SEC Files Price-Manipulation Complaint Against Prosecutor
The Securities and Exchange Commission Tuesday accused a Los Angeles federal prosecutor who specialized in organized crime cases of manipulating the stock prices of a small company he controls.
Andrew S. Pitt, currently on paid administrative leave from the U.S. attorney’s office in Los Angeles, is the first Justice Department official ever charged by the SEC, according to officials there.
The SEC complaint, filed in federal court in Los Angeles, said Pitt made false public statements designed to artificially boost stock prices of his firm, Conectisys Corp. In addition, the suit alleges he helped illegally distribute 64,000 unregistered shares in the company, in which he holds a majority stake. Pitt helped create “misleading documents” and manipulated Conectisys shares from about $6 each to as high as $25, the SEC charged in its suit. On Tuesday in Nasdaq trading, the stock dropped 12.5 cents to close at $2.25 a share.
Pitt, in fraudulently trying to create the appearance of an active trading market, netted more than $400,000 in illegal profits, the suit said.
Hillel Chodos, a Los Angeles attorney who represents Pitt, declined comment but said he would be filing a response to the SEC’s charges in the next few weeks. Pitt, who lives in Agua Dulce in the Santa Clarita Valley, couldn’t be reached for comment. Known as “Drew,” the 38-year-old Pitt joined the Los Angeles U.S. Attorney’s office in 1989 and was put on paid administrative leave from that office in July 1995, said agency spokesman Thom Mrozek.
Mrozek would not comment on why Pitt had been placed on leave. He also would not comment on the SEC’s suit or on news reports that Pitt is under investigation by the Justice Department’s internal-affairs office.
While with the department, Pitt helped prosecute one of the most high profile payola cases ever, when Justice Department accused independent promotion kingpin Joseph Isgro of Glendale of bribing radio programmers and racketeering. The case was dismissed in 1990, refiled in 1992 and dropped again in March, 1996.
The SEC’s suit alleges that Pitt acquired a majority stake in Conectisys in late November 1994, (then called Coastal Financial Corp.) while still working full-time for the U.S. attorney’s office. He operated the company as BDR Industries Inc. until August 7, 1995 when he said he was selling his controlling interest, the suit says.
In fact, the suit alleges that Pitt retained control.
The complaint alleges that Pitt drafted a 1995 Conectisys business plan that “contains numerous false and misleading statements.” The plan, which was used by as a sales tool, “contained descriptions of products that did not exist and made reckless projections concerning the future prospects of the company,” the suit said.
The business statement also failed to disclose that the company was fraudulently trying “to create the appearance of an ongoing business,” the suit said.
Formed in 1986, Conectisys has operated businesses ranging from yacht building to insecticide manufacturing and currently says it develops wireless data communications. The suit, however, charges that Conectisys was for years a shell company with no assets or revenue.
Conectisys was also named in the SEC complaint, but phone calls to the company Tuesday went unanswered.
The suit amends an earlier complaint against Smith, Benton & Hughes, a Los Angeles-based brokerage, and its owner, Mike Zaman as participants in the alleged fraud. The suit alleges Zaman and his firm netted $800,000 in illegal profits from participating with Pitt. The suit seeks an unspecified amount in fines.
A spokesman at the brokerage would not comment and Zaman’s Los Angeles lawyer, Irving Einhorn, did not return phone calls. Einhorn formerly headed the Los Angeles regional office of the SEC.
Pitt is the second current or former U.S. law enforcement official to be charged in recent months with trying to manipulate a small company’s stock. James Nearan, an SEC enforcement attorney in Denver for seven years, was arrested in October and charged by the U.S. attorney in Brooklyn with concealing the stock-discounting fraud of a company for which he was general counsel. Nearan pleaded not guilty.
Staff writer Henry Weinstein and wire reports contributed to this story.
