14 Accused of Inflating Shares
U.S. Atty. David N. Kelley in New York on Tuesday announced the indictments of 14 former employees of a defunct securities firm, claiming they participated in a “boiler room” operation to inflate shares in NetBet Inc., an Internet gaming technology company based in Newport Beach.
The former employees at Lloyd Wade Securities, mostly from the New York metropolitan area, were charged with conspiracy and securities fraud in what prosecutors describe as a $2-million fraud on investors. The defendants are a former trader and 13 former brokers, Kelley said.
The defendants obtained large blocks of the company’s shares from 1996 to 1999 at below-market prices and created artificial demand in the consumer market by claiming that Congress was going to legalize Internet gambling, prosecutors allege.
As customer purchases boosted shares of NetBet, the Lloyd Wade brokers sold their stock.
The brokers used boiler-room tactics, or “high pressure, false and misleading sales pitches intended to convince customers to purchase NetBet securities,” Kelley said.
NetBet changed its name to Telemais Telecommunications Inc. in May 2002. Dara Podber, listed as a spokesperson for Telemais in a December 2002 press release, didn’t return a call seeking comment.
Telemais, a provider of telephone services in Brazil, is based in Sao Paulo.
Lloyd Wade served as a “market maker” in NetBet securities from December 1996 to January 1999, Kelley said, handling about 70% of all NetBet retail trading.
The brokers allegedly refused to execute customer sale orders of NetBet stock “to maintain the price of NetBet securities at a level sufficient to generate profits for members of the scheme,” Kelley said.
Twelve of the defendants were arrested Tuesday, Kelley said. Charged with one count of securities fraud and one count of conspiracy each, the defendants could face 15 years in prison and as much as $1.25 million in fines.
Marvin Smilon, a spokesman for Kelley, didn’t return calls seeking information about attorneys for the defendants or the location of the now-defunct brokerage. Lloyd Wade is listed on the Internet as having been located in Bethesda, Md.
Eugene Christensen, chief executive of Christensen Capital Advisers, said he wasn’t surprised that a boiler-room operation would use an Internet gambling company.
“The industry is quite substantial. If you look at it globally, some of the biggest companies in the world are involved in Internet gaming and services; you just don’t find them in the United States,” he said.
