News: 1999-05.05-StockFraud

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T: Defunct Brokerage Firm and Employees Indicted
D: May 6, 1999
C: (c) 1999 New York Times

NEW YORK -- The Manhattan district attorney, Robert M. Morgenthau, announced Wednesday the indictments of Duke & Co., a defunct New York brokerage firm; its chairman, Victor Wang, and 17 former Duke employees, charging that the firm was a criminal enterprise that conspired with other brokerage firms to manipulate the prices of six small stocks.

The indictments follow guilty pleas from four other former Duke brokers that came last month. The district attorney's investigation began in the summer of 1997.

From January 1995 through April 1, 1998, the indictment says, the 18 defendants conspired with two other brokerage firms in the fraudulent sale of initial public offerings. According to Morgenthau, Duke would allocate portions of the stock offerings to firms including Bishop Allen & Co. and First Cambridge Securities, which had agreed to help Duke keep the prices of the stocks artificially high. Both firms are defunct.

Morgenthau says Duke manipulated the stocks of Renaissance Entertainment Corp., Sel-Leb Marketing Inc., Paravant Computer Systems, Bristol Technology Systems Inc., IFS International Inc. and Aviation Group Inc. Duke brokers kept the stocks at inflated levels by making false and misleading recommendations to customers and then deterring them from selling. When the market in the stocks eventually plunged, the firm's customers lost money. Renaissance Entertainment and Bristol Technology no longer trade.

According to the indictment, the Duke brokers also agreed to repurchase shares from favored customers at a later date while requiring that nonfavored customers get pieces of the initial public offerings on the condition that they would purchase more shares after trading began. Both activities are illegal.

Word that law enforcement officials were rounding up new defendants in a securities fraud case began to spread up and down Wall Street Wednesday morning when Thomas J. Downey, a former Duke broker, was arrested at his office at Briarwood Investments, a small brokerage firm in lower Manhattan. Many of Duke's customer accounts were transferred to Briarwood after the firm closed.

Wang surrendered to the authorities early Wednesday afternoon. Greg Thaler, Duke's former president, was not among those indicted. Morgenthau declined to say why Thaler was excluded.

The indictment's 109 counts include enterprise corruption, criminal possession of stolen property, tampering with physical evidence, grand larceny and violations of the New York state general business law, a state version of the nation's antitrust law.

It is unusual to make antitrust part of a securities fraud case but it can be effective. The state law says that if any member of a conspiracy admits to having colluded to set prices, no corroboration from other accomplices is necessary.

Thirteen of those indicted Wednesday were Duke brokers. Also indicted were Charles Bennett and Jeffrey Honigman, who supervised Duke's sales force, and Salvatore Saporito, the firm's head trader. All of those indicted worked in Duke's midtown Manhattan office at 909 Third Ave. The firm also had an office on Long Island.

The district attorney estimates that 34,000 customers invested more than $171 million with Duke before it went out of business in March 1998. The brokerage firm came under scrutiny by state securities regulators in late 1996 when officials from 20 states began a nationwide crackdown on brokerage firms using fraudulent methods to push obscure, over-the-counter stocks on unsuspecting investors. Duke was the subject of 26 regulatory actions before it went out of business.

Wang founded Duke & Co. after working as a former broker and executive at Stratton Oakmont, a Long Island brokerage firm that was the subject of numerous regulatory actions before it was expelled by the industry's own regulators in late 1996.

Stratton's owners, Jordan R. Belfort and Daniel M. Porush, were indicted in September on charges of securities fraud and money laundering.

Among those hurt by Duke's activities were a 63-year-old retired butcher from Queens who lost almost $80,000 investing with the firm, and a 44-year-old title examiner from Westchester who lost more than $270,000 as a customer.