.
The indictment said that in 1985 Magna was merged with Bashney Biscuit, a bankrupt, publicly traded corporation, thereby creating freely traded Magna stock without registering the stock with the SEC.
The defendants then carried out a scheme to artificially inflate Magna's stock price, the indictment said. The company once boasted that it acquired the rights to such offbeat products as a flexible pouch for carrying liquids, a battery-operated "stun gun," a device to aid sexually impotent men and a hand-held, battery-operated "pain reliever."
The government said no products were produced by Magna during the period named in the indictment.
The indictment also said the defendants enlisted the aid of friends and relatives who set up accounts at brokerage firms to trade in Magna stock. Using these accounts, the defendants drove the stock price up using tactics such as "wash sales," in which a person buys and sells the same block of stock, "matched sales," which involves two people trading the same block of stock, and "free-riding," a technique of placing orders for stock without intending to pay for them, the indictment said.
From March to September, 1985, Magna's stock climbed from 50 cents a share to $9.50 before collapsing. The indictment said the defendants made more than $1 million through sales of Magna stock.