Probe of Stock Scam Yields Indictment of 10

Members of two New York organized crime families were arrested and indicted Thursday on charges that they ran a penny stock scam that controlled and extorted money from brokerage firms through bribes, threats and violence, prosecutors said.

Ten alleged members and associates of the Colombo and Luchese families were indicted in federal court in Brooklyn on charges including racketeering, conspiracy, extortion, kidnapping and money laundering.

The defendants controlled 15 small New York brokerage firms, mainly based in downtown Manhattan, the indictment said. It said they falsely inflated stock prices by promoting penny stocks -- shares that trade under $5 -- before dumping their personal holdings. Investors lost an estimated $20 million.

Investors were at first encouraged to buy established stocks, and then penny stocks, the indictment said.

The defendants, including accused Colombo family captain Joseph Baudanza, 61, and his brother Carmine Baudanza, 63, also extorted stockbrokers, traders, cold callers and brokerage firm owners through threats and violence, authorities said.

One stock promoter was kidnapped and chained to a pit bull dog, one broker was beaten with a bat, and another was stabbed when he tried to leave one of the firms, authorities said.