Stratton Oakmont's Name Surfaces in Mob-On-Wall-St. Case by Michael Rapoport 22 March 1999 Dow Jones News Service

Stratton Oakmont's Name Surfaces In Mob-On-Wall-St. Case By Michael Rapoport 22 March 1999 Dow Jones News Service

NEW YORK (Dow Jones)--Stratton Oakmont Inc., a now-defunct brokerage firm that allegedly defrauded investors out of tens of millions of dollars, may have a connection to the government's biggest case alleging organized-crime influence on Wall Street.

A federal judge overseeing the trial of two people charged in that case asked prospective jurors Monday whether they had any ties to Stratton, saying the firm's name "may come up during this trial."

U.S. District Judge Denny Chin's statement was an apparent attempt to weed out potential jurors who might have a conflict of interest in hearing the case, which concerns an alleged mob-related attempt to inflate the stock price of HealthTech International Inc.

There was no indication Monday of the nature of the potential Stratton connection, however, and it's possible that it may not be a major one. Still, Chin's statement is the most public hint to date raising the possibility that people associated with Stratton may have some connection to mob attempts to gain a foothold in the securities industry. Business Week reported in 1996 that such a possible connection was under investigation.

Both prosecutors and attorneys for the defendants in the HealthTech case, Gordon Hall and Michael Motsykulashvili, declined to comment. It was at the request of James McGuire, Hall's attorney, that the judge asked the prospective jurors about Stratton.

Nicholas DeFeis, an attorney for Jordan Belfort, Stratton's former chairman, said he has "no idea" what connection Stratton or anyone associated with it may have to the HealthTech case.

An attorney for Daniel Porush, Stratton's former chief executive, couldn't immediately be reached. Stratton itself is now under the control of a court-appointed bankruptcy trustee, Harvey Miller, who was out of the country and unavailable Monday.

Hall is HealthTech's chairman and chief executive and Motsykulashvili was a broker at the now-defunct firm of Meyers Pollock Robbins Inc. They are charged with participating in a scheme controlled by reputed members of organized-crime families to profit by artificially pumping up the price of HealthTech stock.

Fourteen people, including four alleged mob figures, have already pleaded guilty in connection with the scheme. Neither Hall nor Motsykulashvili is alleged to have mob ties themselves. Both have pleaded not guilty, and jury selection in their case began Monday.

The HealthTech case is part of a larger federal probe of mob influence among small brokerages and small-cap stocks, although authorities have said such influence is isolated and limited. As part of that probe, Business Week reported in 1996, the government was investigating allegations that a group of former Stratton brokers, after the firm's demise, may have extorted money from former colleagues and shared it with a mob-family member. Stratton Oakmont, based in Lake Success, N.Y., was expelled from the securities industry last year in the wake of a history of alleged small-stock abuses. The firm ceased operations in 1996 and is currently being liquidated. Belfort and Porush are both under indictment on charges unrelated to the HealthTech case.

In addition to Stratton and Meyers Pollock, Judge Chin also asked jurors about two other brokerages whose names he said may come up during the trial: Cohig & Associates and Toluca Pacific Securities.

In addition to the HealthTech allegations, Hall is charged in a separate indictment with trying to bribe brokers at Cohig to induce them to sell shares of a different company to their clients. There has been no allegation that that alleged scheme is mob-related.

Toluca Pacific, which is now defunct, has also reportedly been a subject of the government's investigation over potential mob ties. Motsykulashvili worked at Toluca Pacific before coming to Meyers Pollock.

BUSINESS Stratton Tied to Mob Case? / Defunct brokerage `may come up' at trial, judge says DOW JONES NEWS 473 words 23 March 1999 Newsday NASSAU AND SUFFOLK A43 English (Copyright Newsday Inc., 1999)

Stratton Oakmont Inc., a now-defunct brokerage firm that allegedly defrauded investors out of tens of millions of dollars, may have a connection to the government's biggest case alleging organized-crime influence on Wall Street.

A federal judge overseeing the trial of two people charged in that case asked prospective jurors yesterday whether they had any ties to Lake Success-based Stratton, saying the firm's name "may come up during this trial."

There was no indication yesterday of the nature of the potential Stratton connection, however, and it's possible that it may not be a major one. Still, Chin's statement is the most public hint to date raising the possibility that people associated with Stratton may have some connection to mob attempts to gain a foothold in the securities industry.

Prosecutors and attorneys for the defendants in the HealthTech case, Gordon Hall and Michael Motsykulashvili, declined to comment. It was at the request of James McGuire, Hall's attorney, that the judge asked the prospective jurors about Stratton.

Nicholas DeFeis, an attorney for Jordan Belfort, Stratton's former chairman, said he has "no idea" what connection Stratton or anyone associated with it may have to the HealthTech case.

An attorney for Daniel Porush, Stratton's former chief executive, couldn't be reached. Stratton itself, which ceased operations in 1996, is now under the control of a court-appointed bankruptcy trustee, Harvey Miller, who was unavailable yesterday.

