NEWARK, N.J. -- Three principals in a defunct New Jersey brokerage specializing in so-called penny stocks admitted Friday that they helped orchestrate a massive securities fraud.
The investigation into F.D. Roberts Securities Inc. has now resulted in 28 indictments or guilty pleas. Federal prosecutors in Newark said as many as 50 people could be charged.
'After 25 convictions obtained against its owners, officers and employees, F.D. Roberts has gained a prominent place in Wall Street's hall of infamy,' said U.S. Attorney Michael Chertoff.
At Friday's hearing, Fred Galiardo, 45, of Daytona Beach, Fla., admitted making $4.5 million in two years. Galiardo, who pleaded guilty to racketeering, was an owner and chairman of the board.
F.D. Roberts, which operated branches in New York, Florida, Georgia and California out of its Paramus, N.J. headquarters closed abruptly in January 1989. The company had been under investigation by the Securities and Exchange Commission and New Jersey stock regulators.
Galiardo, reading a prepared statement, admitted that F.D. Roberts used a range of tactics to bilk its customers, including boiler-room sales tactics, ignoring sell orders, dummy corporations staffed with friends and relatives and nominee accounts in which stock actually owned by company officers was held in others' names.
'In some situtations, the nominee would simply pay over to me all profits,' Galiardo told U.S. District Judge Nicholas Politan. 'Sometimes the profits were shared with the nominee.'
Accounts would often be juggled to show a loss to the nominee, he added.
The brokerage's forte was trading in 'penny stocks' -- highly speculative securities issued by little-known firms, usually trading for about $1 a share or even less over-the-counter on small regional exchanges. Promoters tout penny stocks as a means of realizing explosive returns on a relatively small capital investment -- but more conservative analysts call them volatile and quite risky.
Two co-owners, Alan Lieb, 37, of Pine Brook, N.J., and John Perfetti, 44, of Bayville, N.Y., also pleaded guilty.
Lieb, like Galiardo, admitted racketeering. He was the company's vice president in charge of trading and a member of the board of directors.
Perfetti, the executive vice president in charge of operations, pleaded guilty to securities and mail fraud.
Lieb and Perfetti also read lengthy statements describing the same kind of tactics Galiardo did. Lieb said he made $350,000 in commissions and bonuses and $430,000 in wages between 1986 and 1988, while Perfetti said he made more than $1 million.
All three face about three years imprisonment and large fines under new federal sentencing guidelines. Politan scheduled sentencing for Nov. 30.
The company and its principals also face civil suits from the state government and disgruntled former customers.
Another former chairman, Leonard Tucker, 30, of Boca Raton, Fla., pleaded guilty 10 days ago. He agreed to turn over his mansion and his white Rolls-Royce. A former SEC enforcement officer, Sheldon Kanoff, who had gone into the industry he once regulated, pleaded guilty last year.
