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The Mob Takes a Hit for Securities Fraud

By LouAnn Lofton (TMF Lou2)
June 14, 2000

It's Goodfellas meets Boiler Room today in Manhattan's U.S. District Court, as 120 Mafiosos, stockbrokers, and other ethically challenged people were charged with 16 indictments and seven criminal complaints relating to securities fraud. Many of the defendants are already in custody, with warrants out for others in Salt Lake City and Dallas. According to federal authorities, this is the largest number of arrests ever made at one time for securities fraud related charges.

The fraud charges involve 19 publicly traded securities, as well as the private placement of securities for 16 additional companies. Officials estimate that the national scams cost investors more than $50 million over the last five years.

Court papers describe an array of schemes intended to defraud investors. An example of one of these involves a racketeering enterprise made up of associates and members of the Colombo and Bonanno mob families. This outfit cozied up with the three other prominent New York mob families and set about infiltrating and controlling broker-dealers, conspiring with individual stock brokers and issuers of securities, and defrauding union pension plans. Not to be outdone by Hollywood-inspired stereotypes, they also used threats, physical intimidation, extortion, and solicited murder to advance their goals. Brokers received bribes in exchange for them hyping the stocks of companies controlled by Mob members and associates. Also, private placements of securities were manipulated for the benefit of insiders and corrupt brokers.

Today's Mafia appears to be Internet savvy, too. They used the Internet to further their scams by promoting fraudulent stocks on websites. They also falsely labeled some companies as "dot-com" ventures in an attempt to entice money-hungry Internet investors to buy stock in them. Even the mob had to go high-tech one day. There's just not as much money in city garbage collection as there used to be.

Securities fraud is not a new problem, but with the growth of the Internet, fraud has found a new outlet in recent years. What can individual investors do to protect themselves? Be informed. Do your own homework. Just say no to high-pressure sales pitches. For more information, read our collection on securities fraud by Fool lawyer and former SEC official Jay Perlman. He'll teach you about the ins and outs of penny stocks, bogus offerings, and ponzi schemes. Don't hesitate to learn how to protect yourself today.

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