Ex-Mouseketeer Testifies at Her Fraud Trial

Former Mouseketeer Darlene Faye Gillespie testified in her own defense Thursday against federal charges that she engaged in an elaborate stock fraud scheme, buying shares with rubber checks and obstructing a Securities and Exchange Commission probe into her trading.

Under questioning by her lawyer, the 57-year-old Gillespie portrayed herself as an innocent victim of unscrupulous brokers who churned and manipulated her accounts to generate “outrageous” commissions.

At one point in her testimony, she broke down and cried but quickly regained her composure.

Gillespie, a cast member of television’s “Mickey Mouse Club” in the 1950s who went on to become a surgical nurse, was indicted last year with her boyfriend, Jerry Fraschilla, 61, on charges of defrauding brokerages through a scheme known as free-riding.

The essence of free-riding is the placement of buy orders for stock without the means or intention to pay for the shares.

Fraschilla pleaded guilty in the case and was sentenced last month to 18 months in prison.

According to a federal grand jury indictment, the couple placed orders on margin for more than 194,000 shares of 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 for free-riding in 1994. 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 and other criminal charges.

In his opening remarks to the federal court jury this week, defense attorney Charles Rondeau said Gillespie was exploited by stockbrokers who allowed her to buy on margin without posting sufficient collateral, and 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.” ’

After the prosecution rested its case Thursday, Gillespie took the stand, testifying that she began investing in the stock market in 1992 to build a nest egg for herself and her child.

She said she decided to concentrate her investments in one promising company, Unique Mobility of Golden, Colo., a pioneer in developing and manufacturing parts for electric cars. Another nurse at Sherman Oaks Community Hospital had made money by concentrating on stocks in Amgen, she said.

Within a span of about a year, Gillespie went from trading in all cash transactions to buying Unique Mobility on margin--borrowing the funds from the broker.

She also shifted accounts from one brokerage to another. In early 1993, she signed on with Gary Handler, an account executive at Oppenheimer & Co., whom she met while on a visit to Las Vegas with Fraschilla. Handler was her third broker in a year’s time.

Testifying for the prosecution earlier, Handler said Gillespie claimed a liquid net worth of more than $1 million. He said she spurned his advice to diversify her investment and that she alone authorized all trades in Unique Mobility.

“She felt the company was going to be a home run for her,” he said, telling him the stock, then trading between $6 and $7 a share, would soon soar to $50 or more. It currently trades at a little more than $5 a share.

In her testimony Thursday, Gillespie denied filling out an Oppenheimer account application form that listed her net worth at $1.1 million and that claimed she had been investing for the past 20 years. She also denied having checked a box that gave Handler discretionary authority to initiate trades on her behalf.

On cross-examination, however, Assistant U.S. Atty. Jack S. Weiss confronted Gillespie with account applications she signed at Bear Stearns and Kemper Securities, indicating a net worth of $1.2 million to $1.5 million.

Gillespie said she soured on Handler after she found she was being charged very high commissions for in-and-out trades she never authorized. In addition, she testified, the Oppenheimer broker reneged on a promise to lower her margin requirements to a corporate rate of 35-40% from the standard 50% requirement.

As a result, she opened a margin account at Advest writing a $19,500 check for the purchase of more Unique Mobility stock. Although Gillespie said she did not have that much money in her account to cover the check, she testified that she had sold some stock from her Oppenheimer account and was promised a check that day by Handler.

Without explanation, she said, Handler blocked issuance of the check.

“Why should I let you have Oppenheimer’s money to pay for a trade with another broker?” she quoted Handler as telling her a day or so later.

Gillespie, who said she gave up nursing several years ago after injuring her back in a fall at the hospital, is no stranger to courtrooms.

She sued the Walt Disney Co. and the Screen Actors Guild in July, contending that she was not paid for rebroadcasts of “Mickey Mouse Club.”

She and Fraschilla were convicted in August 1997 of shoplifting at a Macy’s in Ventura.

And last month, Fraschilla lost a $90,000 civil suit he filed against the city of Ventura, saying he tripped over a loose board while jogging on the Ventura pier. Gillespie testified at the trial that she saw him trip.