19 Indicted in Alleged Plot to Manipulate Stock

In a case that shows how the mob is trying to muscle in on Wall Street, a federal grand jury here indicted 19 men, including two reputed Mafia chieftains and several stockbrokers, in an alleged plot to manipulate the stock of an obscure Arizona company, prosecutors said Tuesday.

Two of the company’s top executives are also among those accused in what the FBI called a “classic pump-and-dump operation” in which mob-connected brokers allegedly drove up the price of the stock so they and their accomplices could unload it at a profit to members of the public.

The mobsters allegedly used strong-arm tactics, including a threat to “knife” family members of the company’s chairman if he stopped cooperating in the scam, authorities said.

Top members of New York’s Genovese and Bonanno crime families held a “sit-down” last May in a Brooklyn hot-dog parlor to iron out a dispute over control of the little brokerage firm where the stock-trading was centered, according to the indictment.

Federal authorities, who unveiled the indictment Tuesday at a Manhattan news conference, said the case represents one of organized crime’s “relatively isolated” attempts to horn in on the securities industry during one of the strongest bull markets in U.S. history.

So far, the Mafia’s incursions “do not threaten the overall stability of our markets,” U.S. Atty. Mary Jo White said.

She acknowledged, however, that an investigation that apparently involves other companies, brokerages and Mafia figures is continuing. Neither she nor other law-enforcement officials would give details.

Last March, the National Assn. of Securities Dealers, whose NASD Regulation arm helps police the brokerage industry, told Congress that it was investigating nine brokerages and 19 small companies for possible mob links to the trading of the companies’ stock.

That inquiry was launched after a BusinessWeek report appearing last December said organized crime figures were involved in numerous schemes to boost prices of small-company stocks and dump the inflated shares on the public, using high-pressure, “boiler-room” sales tactics.

According to the indictment announced Tuesday, the mob’s manipulation caused the stock of Mesa, Ariz.-based HealthTech International to explode in trading volume and to zoom from a low of 63 cents a share last December to a peak of $3.06 in mid-April.

The bulk of HealthTech stock sales and broker “cold calls” to recruit customers were done from the Manhattan-based small brokerage of Meyers Pollock Robbins, which was infiltrated by mob members, the indictment states. (HealthTech owns and operates a chain of health clubs in Texas, Arizona and Oregon.)

During May and June, more than 80% of the sales of HealthTech warrants were made through Meyers Pollock offices, authorities said. The warrants, which are rights to purchase shares, increased in value from about 25 cents to 75 cents, law enforcement officials said.

While the stock was being manipulated, some $2.3 million worth of shares, plus $3.1 million in warrants, were sold to the public, authorities said. There is no estimate of the investors’ losses.

Alleged victims came from across the country, including California, Michigan, Oklahoma, West Virginia and Massachusetts. Most were contacted over the phone by brokers who allegedly made false claims about HealthTech’s stock prospects and pressured the investors to act quickly.

The people running the scam rang up profits of $1.8 million when they dumped the stock, much of which they had obtained when the company issued them blocks of stock free of charge, authorities said.

The two indicted HealthTech officials are Gordon Hall of Mesa, the chairman and chief executive, and Joseph R. Kirkham of Arlington, Texas, former senior vice president. Hall and Kirkham could not be reached for comment. Other company officials also could not be reached.

Hall is accused of making a deal last December with Eugene Lombardo, Claudio Iodice and Irwin Schneider under which the latter three would agree to pump up the price of HealthTech shares. In exchange, Hall would pay them in company stock.

“If we get [the] stock to $3, we get 100,000 shares,” is how Lombardo explained the deal to Schneider, according to the indictment.

Lombardo, an associate of Bonanno mob “capo” Frank “Curly” Lino, was ostensibly a stock consultant, as were Iodice and Schneider, a disbarred securities lawyer.

Also in on the plot from the beginning, according to the indictment, were Rosario “Rossi” Gangi, a capo--or captain--of the Genovese family; Genovese soldier Ernest “Green Eyes” Montevecchi, and Bonanno soldier John “Boobie” Cerasani.

Lombardo started the plan rolling around New Year’s Day by striking an agreement with Jonathan Lyons, who ran the Meyers Pollock office in New Hyde Park, on Long Island, N.Y., the indictment states. Lyons and four brokers who worked under him would put together a sales force to push HealthTech shares, in exchange for sales commissions plus bribes, the indictment says.

When the sales push started, the stock volume and price jumped. On Jan. 2, for example, the first day of the alleged manipulation, Health-Tech jumped 53% to $1.34 from 88 cents, with 172,600 shares traded--at least quadruple the usual volume.

In January and February, Hall allegedly held up his end of the deal by issuing Lombardo 200,000 shares of stock, which he sold over the ensuing months at a profit of more than $430,000. Lombardo, Iodice and Schneider also were issued 500,000 HealthTech warrants apiece, the indictment says.

When disputes arose as to which brokers were controlled by which crime families, the indictment says, the disagreements were settled during mob meetings at restaurants in Brooklyn and Manhattan.

At one point, Iodice allegedly threatened to “knife” members of Hall’s family. Lyons, Kirkham and others also were threatened by mobsters, the indictment states.

All but one of the 19 defendants were arrested early Tuesday, in New York, Florida, Arizona, Nevada and Texas. Most were released on bail by the end of the day, authorities said.

Charges include racketeering, extortion, conspiracy, stock manipulation, bribery, wire fraud and a variety of other federal felonies. None of the others arrested Friday could be reached for comment.

Nine of the accused are NASD-licensed securities brokers, a NASD spokeswoman said. Of the nine, five have no disciplinary record, according to NASD. NASD was still checking the records of the other four and had no further information Tuesday night.

Meyers Pollock is another story. The firm has an extensive disciplinary record, going back to 1987 and reaching a crescendo this year, with four NASD arbitration awards, a cease-and-desist order from Missouri securities officials, a temporary restraining order by the SEC and two pending NASD complaints, in one of which the firm allegedly tried to defraud customers by misleading them or telling outright lies about securities it was selling.

With that kind of record, why is Meyers Pollock still allowed to do business?

“We can’t comment on that,” a NASD spokesman said.

The U.S. Securities and Exchange Commission ordered trading in HealthTech shares suspended Nov. 17.

Trading will resume only if and when the company is able to persuade regulators that its financial statements are accurate and if and when a legitimate brokerage is willing to resume making a market in the stock, authorities said.

The last price for the shares was $1.19 on Nov. 14 at the close of trading on the Nasdaq Stock Market.