Ex-Mouseketeer Goes on Trial in Stock Fraud Case

Oxnard resident Darlene Faye Gillespie, an original member of television’s “Mickey Mouse Club,” was portrayed by a prosecutor Tuesday as someone who in midlife became a scheming stock fraud artist.

In his opening statement before a federal jury in Los Angeles, Assistant U.S. Atty. Jack S. Weiss accused the 56-year-old Gillespie of buying stock without the means or intention to pay for the shares and then lying about her activities to the Securities and Exchange Commission.

The ruse, Weiss said, included establishing an account in the name of a fictional investor, writing checks on closed or nonexistent bank accounts and forging a letter from a stockbroker to obstruct the SEC’s probe.

“This case is about an elaborate series of lies--lies this defendant told her stockbrokers to make money, lies she told the Securities and Exchange Commission to thwart their investigation,” Weiss said.

Playing on that theme, defense attorney Charles Rondeau agreed “this is a case about lies,” but the liars in this case, he insisted, are government witnesses who are trying to deflect attention from their own misdeeds.

“The government is not going to be straight with you about the facts,” Rondeau told the jurors.

He said Gillespie was exploited by stockbrokers who allowed her to buy on margin without posting sufficient collateral, and who then churned her accounts to boost their commissions.

“My client is not the perpetrator,” he told the jury. “She was the unknowing participant in what may have been criminal activity.”

He said the brokers violated SEC regulations and then tried to cover their tracks when the agency launched an investigation into an unusual pattern of buying and selling of thinly traded Unique Mobility, an American Stock Exchange stock in which Gillespie and her boyfriend, Jerry Fraschilla, 61, traded extensively.

Fraschilla was sentenced last month to 18 months in federal prison after pleading guilty in the case.

The couple were arrested at their Oxnard home a year ago on charges of security fraud, obstructing justice, conspiracy and perjury.

According to a federal grand jury indictment, Gillespie and Fraschilla engaged in “free-riding,” a scheme that entails buying stock without putting up any hard cash.

The indictment said they placed orders on margin for more than 194,000 shares of Unique Mobility stock valued at $827,000 in 1992 and 1993, using closed or overdrawn bank accounts. Some of those purchases were allegedly made by opening accounts in the name of a fictitious investor named Michael Andrews.

The SEC filed a civil lawsuit against Fraschilla, Gillespie and Andrews in 1994 for alleged free-riding. It was settled a year later when Fraschilla and Gillespie agreed to pay a fine and reimburse the brokerages for money lost.

FBI investigators later concluded that the couple provided forged documents and lied during depositions taken during the SEC’s civil action. That gave rise to the obstruction of justice charges.

One of those documents bore the name of Gary Handler, the government’s lead-off witness Tuesday.

Handler, an executive director at the brokerage firm Oppenheimer & Co., testified that Gillespie claimed a liquid net worth of $1.1 million when she opened her account, that she asked to be allowed to trade on margins and that she, alone, directed the purchases of Unique Mobility.

“She felt the company was going to be a home run for her,” he said, telling him the stock, then trading at between $6 and $7 a share, would soon soar to $50 or more.

When Handler urged her to diversify into blue chips, he said, she scoffed at him. “She thought I was out of my mind,” he testified.

Unique Mobility, based in Golden, Colo., designs and manufactures electric vehicle systems. Its share price closed Tuesday at a little more than $5.