Hall is HealthTech's chairman and chief executive, and Motsykulashvili was a broker at the now- defunct firm of Meyers Pollock Robbins Inc. They are charged with participating in a scheme controlled by reputed members of organized-crime families to profit by artificially pumping up the price of HealthTech stock. Fourteen people, including four alleged mob figures, have already pleaded guilty in connection with the scheme. Neither Hall nor Motsykulashvili is alleged to have mob ties themselves. Both have pleaded not guilty, and jury selection in their case began Monday.

Beaches, Billy Joel and, Oddly, Swindles Long Island Weekly Desk; Section 14LI The Island Has Become Home to Stock Scams, But Regulators Are Cracking Down By LESLIE EATON 1876 words 18 April 1999 The New York Times NYTF Page 1, Column 1 English (c) 1999 New York Times Company

IN the rest of the country, Long Island tends to have a rather mixed image, concocted from television clips of beautiful beaches, Billy Joel and epic traffic tie-ups on the Long Island Expressway. But nothing has tarnished that image, in the minds of thousands of Americans, as much as another unpleasant element of Island life: stock-market scams.

Securities swindles have become a sort of cottage industry on the Island in the past two decades, regulators and law enforcement officials say. A particular specialty has been the fraudulent operation known as a boiler room, in which hundreds of young men use ''never-take-no-for-an- answer'' telephone tactics to sell worthless stocks to investors, mostly in the South and Midwest (like other birds of prey, these scam artists do not like to foul their own nests).

While boiler rooms flourish in several regions of the country, some of the most infamous have had glitzy names and Long Island addresses, including Kensington Wells in Syosset, Sterling Foster in Melville, and the biggest one of all, Stratton Oakmont in Lake Success. And as soon as one shut down, another would spring up, in what regulators call the ''blob of mercury'' problem.

''Maybe it's something in the water,'' said Barry R. Goldsmith, a native of Levittown who is executive vice president for enforcement at the National Association of Securities Dealers' regulatory arm. ''Why is there a Diamond District in Manhattan, or a Silicon Valley in California?''

After years of struggling to put such operations out of business using fines and other regulatory penalties, the Government has hauled out the big guns: criminal prosecutions and the threat of prison time. In the past year, Federal, state and local prosecutors have filed charges against some of the most notorious firms and the men who run them, including a brokerage firm in New Hyde Park that Federal prosecutors said was infiltrated by members of an organized crime family. Fourteen people have pleaded guilty in that case in Federal District Court in Manhattan.

But the most closely watched trial -- scheduled to begin in early June in Brooklyn -- will be the one involving Stratton Oakmont and its owners, Jordan R. Belfort of Old Brookville and Daniel M. Porush of Syosset. The two men were indicted in September on charges of securities fraud and money laundering brought by Zachary W. Carter, United States Attorney for the Eastern District of New York. Both men have pleaded not guilty.

In addition to testing the Government's new strategy, and providing new details of how boiler rooms function, the trial may also interest a wide audience, because it is likely to feature some irresistibly dramatic elements: allegations involving drugs and really staggering sums of money.

The case, and other prosecutions in the works, represent a ''commitment to combat the disproportionate amount of securities fraud scams perpetrated through broker-dealers on Long Island,'' said Joel M. Cohen, deputy chief of the business and securities fraud bureau in Mr. Carter's office.

Of course, there are plenty of legitimate brokerage firms on Long Island, and they resent all the focus on the bad apples. ''Ninety-five percent of the brokers on Long Island are honest, hard- working people,'' said Alan Davidson, president of Zeus Securities in Jericho and a director of the National Association of Securities Dealers.

Unfortunately, many Americans cannot tell the difference between a brokerage firm and a boiler room -- at least at first. After all, young brokers from reputable firms sometimes call investors, unsolicited, to try to drum up business.

But no respectable firm crams dozens, even hundreds, of young men (and they are almost all men) into a big room to make hundreds of calls a day, using scripts and high-pressure sales tactics to persuade their victims to open accounts.

Often, these ''brokers,'' only some of whom may be licensed, will establish false track records. A common ploy is to say that they've had many years in the securities business and take only big accounts, but they'll make an exception for their victim.

''They give them a script that says, 'When I last talked to you, I recommended XYZ stock at $5, and now it's at $10,' '' said Richard Towt, a broker who has testified in arbitration cases against boiler rooms. ''But the guy has never talked to them before; that's lying.''

Another popular ploy is to call someone and recommend some perfectly respectable stock of some perfectly respectable company, like Merck or I.B.M. But once the victims open accounts, they are bombarded with high-pressure calls urging them to buy shares in some obscure company that may or may not exist, and is probably traded nowhere except at the boiler room.

And, in fact, the company is often owned or controlled by the same guys who own the boiler room; that is how they make the big money. As the brokers coerce more and more people to buy shares in these small companies, they can push the price of the shares up; insiders can then unload, at high prices, stock that they probably got free.

