Southland Firms Surprised to Learn Stocks Used in Scam

One firm makes in-line skates in Los Angeles. Another produces home water filters in El Cajon. And a third at one time staged ice-skating productions of Tchaikovsky’s “The Nutcracker.”

These small-cap Southern California companies suddenly had something in common this week, when federal prosecutors alleged that the stocks of all three were among those purchased in blocks and then aggressively sold by unlicensed brokers and people linked to organized crime over the last five years. News of the scheme surprised some of the company executives, who said Thursday they had not been previously contacted by investigators.

None of the companies was accused of wrongdoing in criminal indictments and administrative orders announced Wednesday in New York by the U.S. attorney’s office and the Securities and Exchange Commission. About 120 people were charged in what prosecutors called one of the largest mob intrusions onto Wall Street ever. The suspects allegedly manipulated shares of the three firms, among others, potentially causing losses for investors.

Jack Forcelledo, founder and CEO of skate-maker Rollerball International Inc., said he was “flabbergasted” by the news. “We’re a little company. Our stock has been hurting anyway, but we’re clean as a whistle,” he said.

Rollerball, whose shares were unchanged at 25 cents in over-the-counter trading, had a net 1999 loss of $2 million on sales of $1.6 million, compared with a loss of $3.3 million on sales of $1.6 million the year before, according to SEC filings.

Prosecutors and securities regulators alleged in court documents that a Salt Lake City man, Allen Wolfson, acquired free-trading shares of Rollerball and other companies, and then bribed brokers into hard-selling the shares to clients, driving up their price and allowing him and partners to make nearly $7 million in illegal profits.

Wolfson, who was unavailable for comment, was arrested Wednesday, and a hearing in his case was scheduled for today, said a spokeswoman for the U.S. attorney in Salt Lake City.

Forcelledo said Rollerball never issued any free-trading shares, although it has issued restricted shares of its stock. Robert Knuts, SEC senior trial counsel in New York, said the SEC was unsure how Wolfson obtained the shares, which he allegedly bought and sold at inflated prices beginning in early 1999.

Authorities said a similar scheme was used by principals at DMN Capital Investments in New York to profit from selling shares of Innovative Medical Services, the water purification filter maker.

The company’s CEO, Michael Krall, said he had no knowledge of criminal activities by shareholders. “If bad guys are trading in our stock, we think they should go to jail,” he said. Innovative had net income of $261,000 on sales of $3.4 million for the year ended July 1999, up from a net loss of $1.9 million on sales of $1.6 million the year before. Its shares fell 50 cents to close at $2.56 on the Nasdaq Small-Cap Market.

DMN Capital principals also were accused of manipulating shares of Beachport Entertainment Corp., which produced ice-skating shows in the mid-1990s. Executives there could not be reached for comment. The SEC said DMN officers and their paid promoters pocketed nearly $8 million in illicit profits from sales of Beachport and other companies’ stocks.