Another day, another (alleged) fraud

Another day, another (alleged) fraud

Posted by Neil Hume on Jul 08 15:48.

From Reuters:

NEW YORK , July 8 (Reuters) - Six employees of a retail brokerage surrendered to the FBI in New York on Wednesday as they face charges for a purported $140 million fraud, an official at the FBI said. The brokerage has offices in the United States but many of the defrauded customers were in Britain and New Zealand, said the official, who declined to identify the firm until formal charges are made public. A spokeswoman for the Office of the U.S. Attorney in Manhattan declined comment.

The City of London is buzzing with chat as to the identity of the ‘retail brokerage’. An update will follow once we have confirmation.

Update:
Reuters have beaten us to it.

SIX SKY CAPITAL HOLDINGS LTD RETAIL BROKERAGE EMPLOYEES CHARGED IN $140MLN SECURITIES FRAUD - U.S ATTORNEY IN NEW YORK

U.S PROSECUTORS ANNOUNCE INDICTMENT OF SIX PRINCIPALS AND EMPLOYEES AT SKY CAPITAL WITH CONSPIRACY TO COMMIT SECURITIES, WIRE AND MAIL FRAUD

US SEC SAYS CHARGES NEW YORK-BASED BROKER-DEALER SKY CAPITAL LLC AND SIX INDIVIDUALS INVOLVED IN A FRAUDULENT BOILER ROOM SCHEME

ROSS H. MANDELL, STEPHEN SHEA, ADAM HARRINGTON, ARN WILSON, ROBERT GRABOWSKI, AND MICHAEL PASSARO SURRENDERED WEDNESDAY MORNING TO THE FBI

US SEC SAYS CHARGES INCLUDE FIRM’S FOUNDER, PRESIDENT AND CEO ROSS MANDEL

US SEC SAYS SEEKING FINANCIAL PENALTIES AGAINST DEFENDANTS, OFFICER BAR AGAINST MANDELL

Update II:

In 2002, Ross Mandell gave an interview to the Observer, in which he detailed his UK expansion plans.

Gordon Gekko-style investment banking - fast, aggressive and aimed at wealthy private investors - is coming to London in the shape of Ross Mandell.

The 45-year-old New Yorker is planning to expand his Sky Capital investment business into the UK via a listing on the Alternative Investment Market. He will be looking to recruit staff from the bombed-out smaller-compa nies broking sector, and may even seek to buy a British broker.

Mandell has a colourful past, involving investigations by the New York financial authorities, a string of investor complaints, and cocaine and alcohol addiction.

Update III:

The SEC statement is finally online. Extracts:

According to the SEC’s complaint, filed in federal court in Manhattan, Sky Capital raised more than $61 million from investors between September 2002 and November 2006. Sky Capital implemented and enforced a “no net sales” policy that essentially prevented investors from selling their Sky Entities stocks that were otherwise publicly traded on the Alternative Investment Market of the London Stock Exchange. Customers were not told that they would be unable to sell their shares, and the no net sales policy helped artificially inflate the price of the Sky Entities stocks. When trading in those stocks was suspended by the London Stock Exchange in 2006, the investments were rendered worthless.

The SEC alleges that Mandell enforced the no net sales policy by holding meetings with Sky Capital brokers to inform them that they needed to find buyers for the Sky Entities’ stocks being sold by other Sky Capital customers to alleviate “selling pressure” on the stocks. Mandell told brokers that they had to find a buyer before the broker could submit a sell ticket.

According to the SEC’s complaint, Mandell bullied brokers who submitted customer sell orders without first lining up a buyer, and accused them of not being a “team player.” Mandell also denied perks to brokers who did not follow the no net sales policy. Sky Capital often paid for parking, cell phones, and other personal expenses incurred by the brokers. But if a broker did not “support the stock,” Mandell would take away the broker’s perks.

Related link:
[The Stanford Series] The Tripoli-St John’s Nexus - FT Alphaville

This entry was posted by Neil Hume on Wednesday, July 8th, 2009 at 15:48 and is filed under Capital markets, People. Tagged with FBI, fraud, sec, sky capital.