That is what prosecutors contend happened in the case of two stocks sold by Stratton Oakmont: Dollar Time Group and the Aquanatural Company. An indictment filed in Federal District Court in September says these companies were really controlled by Mr. Belfort and Mr. Porush, who also owned Stratton. Using Swiss bank accounts and other offshore entities, the indictment charges, the two men made millions of dollars secretly trading in shares of the two companies while Stratton brokers were selling them to the public.

Investors in boiler room deals who try to sell their shares often find that their brokers will not follow their orders. After Stratton was taken over by a court-appointed trustee in 1997, hundreds of customers complained that the firm had failed to sell stocks as requested.

Such companies do flourish in places other than Long Island. La Jolla, Calif., Salt Lake City and Denver are all hot spots for stock fraud. Las Vegas is said by some prosecutors to be coming up fast. Boca Raton and other cities in Florida also are popular among bad brokers.

One advantage of New York for stock-scam artists is that its laws against securities fraud are relatively weak. The chief such law, the Martin Act, ''ain't worth a flip,'' said Joseph P. Borg, director of the Alabama Securities Commission. ''Besides, Lake Success just sounds great.''

To some extent, Long Island's role as a center for stock fraud may simply be an accident of history. Until it was shut down in 1989, Investors Center, a big penny-stock firm based in Hauppauge, served as a sort of training school for stock fraud, some regulators say. Among the people who worked there were Mr. Belfort and Mr. Porush of Stratton.

Studies done by the North American Securities Administrators Association show that Stratton itself spawned a group of firms with long regulatory rap sheets, including HGI in Jericho, Biltmore Securities, Duke & Company, and Monroe Parker.

Some prosecutors think that the old hands in the stock-fraud business may have been secretly setting up and controlling some of the newer firms. That is what the United States Attorney for the Southern District of New York, Mary Jo White, has charged in the case of Randolph K. Pace, whom regulators barred from the securities industry more than a decade ago.

Mr. Pace was indicted in November in Federal District Court in Manhattan. Prosecutors contend that he secretly created and controlled Sterling Foster and was part of a group that made $100 million off that operation. He has pleaded not guilty, said his lawyer, Robert G. Morvillo.

Another theory is that the boiler rooms are simply an extreme, illegal manifestation of Wall Street's easy-money ethic. Some of the men who work in these operations have failed to make it in the legitimate securities business (though many more have never even been to Manhattan and made their livings as tire salesmen or barroom bouncers).

''I've often wondered -- there's never been a boiler room in Bismarck,'' said Philip A. Feigin, another Levittown boy who was the chief securities cop in Colorado and is now head of the association of state securities regulators. It may have something to do with how these brokers want to spend their money, he said, noting, ''It's a wine, women and song kind of business.''

And don't forget drugs. Prosecutors and people who have worked in boiler rooms say that many of the men who work in these operations abuse cocaine and other drugs. That was the case for the heads of Stratton, Mr. Porush and Mr. Belfort, according to a letter Mr. Cohen filed with the court after the two men were arrested in September and were seeking to get out on bail. (Mr. Belfort was released on a $10 million bond; Mr. Porush spent several months in jail before being released on similar terms).

The letter describes Mr. Belfort as ''a drug addict''; his lawyer, Gregory J. O'Connell, said Mr. Belfort is ''a recovering addict who has been in recovery for several years'' without any relapses.

The letter also describes Mr. Porush as ''a regular abuser of Quaaludes'' and other drugs. Lawyers for Mr. Porush declined to comment.

How much money could the pair have made from Stratton Oakmont? The answer seems to be millions of dollars, though no one knows how many millions. The court-appointed trustee liquidating Stratton is seeking $50 million from Mr. Porush and Mr. Belfort, although that effort has been on hold since July while a bankruptcy court decides on their motion to dismiss that case, said Curt P. Beck, a lawyer for the trustee.

Investors clearly think they have been defrauded of millions of dollars. Two have won judgments against the firm of more than $10 million each, and hundreds have filed lawsuits and arbitration complaints against the firm and Mr. Porush and Mr. Belfort.

But where the money has gone remains unclear. Mr. Belfort's yacht sank, the fancy cars were leased, and only one foreign trust has been identified by the bankruptcy trustee, containing less than $2 million, according to bankruptcy court documents. Mr. Belfort, who owns several houses on Long Island, including in Westhampton Beach, remains there; Mr. Porush has moved to Boca Raton, where he is selling sports memorabilia, according to lawyers involved in the case.

Even with the demise of Stratton Oakmont, regulators say it is too soon to declare the end of the boiler room era on Long Island. Some regulators say the firms have simply moved underground. Others think some of the same men have moved onto the Internet.

''I would never say the problem has been conquered, because it mutates,'' said Richard K. Walker, director of enforcement for the Securities and Exchange Commission. ''There are always people hellbent on committing fraud,'' he added, ''and people are attracted to our rich capital markets like bees to honey.''

Drawing (Randy Jones)

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