Jury Convicts 2 in Huge Stock Fraud Case

In the largest stock manipulation case uncovered in Southern California, a federal jury in Los Angeles on Wednesday convicted two Orange County men of conspiracy, money-laundering and securities fraud in an $11.5 million scam.

The jury found that Ahmad Naim Bayaa, 43, of Lake Forest, and Abdul Deeb, 45, of Anaheim, illegally inflated the stock price of Southland Communications Inc., a Santa Ana provider of paging services.

The jury deadlocked on charges against a third defendant, Eduardo Anton, 33, of Miami, and prosecutors will decide by June 6 whether to retry him. A fourth defendant, Shaw Tehrani, 44, of Atlanta, pleaded guilty to conspiracy and testified at the trial. Both were brokers.

Bayaa, a Palestinian refugee who moved to the United States in the 1970s, founded Southland Communications in 1981 and served as its president. Deeb, a former oil industry consultant, was a longtime friend who helped bring overseas investors--all relatives and friends--to the company.

The four were accused of controlling the market for nearly all the company’s stock--setting up a “secret network” of accounts mainly in the names of Bayaa family members--in an attempt to drive up the stock price.

“This is the largest case involving stock manipulation that we’ve prosecuted here,” said Assistant U.S. Atty. Sean Berry, chief of the major fraud unit.

Six brokerage firms holding Southland Communications stock lost $11.5 million, and one of them, Suplee Reed & Co. in Media, Pa., was forced out of business.

Lawyers for the convicted men said they will ask the U.S. District Judge Richard A. Paez for a directed verdict of acquittal because of insufficient evidence or grant them new trials. Failing that, they’ll appeal.

“This is a very strange case,” said Joel Levine, Deeb’s lawyer. “In most cases, you know what the crime is. In this one, the crime isn’t even obvious. I don’t even think there was a crime.”

Bayaa’s lawyer, Stanley Greenberg, said he talked with jurors after the verdict, and believes they didn’t understand the complex case.

The government accused the four of setting up phony trading accounts in 1988 and 1989 in an effort to boost the stock price.

The scheme went into high gear in 1990 when the company was under attack by so-called short sellers. Such traders can ruin a company by borrowing stock from brokerages and selling it when the price falls, thus making a profit and adding fuel to a continuing price drop.

Greenberg said that Bayaa bought his company’s stock and urged friends, relatives and associates to buy the stock as well. The idea was that the more the stock was in friendly hands, the less would be available to short sellers.

Eventually, the group controlled 86% of the stock.

On March 14, 1992, the company’s stock jumped from $8.75 a share to $13.25 a share, and the firm issued a news release saying it knew of no reason for the unusual activity. About three weeks later, the stock rose to almost $17 a share, and the Securities and Exchange Commission halted trading.

Greenberg tried to argue before the jurors that the SEC’s intervention caused the brokerages to lose money. Investors, mainly from overseas, had bought on margin, paying less than the full price with a promise to pay the rest. They failed to pay what they owed, and Bayaa and his cohorts refused to cover the losses.

The SEC sued Bayaa and the others in 1992. Bayaa resigned from Southland and agreed to pay back $736,935 in stock trading profits to settle the lawsuit.

Southland Communications, operating as National Paging, filed for bankruptcy protection a year later and was sold to new owners. The company now operates in Huntington Beach.

The defendants are scheduled to be sentenced Sept. 5. Bayaa faces a maximum of 75 years in prison and a $3.25 million fine, Deeb faces 90 years and a $3.5 million fine, and Tehrani, who is serving time in Florida on an unrelated matter, faces five years and a $250,000 fine.