2 Indicted in Alleged Stock Fraud Scheme
A federal grand jury here Monday indicted the founder of the defunct Rooney Pace brokerage and a New York lawyer for allegedly masterminding a nationwide stock fraud that authorities say netted profits of $100 million.
Randolph Pace, 53, and Alan Novich, 52, both of Manhattan, were charged in connection with a series of six initial public stock offerings marketed from 1994 to 1996 by Sterling Foster & Co., a former securities brokerage based on Long Island of which Pace allegedly was the secret owner.
According to the indictment, Sterling Foster:
* Secretly secured large, cut-rate stakes in the six small companies about to go public.
* Pumped up public demand for the IPOs through sales calls misrepresenting the companies’ chances of success or omitting key information.
* Accumulated huge short positions--bets that the stocks would tumble shortly after the offering.
* Used secret agreements with the companies and Sterling Foster-designated “insider” stockholders to flood the market with much more stock than investors expected.
The result was that Sterling Foster could sell its own, cheaply obtained shares near the peak price after a ballyhooed IPO and profit further from its short sales after the price inevitably collapsed, authorities allege.
Embryo Development Corp., for example, a New York biomedical firm, raised $5 million in a Sterling Foster-sponsored IPO in November 1995. The stock reached a high of $13.25 within a few days of the offering but plunged below $6 within a couple of months and has fallen fairly steadily ever since, trading at 3 cents a share Monday. It was delisted by the Nasdaq Small-Cap Market last month for failure to meet listing requirements.
Other Sterling Foster IPOs mentioned in the indictment are Advanced Voice Technologies Inc., Applewoods Inc., Com/Tech Communication Technologies Inc., Lasergate Systems Inc. and ML Direct.
Three alleged accomplices of Pace and Novich pleaded guilty to felony charges arising from the public offerings and agreed to disgorge profits totaling $32 million, authorities said.
They are Adam Lieberman, 32, of Queens, N.Y., former president of Sterling Foster; Michael Lulkin, 44, of Harrison, N.Y., former chairman of Embryo Development; and Michael Krasnoff, 44, also of Harrison.
Lawyers for Pace, Novich, Lieberman and Krasnoff did not return phone calls Monday. An attorney representing Lulkin had no comment other than to confirm the existence of the plea agreement.
Authorities said it was necessary for Pace to conceal his connection to Sterling Foster because at the time he and Novich allegedly founded the firm, in 1993, Pace had been suspended by the National Assn. of Securities Dealers from working in the industry for two years or from acting in a brokerage supervisory role for five years.
Pace faces 15 felony counts, including securities fraud and conspiracy to launder money. The charges carry maximum prison sentences totaling 125 years.
Novich, identified as a lawyer and former dentist, faces 14 counts carrying maximum sentences totaling 105 years.
