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File Copy Souti Ern District of New York ------Moihammed Fezzani, Cirenaca Foundation, Dr

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File Copy Souti Ern District of New York ------Moihammed Fezzani, Cirenaca Foundation, Dr UNITED STATES DISTRICT COURT FILE COPY SOUTI ERN DISTRICT OF NEW YORK ----------------------------------------- - MOIHAMMED FEZZANI, CIRENACA FOUNDATION, DR. VICTORIA BLAND. LESTER BLANK, JAMES AND JANE BAILEY, v T BA 1'DE' L LTD_, MARGARET AND PATRICK M BURGESS, BOOTLESVILLE TRUST and ADAM JURY TRIAL DEMANDED CLING- COMPLAINT FOR SECURITIES Plaintiffs FRAUD, MARKET -against- MANIPULATION, RICO AND COMMON LAW CLAIMS BEAR, STEARNS & COMPANY, INC_, BEAR STEAMS SECURITIES CORP,-RICHARD HARRITON, ANDREW BRESSMAN, ARTHUR BRESSMAN, RICHARD ACOSTA, GLENN O'HARE. JOSEPH SCANNI, BRETT HIRSCH, _ GARVEY FOX, MATTHEW HIRSCH, RICHARD SIMONE, CHARLES PLAIA, JOHN McANDRIS, JACK WOLYN'EZ. ROBER'IT GILBERT, FIRST IHANOVLR SECURITIES, INC., 13ANQUE AUDI SUISSE GENEVE, FOZIE FARKASH, RAWAI RAES, BASIL SHIBLAQ, 1YAD SHIBLAQ, KEN -- STOKES, ISAAC R. DWECK, INDIVIDUALLY 1, t7 1J C and as custodian for NATHAN DWECK, BARBARA DWECK, MORRIS L O ' 1999 RALPH L DWECK, MILLO DWECK, BEATRICE DWECK, R.ICHARD DWECK, JACK DWECK, U . S D =D N Y ISAAC B. DWECK, HANK DWECK, MORRIS WOLFSON, ARIELLE WOLFSON, AARON WOLFSON, ABRAHAM WOLFSON, TOVIE WOLFSON, ANDERER ASSOCIATES, BOSTON PARTNERS, WOLFSON EQUITIES, TURNER SCHARER, CHANA SASHA FOUNDATION, UNITED CONGREGATION MESARAH. FAHNESTOCK & CO. INC., DONALD & CO., BARRY GESSI R_ MICHAEL RYDI R_ and APOLLO EQUITIES, Dcisndants_ ------------------------------------------------------ {^:\U<xu,ncrosU3car S, cam sV' ! cadincslCoa , pl arn, 7-,S 9 5 ,silo _ , CIS .. TABLE OF CONTENTS NATURE OF THE ACTION . - - - - - ............................. -?- AN OUTLINE OF THE FRAUDULENT SCHEME ........................... .... - 3- (a) The Way the Scheme Was Supposed to Work .......... ... ..... - 4- (b) The Built- in Guarantee of Collapse And Loss to Baron Investors . ........... -7- A SUMMARY OF THE CLAIMS AGAINST THE DEFENDANTS IN THIS ACTION _11- (a) The Baron Defendants ......................... ..................... .12- (b) Bear Steams ................................. ..................... -1?- (c) The Broker Defendants ..................... ... .. .... ....... -13- (d) The Individual Defendants ...... ..... -113' (e) The Apollo Defendants ......................... ..................... .14- JURISDICTION AND VENUE ............................................... -15- PARTIES ...................................................... --------- - 16- (a) Plaintiffs ................. ...................................... -16- (b) Defendants And Their Co-conspirators ................................. - 17- FACTUAL BACKGROUND ................................................. -21- (a) The History of Manipulation of Baron's Founders, Weissman and Bressrnan .. -21- (i) The Manipulation of CMSI and HPI, Up to The Start of Baron 2 2) - -^7- (a) CMSI ........ ...................................... (b) HPI ................................................ -23- (b) The Founding of Baron With Bear Steams as Its Clearing Broker ............ -26- (i) Bear Stearns's Clearing Business ............................. -28- (ii) Bear Stearns Agrees to Clear for Baron Despite Its Knowledge of Fraud ............................ ................. -29- (iii) Baron Manipulates Its First IPO, Cypros, Then Changes Clearing Brokers ........................................... -31- (c) Baron's Continued Manipulation until the Crash of June 1993 ............. 34- (d) Baron Is Forced Temporarily Out of Business, Causing The Crash of All Manipulated Securities ........................................ .... -36- (e) Baron's Continued Fraud, From August 1993 Through February 1995 ...... (i) Baron Comes Back with the Innovir IPO ........................ -38- (ii) Baron Expands Its Staff and The Scope of Its Manipulation by Adding the Hirsch Group .................................... -39- (iii) In an Attempt to Avoid a Crisis, Baron Engages in Widespread Illegal "Parkin?" with the Broker Defendants and the Individual Defendants -43- F \Documcnts\Bcar Stcarns\PlcadngsiCoinplaint 1-2S-99.pd 12/i/99 3:0? PM (iv) Baron is Saved From Collapse When Adler Coleman, Fails ......... -46- (0 Baron ' s Final Year And a Half of Fraud And Manipulation , February 1995 Through July 1996 ........................................... -46- (i) Baron Gets Kicked out by its Clearing Broker Hanifen, But Despite Overwhelming Evidence of Fraud , Bear Stearns Comes to its Rescue . -50- (ii) Bear Stearns ' s Strong Support Lulls Investors into Further Business with Baron ------- .------------- ........ ...... -^-;- (iii) Baron Steps up its Fraud with Bear Stearns's I-Jell) . .. .. ....... -SS- (iv) Bear Stearns Agrees to the Fraudulent PaperClip " Bait and Switch " -67- (v) Bear Stearns Assumes Control over Baron ' s Tradin _ _ _ _ _ _ _ __ _ -71- (vi) In Return for $3 Million Bear Stearns Agrees To Keep Clearing for Baron and the Fraud Continues ... ... ................. 74- (a) The "Brown Bag" Bribery Deals ... .................... -79- (b) Baron Continues its Manipulation And Fraud until Forced out of Business ...................................... -4^2- THE REGULATORY AND CRIMINAL FINDINGS OF FRAUD ..... ............. -RB- 1,1 RS'f CLAIM FOR RELIEF ................................................. -90- (Securities Fraud - Section 10(b) of the Exchange Act and Rule I (fib-5) (iMisrepresentations and Omissions) SE(X)Nl) CLAIM FOR RELIEF ---------------------------------------------- -94- (Securities Fraud -Section 9) (Market Manipulation) THIRD CLAIM FOR RELIEF .. - - - . - - ..................... -96 (Securities Fraud - Section 10(b), Rule I Ob-5) (Market Manipulation) FOURTH CLAIM FOR RELIEF .............................................. -97- (RICO) FIFTH CLAIM FOR RELIEF ................................................ 101 (Aiding and Abetting Breach of Fiduciary Duty) SIXTH CLAIM FOR RELIEF ................................................ - 10I- (Common Law Fraud) 1='VI)oauntntti'.11car5iaanilYlcadan_.,VCo-p1auv 1-20-97.^^id -1^- 2/1/99 3:05 I'M Plaintiffs Mohammed Fezzani, Cirenaca Foundation, Dr. Victoria Blank, Lester Blank, James and Jane Bailey, Baydel Ltd_, Margaret and Patrick Burgess, Bootlesville Trust and Adam Cunp, by their attorneys Folkenflik & McGerity, for their Complaint against the defendants. allege= NATURE OF THE ACTION This is an action which arises out of the criminal conduct of A.R. Baron & Co_. Inc. ("Baron")_ Baron was a New York broker-dealer which operated from approximately May of 1992 until its bankruptcy in July 1996. Conspiring with a network of inter-related persons and entities, including in particular the defendants herein, Baron engaged in a fraudulent scheme to obtain millions of dollars in illicit profits through the fraudulent sale and manipulation of securities. Plaintiffs collectively lost over $6.5 million as a result of the criminal conduct described below. 2. Baron itself, and 14 former officers and employees, twelve of whom are defendants in this action, have pleaded guilty to felony charges in Supreme Court, New York County. The other two have filed for protection under the bankruptcy code. The sole indicted Baron officer, who did not plead guilty, was convicted by a jury of 25 separate felony counts. On information and belief, the grand jury is still sitting and further indictments, including an indictment of defendant Bear Steams Securities Corp. ("Bear Stearns Securities" or collectively with its parent Bear Stearns & Co. "Bear Stearns"), and its chief executive, Richard Harriton, ("Harriton"), are expected shortly. i \Documenls\I r Stcamt\l11-dings\Compl.ml 1-)8-99 ,,Pd -2- 2/1/99 3:05 I'M Baron manipulated two stocks it "inherited " when it was founded, Health Professionals. Inc. and Cyro Medical Sciences, Inc. ("CMSI"), several stocks for which it underwrote the initial public offerings ("IPOs"), Cypros Pharmaceuticals Corp. ("Cypros"), Innovir Laboratories, Inc. ("Innovir"), Voxcl, and PaperClip Imaging Software ("PaperClip"), four stocks brought to it by a group of brokers it hired in 1994, Advanced Mammography Systems, Inc_ ("Mammo"), Symbollon, Inc. ("Symbollon"), Aqua Care Systems, Inc_ ("Aqua"), Laser Video Network ("Laser Video"), and several stocks, referred to as "cash stocks" or "bag -jobs" for which, Baron and several Baron brokers accepted bribes in return for selling those securities to its customers at inflated prices, Jockey Club, Inc. ("Jockey Club"), Comprehensive Environmental Systems ("CEIS"), Icis Management Group ("Icis"), and U.S. Bridge of New York Inc- ("U.S. Bridge")(hereafter referred to collectively as the "Manipulated Securities" or, when referring to the Companies, the "Manipulated Companies"). During the relevant period, the Manipulated Securities constituted approximately 98% of the stocks traded by Baron. AN OUTLINE OF THE FRAUDULENT SCHEME 4. Because Baron's criminal conduct followed a repetitive pattern, stock-after-stock, year after year, knowledge of the general scheme clarifies how defendants' conduct fits into Baron's broader criminal enterprise. The Baron conspiracy, like all criminal conspiracies, was conducted in secret, and plaintiffs have not yet had access to all material information. However, plaintiffs have been able to piece together the details set forth below based upon. among other things, (a) public records from the criminal trial of Baron and its brokers, including sworn guilty rVD-un-t, \ Rcar StcamcVPlcadinpcVComplainf 1-28-99 I)d -3- U1199 3 05 PM pleas and sworn trial testimony of the criminal participants themselves, ( b) admissions by Baron_ now acting under the control of a
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